Qualifying for a conventional business loan can be difficult especially for small to mid-sized businesses and organizations. But for businesses that are committed to promoting the economic development of an underserved area, a community development bank may be an ideal financial partner. Community development banks, or community development financial institutions (CDFIs) have a special focus on businesses and organizations serving low-income and economically distressed communities who may have a problem getting a loan from larger banks. CDFIs do not rely as heavily on credit scores; instead, they concentrate on developing long-term relationships with members of the business community in which they reside to help them build credit and drive community revitalization.
Women- and Minority-Friendly
Obtaining financing for a small or young business can be hard enough—but for a women or minority owned business it can be much greater. As a result, women and minorities often turn to riskier, high-interest lenders that can further complicate their financial situation. CDFIs are a much safer alternative. Loans are designed specifically to support the financial needs of these underserved communities and fill a gap left by financial system.
Higher Approval Rates
Bottom line, borrowers are more likely to be approved for a CDFI loan. According to the Federal Reserve survey, the approval rate for small businesses that applied for loans or lines of credit through a CDFI was 77 percent, higher than at online lenders, credit unions, or banks of any size. This is mostly due to the flexible credit requirements that CDFIs offer to borrowers.
Lower Interest Rates
CDFIs can also offer lower interest rate loans than many other alternatives. A 2012 study performed by the CDFI Fund showed that the median interest rate for CDFI loans with a 48-month payoff was 7.75 percent, as compared to popular SBA 7(a) loans paid off in less than seven years, which was eight percent. And CDFI loans offer lower interest rates than non-traditional lenders like online lenders, credit cards, merchant cash advances, payday loans.
CDFIs also offer simpler products, designed to minimize risk for the borrower. Mostly fixed-rate loans, payments are predictable so there are no surprises. And they are usually self-amortizing, which means borrowers are paying back both interest and principal. CDFI loans often omit any sort of origination fee, also saving borrowers money.
Surveys have shown that community development banks have better, more personable relationships with borrowers. CDFIs are committed to helping economically revitalize disadvantaged neighborhoods, so they are more likely to understand and support the goals and financial needs of local businesses and community organizations.
As a CDFI, Savoy Bank is committed to providing all small business and community development organizations the access to investment capital and financial services they need to prosper. If you are in need of financing, ask Savoy Bank if you qualify for a Community Development Fund loan.