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CNote’s CDFI Resource Guide

CDFIs and How CNote Works with Them

CDFI loans support entrepreneurs like Tanesha Sims-Summers (right). Tanesha received a vital small business loan to complete the build out of her food truck, Naughty But Nice Kettle Corn Co.

What Are CDFIs?

Michea Rahman is the founder of Children’s Language Learning Center, a speech therapy center with a mission of providing quality pediatric speech therapy services to children. Michea received a PPP loan from a CNote CDFI Partner which gave her the momentum to weather the effects of COVID-19.

Community Development Financial Institutions (CDFIs) are financial organizations that offer loans and other financial resources to communities that have been traditionally underserved by banks and other financial institutions. 

 

CDFIs are federally certified institutions that originated from local credit unions and banks that were founded to handle exclusionary and predatory lending habits such as redlining. Today, there are over 1,000 CDFIs across the country, which have been operational for over two decades.

 

CDFIs are local community organizations that offer both financial resources like loans, as well as technical assistance for starting and growing their business. In a nutshell, CDFIs are focused entirely on meeting the needs of the community from the standpoint of financial well-being, community empowerment, and economic development.

 

There are four different types of CDFIs: banks, credit unions, development loan funds, and venture capital funds, each of which serves a different part of the community and may have a different structure, risk profile, and target lenders.

Further Reading:

Differences between CDFIs and Traditional BanksWhy Haven’t I Heard of CDFIs Before?Searchable list of Every CDFI

CDFI History

Tawnya Dee Sanford (Second from left) is the owner of The Little Engine Learning Center, a childcare facility in San Antonio, Texas. Tawnya partnered with LiftFund, a CNote CDFI partner, who provided the loan which allowed her to purchase the center.

The CDFI industry started forming in the latter half of the twentieth century, however, its modernization was hugely impacted by the Clinton administration. In 1994, Clinton enacted the Riegle Community Development and Regulatory Improvement Act, which established the CDFI Fund. 

 

The CDFI Fund was created within the US Treasury Department, and it is an institution that offers federal support to individual CDFIs serving low-income communities. Its establishment was vital for the organization, development, and modernization of the community finance industry. President Clinton called for a review of the Community Reinvestment Act, and in 1995, the revised Act qualified CDFI investments and loans as meeting CRA requirements.

Further Reading:

CDFIs- America's First responders to Economic CrisisAn Overview of the CDFI Industry

Tawnya Dee Sanford (Second from left) is the owner of The Little Engine Learning Center, a childcare facility in San Antonio, Texas. Tawnya partnered with LiftFund, a CNote CDFI partner, who provided the loan which allowed her to purchase the center.

Michea Rahman (right), founder of Children's Language Learning Center

CDFI Impact

Felicia Parks (far right) is the owner of a Jimmy Johns location in Atlanta. When COVID-19 hit the area, her sales dropped 64%. She connected with a CNote CDFI partner, who provided a bridge loan that enabled Felicia to keep her head above water and her store open.

CDFIs are mission-driven lenders focused on assisting financially underserved communities to join the economic mainstream. CDFIs inject capital into these communities, financing nonprofits, small businesses, affordable housing projects, and community facilities, all of which contribute to community and economic development. 

 

In 2016, CDFIs provided over $3.6 billion in financing to financially underserved communities. That capital went on to finance entrepreneurs like Michea Rahman, the founder of Children’s Language Learning Center, a speech therapy center with a mission of providing quality pediatric speech therapy services to children in Houston, Texas. Michea received a PPP loan from a CNote CDFI partner which gave her the momentum to weather the effects of COVID-19.

 

While the focus of CDFIs is typically on local communities and small businesses, their activities can have a nationwide economic impact. CDFIs cumulative financing in 2016 contributed to the creation of over 10,000 jobs and 600 affordable housing units.

 

Additionally, CDFIs operate on the front lines during economic disasters such as 9/11, Hurricane Katrina, the 2008 financial crisis, and COVID-19. These disasters have the most adverse impact on vulnerable communities, and CDFIs, with their long-standing ties to their affected communities and flexible financial products, are in a strong position to provide the financial and technical assistance that can help people and jump-start economic activity.

Further Reading:

How CDFIs are Addressing the Climate CrisisWhy CDFIs often create better lending outcomes for small businesses

Investing In CDFIs

Tawnya Dee Sanford (Second from left) is the owner of The Little Engine Learning Center, a childcare facility in San Antonio, Texas. Tawnya partnered with LiftFund, a CNote CDFI partner, who provided the loan which allowed her to purchase the center.

CDFIs receive most of their funding from three sources: banks, the federal government, and institutional investors.

 

The most common type of CDFI investment is in a community development loan fund. Loan funds provide the security of pooling capital with other investors and spreading risk within a diversified portfolio.

 

Depository CDFIs, such as community development banks and credit unions, get capital from customers and nonmember depositors. These CDFIs generally offer a modest, fixed rate of return, depending on current interest rates and the length of the investment. If seeking a CDFI investment OFN offers a searchable data base, which you can filter by the organization type, area served and lending type among other things. You can also find a state-by-state list of CDFIs here: cdfi.org/state-profiles/

 

Keep in mind that each CDFIs is different and there is no single model for CDFIs across the country because each one serves the varying needs of its local community. This makes it difficult to evaluate the risk of an individual CDFI. Organizations like CNote and Calvert Impact offer CDFI investment products that can make community investing easy.

Further Reading:

How to Invest in CDFIs

Cheri Witt-Brown (left), Executive Director of the Greeley Weld Habitat for Humanity received coaching from a CNote partner CDFI to better navigate the complexities of affordable housing development so the nonprofit could better serve their community’s development needs.

A catalog of some of the communities CDFI partners have supported with CNote capital. Learn more about these stories here 

CNote's CDFI Partners

How Does CNote Work with CDFIs?

Brighter Beginnings is a non-profit which provides vital medical and social services to low-income and minority families in Richmond and Oakland, California. They received a critical PPP loan from CNote partner, Self-Help Federal Credit Union, which allowed them to rehire employees, and continue serving the community.

CNote functions as a bridge between investors and CDFIs, aggregating investments and then funneling them to partner CDFIs. As more individuals and corporations look to align their investments with their values as well as demonstrate their cause leadership on key issues like racial justice, there is heightened demand for easy access to a diversified pool of high-performing CDFIs. CNote’s technology platform has unlocked this nationwide network of CDFIs that allow investors to get competitive terms while targeting thematic and place-based investments.

 

CNote works with CDFIs in each of its offerings– The Flagship Fund, The Wisdom Fund, and the Promise Account.

In an effort to better highlight smaller and minority led CDFIs, CNote has partner with the African American Alliance of CDFI CEOs (pictured above). In 2021 the nonprofit alliance had 48 members and collectively their member CDFIs provide services in all 50 states.

The Flagship Fund gives investors of all sizes and designations access to a diversified portfolio of CDFIs. The Wisdom Fund increases capital access and lending for small businesses owned by women of color while at the same time gathering data with the help of our CDFI partners to build a more inclusive lending process for the future. The Promise Account is CNote’s cash solution that invests only in CDFI banks and low-income designated credit unions.

 

Additionally, CDFIs often lack the resources to shine a light on their work. As a result, many people are unaware of the full scope of what CDFIs do. To that end, CNote publishes in-depth borrower stories which demonstrate how small businesses, nonprofits, and affordable housing projects benefit from working with CDFIs. CNote also publishes educational articles ranging from a searchable list of every CDFI to industry overviews. You can see a full list of those materials below.

 

CNote’s mission is to reduce the wealth gap by building a more inclusive economy for everyone. We strongly believe that CDFIs have the institutional knowledge, federal support, and capacity to deliver on that promise.

CDFI Success Stories

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