I have written a number of pieces during the last year about Community Development Financial Institutions (CDFIs). For many business borrowers, they have been the place to turn to for loans when banks have been unwilling to lend. While banks have been protecting their assets, CDFI lenders have been busy creating new programs and making more loans to small businesses and affordable housing projects.
Wednesday, June 17, 2009, Federal Reserve Chairman Ben Bernanke gave a speech outlining the importance of CDFIs to our economic recovery and announced that new funds will be allocated to the program in 2009 and 2010. Bernanke stated that unlike many large scale centralized community development programs of the past, CDFIs have been successful precisely because they are grass roots local programs that can be as flexible as their community needs require.
There are over 1,000 certified CDFIs in the
According to Mark Pinsky, president and CEO of the Opportunity Finance Network, an organization of CDFIs:
“CDFIs work just outside the margins of conventional markets, opening doors for the opportunity markets we serve. Today in a real-world, real-time stress test, CDFIs are recognized as knowing how to lend in distressed markets in turbulent times. Chairman Bernanke made the point emphatically this morning. CDFIs are proving ‘good money’ can drive ‘bad money’ out of the marketplace.”
CDFIs operate through a program of the U.S. Department of Treasury. This month (June 2009) the Community Development Financial Institution Fund anticipates awarding $98 million in investments to CDFIs with an additional $63 million in September. The first batch of investments will be made with money from the American Recovery and Reinvestment Act funds. 2009 has been a big year for the program with over three times as much money flowing into the program as in any year since the program began in 1994.
Borrowers should consider CDFI lenders in addition to banks and other lending sources. The Opportunity Finance Network has a lending institution locator where you can find a fund serving your area.
In many cases, a CDFI lender will work with a bank lender to help secure the bank’s first lien interest. The CDFI lender’s loan will be subordinate to the primary lender. This allows a small business to obtain enough debt between the two lenders to achieve their goals while allowing the risk to be spread over two lenders instead of one.
I have been on the front line of the recession helping business owners during the past several years. I have seen first hand several CDFI lending institutions step up to the lending table when no one else would for deserving businesses.
The CDFI program is one of the few federally backed lending programs that work like they should, and it will be instrumental in helping our small businesses recover from the recession.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
You may contact Sam directly at: firstname.lastname@example.org
or follow him on Twitter: SMBfinance
EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.