Is a CDFI right for your business?

By Anna Lardinois, Startup Storyteller

Ask any startup founder and that person will tell you funding an early-stage business is a key obstacle on the pathway to success.

Typically, the initial capital for a new business comes from the founder. After that, it is common for the founder to seek capital from friends and family supportive of the new venture. After those lines to capital have been exhausted, the founder often seeks outside support.

According to the National Venture Capital Association, less than 1% of all startups receive venture capital funding. Most emerging businesses will need to seek funding elsewhere. CDFIs might be the right solution for some of those businesses.

Community Development Financial Institutions (CDFI) play an important role in the funding landscape. Designed to generate economic growth in underserved communities, CDFIs are mission-driven financial institutions that take a market-based approach to supporting economically disadvantaged communities.

According to the U.S. Department of Treasury’s CDFI Fund, there are 1,000 CDFIs in the United States. CDFIs can be banks, credit unions, loan funds, microloan funds or venture capital providers. The federal government supports CDFIs by awarding funding and tax credits to institutions certified under the U.S. Department of Treasury’s CDFI Fund. Certified CDFIs are mandated to provide no less than 60% of their lending to support underserved communities.

CDFIs reach populations in this country that are often missed by traditional lenders. Eighty-four percent of CDFI customers are low-income, 60 percent are people of color, 50 percent are women, and 28 percent live in a rural area.

The Wisconsin Housing and Economic Development Authority released a report in 2021 on CDFI activity in Wisconsin. The state is home to 18 CDFIs. Since their inception, $66,338,000 of funds have been awarded in the state.

Access to capital is not the only need a CDFI can fulfill. CDFIs provided development services to over 1 million people in 2018, including financial education and business technical assistance. Many CDFIs that provide business loans will act as mentors for entrepreneurs to help ensure the emerging business meets key milestones.

This support comes at a price. CDFIs often offer high interest rate loans. These loans, known as subprime loans, charge interest rates above prime. Many entrepreneurs accept these terms because they often do not qualify for conventional loans.

Learn more about CDFI lenders in Wisconsin by exploring the links below.

Wisconsin based certified CDFIs

CDFI Loan Funds

• Community Assets for People

• First American Capital Corp.

• First Nations Community Financial

• Forward Community Investments

• Habitat for Humanity of Dane County

• Hmong WI Chamber of Commerce

• Impact Seven

• Legacy Redevelopment Corp.

• Milwaukee Economic Development Corp.