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Understanding CDFI Financial Data

This brief highlights sector dynamics that provide important context for any analysis of individual CDFIs, and shares suggestions for both the CDFI industry and investors new to the sector for how to improve understanding of CDFI financial metrics.

New Tools to Capitalize CDFI Growth

This brief addresses a set of critical questions that will arise as the industry puts this powerful growth strategy to work, focusing on how CDFI funders and investors should reconsider how they interpret key financial metrics related to portfolio quality, capital deployment, and earned income for CDFIs that are selling loans. For example, to more accurately assess the lending activity of CDFIs that are selling loans, we recommend that funders request and evaluate total assets under management rather than simply looking at outstanding loans held on the balance sheet or total deployment ratio.

Lending to Entrepreneurs of Color: Strategies & Tactics

In this paper, we share lessons in six key areas related to microloan origination, including specific practices of CDFIs that are currently originating many hundreds or thousands of microloans annually. The findings are drawn from the members of BOI’s Microfinance Impact Collaborative (MIC), which has been convening and collaborating since 2015 and whose members collectively originated 11,978 loans totaling just under $310 million in 2022. This paper follows a prior one that described the critical role that microloans — loans less than $50,000 — play in meeting the needs of Black and Latinx borrowers and the challenges that CDFIs face in scaling microlending.

Small business owner liquid wealth at firm startup and exit

The relationship between small business ownership and wealth looms large in the imagination of policymakers and entrepreneurs alike. Indeed, people who own businesses are wealthier than those who do not. In 2019, the median net worth of self-employed families was $380,000—over four times larger than the $90,000 in net worth held by the typical working

Small Business Finance FAQ February 2022

Small businesses borrow mainly for four reasons: to start a business, purchase inventory, expand,
or to strengthen the firm’s financial health. Firms choose different means of financing depending on
the intended purpose.

Lending to Entrepreneurs of Color: Operational Challenges

Because business ownership has been a means for many Americans to build wealth, providing loans and grants to entrepreneurs of color has been seen by many as an important way to address the racial wealth gap. Although successfully reaching excluded entrepreneurs will require practices and competencies that meet their specific contexts, the lessons we have learned and practices that have proven successful will apply to all entrepreneurs who face barriers in accessing credit because of low levels of wealth, thin or nonexistent credit files, differences in cultural experiences and languages, discrimination, and/or the amount of credit they are seeking. This brief — the first in a series on this topic — discusses the core operational challenges that community development financial institutions (CDFIs) face in scaling their lending to entrepreneurs of color.

Addressing the Capitalization of CDFI Microlenders

Community Development Financial Institution (CDFI) loan funds face a common capitalization challenge as they seek to grow—they must raise net assets to enable the additional debt financing needed to support an expanding portfolio. Among CDFIs that focus on microlending—making small dollar loans of up to $50,000 to small businesses—the financial challenges are even greater, as the revenue earned on these small-dollar, relatively short-term loans typically does not cover the cost to originate and service them (Klein & Okagaki, 2018, 12-14). Thus, CDFI microlenders must also raise grant (subsidy) dollars to support the increase in their lending costs as their portfolio grows.

Effects of Small Loans on Growth

Since 1980, the number of commercial banks has dropped from 14,400 to 4,600. Given the decrease in commercial banking options, it is important to understand the long-term trends of banking industry dynamics by size of bank, as well as the impact of small business lending on bank growth and small business success. This report finds a decline in bank dynamism with falling new bank entry rates and increasing exit rates for small banks. Additionally, the authors found that small business loans are positively associated with the growth of small banks and small business success. Read “Effects of Small Loans on Bank and Small Business Growth” to learn more.

2019 Small Business Lending in the US

This report uses the latest publicly available lending data from banks to examine changes in small business credit for June 2017 through June 2019. The data used was collected prior to the 2020 COVID-19 pandemic and provides a precrisis benchmark on the state of small business lending.