Conventional banks and Community Development Financial Institutions (CDFIs) work best when working together. By doing so, we create significant and measurable ripples of success that strengthen our organizations, the clients we assist and the communities we serve.
Pursuit has worked with many bankers to create win-win situations for them and their clients in New Jersey, New York and Pennsylvania. In this article, we take a closer look at the positive impact of partnerships between banks and CDFIs working in the community and highlight some real-life examples of how our work can help bankers better serve their small business clients.
What are CDFIs?
CDFIs are mostly nonprofit financial organizations that offer affordable and responsible financing options for small businesses that typically have difficulty qualifying for bank loans. CDFIs are mission-based and focus primarily on serving one or more low- or moderate-income or underserved communities. Most also have a specific geographic focus which can be a single community, and entire state, multiple states or more.
How your bank benefits
CDFIs can help your bank get more involved in the small business community and raise the visibility of your bank to small business owners. CDFIs often host networking events and workshops where bankers can meet prospective small business clients and other potential partners. By attending and participating in these events, your bank can increase its connections and build awareness around its small business offerings.
More importantly, CDFIs can help your bank maintain connections with existing customers even if they aren’t able to qualify for traditional financing. When banks work with CDFIs, the messaging changes from “No, we can’t,” to “We have a partner who can help you.”
It’s a 180-degree turnaround in which everyone benefits.
CDFIs help clients become “bank ready”
When this Bank of America banker referred a client to Pursuit, it resulted in a tremendous benefit for the client. By referring to Pursuit, the banker helped their client reduce loan payments by about 90%, from more than $21,000 a month to just over $2,000—through their partnership with Pursuit and refinancing expensive debt from online lenders.
A key goal of CDFIs is to help small business owners become “bank ready.” To get them there, CDFIs offer information that builds business and financial management skills (like Pursuit’s Business Resource Library), as well as one-on-one advisory services and group training. These resources cover everything from financial management to branding and marketing and credit-repair assistance.
When the business owner formalizes business practices and qualifies for more traditional financing, the CDFI refers clients back to their bank for their next business loan. The bank is able to retain their customer and is in a better position to say “yes” this time around.
How can banks integrate with CDFIs?
If you’re a banker that’s interested in building partnerships with CDFIs, you can start by doing the following:
- Find CDFIs that serve your area by searching Opportunity Finance Network or CDFI Fund.
- Contact representatives from the CDFIs to discuss referrals and services they can offer your small business customers, as well as how they can refer clients back to your bank.
- Explore more formal relationships with these CDFIs and find out if you can establish a more systemmatic partnership for referrals. For example, Pursuit has a defined set of criteria for fast and predictable approvals, which makes it easier for banks to successfully refer a customer. Once the customer has been approved for a loan and starts working with Pursuit to become bank-ready, Pursuit will stay in touch with the bank to refer the customer back to them when they can qualify for traditional financing.
Build a partnership with a CDFI today
Pursuit and other CDFIs help banks serve their existing clients and secure new clients. Research CDFIs in your area and contact them—a direct partnership is the best way to stay in touch and build solutions together. And if you have clients that could be appropriate for a CDFI or you just want more information, contact Pursuit today about how we can help!