When you opened your first business checking account, you started a very important relationship for your business. Staying connected with your commercial bank can help you find the best banking products to keep your business growing.
They’re likely your first stop when you need a small business loan. But if you don’t meet the bank’s qualification criteria, your banker may refer you to another type of lender.
This is where Community Development Financial Institutions, or CDFIs, come in. They’re here to help you get the small business funding you need today so you can build a healthy and beneficial commercial-banking relationship in the long run.
What are CDFIs?
CDFIs are government-verified, nonprofit institutions with a mission to serve small businesses. They provide loans to small business owners who don’t meet the credit qualifications for conventional commercial loans through their banks.
There are a lot of reasons why banks may not be able to approve a loan for a small business owner. For example, a business may be a startup, there may be issues with credit history, or a business may be in an industry that banks can’t always finance.
Whatever your reason may be, CDFIs can be your solution. Their goal is to help small business owners like you get the funding you need to be successful. After working with a CDFI, you’ll have strengthened your credit profile and your business so that you can go back to your commercial bank for financing.
Because CDFIs aren’t banks, working with one for a loan allows you to maintain your relationship with your commercial bank for your deposit accounts. You’ll be able to make your business stronger while building your banking relationship for the future.
How CDFIs work with small businesses
CDFIs have more flexibility in their lending criteria. That means they can approve more loans for small businesses that otherwise might not qualify for funding.
As your CDFI works with you throughout the term of your loan, they’ll help you strengthen your credit history, which can make it easier for banks to approve future loans for your business. In addition, you’ll gain access to business advisors and resources that can help you better manage, market, and build your business.
How do CDFIs work with banks?
If you don’t qualify for a business loan through your bank, they’ll still want to help you and your business. You can ask them to refer you to their CDFI partner.
Your bank wants to be a resource for you, even if they aren’t able to approve you for a commercial loan right now. That’s why they develop relationships with CDFIs. They also know that the extra support CDFIs provide can improve creditworthiness and business management skills, and they want you to come back to them in the future for a loan.
CDFIs want you to become strong financially so that you’ll get a “yes” from your bank when you go back to them. Plus, after you’ve successfully repaid or refinanced your loan, your CDFI then has funds in hand to help another small business owner. This creates a renewable cycle of success in your community.
Because CDFIs take on more risk than banks, the interest rates on CDFI-financed loans can be higher than the rates you’ll find with conventional commercial loans. That’s another reason why CDFIs want to help you strengthen your business’s finances and management: They want you to get the best loan terms available for your business financing, wherever you find them.
Additional benefits of working with CDFIs
Small businesses that get loans through CDFIs gain much more than just funding. CDFIs also offer a range of services, often at no or minimal cost to you. These services can help you build your business and financial management skills, marketing strategies, and more.
Among the additional benefits you’ll receive are:
- Technical assistance: A CDFI will often have partners in government and philanthropy support programs that can help you improve your business performance and help you overcome challenges. When you explore CDFI loans, ask about the other resources that are available to you as a borrower.
- Networks to small business resources in the community: CDFIs work with SBA resources, like local Small Business Development Centers (SBDCs) and nonprofits such as SCORE, to amplify the effectiveness of their programs. They’re often the first to know about new programs that are beneficial to borrowers and can help you gain access to them, too.
- Relationship management: CDFIs are incentivized to provide impactful services to help small businesses, so they maintain close working relationships with their clients. They can:
- Help if your business is facing financial difficulties and work with you on the repayment of your loan. In many cases, they can help before financial challenges impact your credit score, too
- Use resources from their technical-assistance programs to help your business grow
- Help you plan your strategic return to your bank for business lending, which can result in beneficial loan terms to better leverage your finances.
Pursuit is here to help your small business grow
As a small business lender, Pursuit has a range of loan options available that offer the funding you need to help your business succeed. Contact us today to find out how we can help your business grow.