As Simple as That – CDFI’s As A Financing Source for Your Small Business
By J Deaver
Huey Lewis – American Rock Band based in San Francisco
I grew up in the 80’s. During that one calendar decade I obtained my first Drivers License, got my first job, graduated high school, graduated college, moved out of the mom and dad house, got my first real job, and got married. So much change in just one decade.
We had GREAT music in the 80’s. Huey Lewis and the News was a popular San Francisco based band (Back in Time, Power of Love, others). If you are an entrepreneur, the lyrics from one of their more obscure songs, As Simple as That (listen at end of post), may be descriptive of your path to business ownership.
“You go to work, work hard all day. At the end of the week, you collect your pay. You pay your bills, the best that you can. But the rising cost sure hurts a family man.”
Does this describe your working-for-someone-else weekly grind? It did mine before I ventured out on my own. Boring, not particularly challenging, but a relatively safe way to pay the bills.
Needing More Than a Paycheck! – Getting Small Business Financing
If you are like a lot of entrepreneurs, this reality is part of what motivated you to consider something different, something more. You began to seek an opportunity to start your own business. You wanted more freedom, more satisfaction. Freedom of creativity, freedom to not work for someone else, freedom to do it YOUR way, and the satisfaction of knowing that win or lose, it was your efforts that would carry the day.
So, you decided to step out and start your own business. Or maybe, you are right now about to. And this happens…
“Cause the man from the bank, he won’t give you a loan. Without putting a mortgage on all that you own.”
Obtaining financing for your business idea can be frustrating, potentially really hard, and if not done correctly, can be a source of demise rather than acceleration.
CDFI’s – Financing Source for Your Small Business
“The Community Development Financial Institutions Fund (CDFI Fund) plays an important role in generating economic growth and opportunity…” United States Department of The Treasury
Good thing for you and other small business owners, CDFI’s are a thing. Never heard of them? You are not alone. Google it for a broad understanding. Specifically, the concept of Certified Development Financial Institutions (CDFI’s) was created during the Clinton Administration, as a vehicle for delivering loaned, ‘friendly’ capital, to socially valuable groups, including small business owners.
There are more than a dozen CDFI’s operating in North Carolina, each with a specific mission. Some of these focus on small businesses. Among the CDFI’s with local influence, and a focus on small businesses, are Carolina Small Business, Natural Capital Investment Fund, and Thread Capital.
CDFI’s exist to help create thriving communities through business ownership. The money they provide is a loan, not a grant. You will have to pay it back. But because part of their mission is social, and not just financial, the loan terms you will obtain from a Certified Development Financial Institutions are generally more favorable than what you will receive from a bank.
The rate you will receive from a CDFI, I did mention it was a loan and not a grant, will be higher than what you would receive from a bank. That premium is the cost for the risk the CDFI is willing to take, that a bank is not. The good news is most CDFI’s do not impose prepayment penalties. (Many banks do.) If your business concept is successful, there is a good likelihood you will pay off your CDFI loan via a bank refinance, two or three years down the road.
Whether starting a new business, or sustaining an existing one, include Certified Development Financial Institutions on your list of potential funding sources.
J Deaver is a Market Development Officer focused in southeastern North Carolina for Natural Capital Investment Fund, a CDFI with its principal operations in North Carolina. He is a retired commercial banker, and former business owner. He can be reached at email@example.com.