Are you a small business owner who has struggled to qualify for traditional bank loans in the past? If so, then now might be the ideal time to consider reaching out to a CDFI (Community Development Financial Institute). In this episode, Jon Aidukonis and Gene Marks, along with Dan Betancourt, the president and CEO of Community First Fund, discuss how CDFIs are stepping up to promote inclusion by offering financial assistance to business owners from historically marginalized groups and communities.

Podcast Key Highlights

• Which Small Businesses Will Benefit from Working with a CDFI (Community Development Financial Institute)?
  • CDFIs tend to work with small businesses that can’t qualify for a traditional bank loan.
  • While not a prerequisite, CDFIs are especially interested in helping minority-owned small businesses as well as those located in low to moderate income areas.
• Which Organizations Can Help Me Find a CDFI for My Business?
  • PA CDFI Network
  • The Enterprise Center
  • Entrepreneur Works
  • The Women’s Opportunities Resource Center
  • PIDC (Philadelphia Industrial Development Corporation) Philadelphia
  • The Small Business Administration
  • Small Business Development Centers
  • SCORE (Service Corps of Retired Executives)
• Who Typically Funds or Invests in a CDFI?
  • Tax Returns from the Last 3 Years
  • A Net Worth Statement
  • A Business Plan
• Additional Resources for Minority-Owned Small Businesses
  • The Grit Fund is an inclusion initiative that was developed by the Philadelphia Chambers and their local CDFIs. Their goal is to lend capital to at least 1000 black or brown businesses over the next two to three years.
  • The SSBCI (State Small Business Credit Initiative) 2023 will provide $200 million in capital to CDFIs across the state. With more funding at their disposal, these CDFIs will finally be able to invest in the businesses that need these resources the most.

Links

• Community First Fund
• The GRIT Fund
• PA CDFI Network
• The Enterprise Center
• Entrepreneur Works
• The Women’s Opportunities Resource Center
• PIDC Philadelphia
• The Small Business Administration
• Small Business Development Centers
• SCORE
• SSBCI (State Small Business Credit Initiative) 2023

Transcript

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Gene : Hey, everybody, and welcome back to another episode of Small Biz Ahead. My name is Gene Marks. I’m here with Jon Aidukonis. Jon, hello, hello.

Jon: Hey, Gene. How’s it going?

Gene : It is going good. We have a great guest with us today. Dan Betancourt, who is the president and CEO of Community First Fund. Dan, thank you very much for joining me. You’re based in Philadelphia. We’re going to be talking about Philadelphia’s GRIT fund and CDFIs as well. But first of all, let’s just start a little bit about yourself. You’re president and CEO of Community First Fund. What is Community First Fund?

Dan: We are a community lending organization. Some people know us as community revolving loan funds, started about 30 years ago. About two years ago, our organization who covers Central and Southeast PA, merged with a local CDFI, founded on the Girard, near American Street, so that was FINANTA. So a lot of it was the former empowerment zone organization on American Street. And so we have a long rich history through our FINANTA merger and Community First Fund serving the greater Philadelphia area for the past 30 years.

Gene: Got it. And so you’re a community development, financial institution, or CDFI. And I realize this is you’re based in Philly. And I do want to talk about the fund that you’re doing, but CDFIs are all over the country. What exactly is a CDFI, Dan? And do you have to be located in an underserved area or a minority business to take advantage of a CDFI, or are your programs open to all businesses?

Dan: Well, I mean, the program primarily focuses on small businesses that have a hard time accessing loans. Community loan funds started about 30 years ago, really out of a movement because entrepreneurs and small businesses couldn’t get capital from their financial institutions. So it really was started by community groups, civil right organizations, even religious organizations. Today, there are about a 1000 across the U.S., about a dozen in the greater Philadelphia area. And we primarily lend to business that can’t access or don’t qualify for your traditional bank financing. And yes, we do focus on low income communities. We do focus on business owned by people of color, although it’s not limited to that.

Gene: So if I go to a traditional bank, I know the traditional banks. You see them on the street, you see their advertisements. A lot of businesses can’t qualify for traditional bank loans for various reasons. Where do they find CDFIs? How would I find you guys?

Dan: Well, we do have a network at the pacdfinetwork.org. So that’d be one way, and there are a number of neighborhood CDFIs in Philadelphia. I’ll just do off the top of my head, to name a few. Of course, Community First Fund. There’s the Enterprise Center on west Philadelphia. And there’s a number of others vested in. There’s Entrepreneur Works, Women’s Opportunities Resource Center. There’s obviously PIDC, impact as well. So, there’s a number of them serving the greater Philadelphia area.

Gene: All right. That’s really good. Now, if we’re outside of the greater Philadelphia area, which again, I think a lot of cities have similar networks of nonprofits and lenders, right?

Dan: I would say at least half of the ones I mentioned also serve the five county area. That’s greater Philadelphia, including, if you add Delaware and Camden County in south New Jersey as well.

Gene: Right. Would the Small Business Administration or small business development centers or Score which is affiliated with the SBA. If a business owner went to them, say they were located in Houston or St. Louis and they went to them. Would those types of organizations also be able to redirect you to a local CDFI?

Dan: Correct. I would say that most bankers, the small business development centers and the Scores know their local CDFI, and I would say about half of the way we could get connected to small business is through those sources.

Gene: The CDFIs themselves, I mean, how do you get your funding?

Dan: So our funding is very similar to a bank where banks have depositors, and that’s how they re-lend. We have investors and they tend to be investors that like the kind of mission lending that we do. The investors tend to be banks, foundations, religious institutions, individuals and then government agencies. They invest in the fund, and it revolves and we keep lending it out. And eventually we’ll give it the principle back and the rate of return to that investor.

Gene: What types of loans do you guys offer? How are they normally structured as far as terms, amounts, interest rates? What can a business owner expect?

Dan: Very similar to what they would expect at a bank with an interest rate that’s marketable. Of course, average probably, four or five year loan for a business loan. And the purposes are the full range of working capital, equipment, expansion, even if you want to buy the real estate. Maybe you’re renting a building, you want to buy the real estate. So it’s pretty broad in terms of the kind of loan structure that we do, but it’ll be very familiar to the small business.

Gene: What about due diligence that’s required? I mean, what if it’s a startup business or the operating unprofitably over the past couple years, what do you require for loan application?

Dan: I mean, the number one question we’re trying to figure out is, are we going to get paid back. And so we do underwriting the way traditional bank or business underwriting is, but we understand not everyone’s going to look good on paper. And so, we can stretch where we have to, and then make other requirements where it makes sense. But ultimately we become the financial advisor to the small business and help them understand how to qualify for a loan with us.

Gene: Are you guys like the sort of SBA lenders where SBA lenders have a certain it