If you are a small business owner getting denied bank loans, you need to know about mission-based lenders. These lenders are known as community development financial institutions (CDFIs) and are funded by the U.S. treasury department. CDFIs help businesses by providing funds and the necessary education essential for revenue growth and business expansion. In this article, we have prepared all the details you should know about mission-based lenders.
What Do You Mean by Mission-Based Lender?
The last month saw a link to mission-driven lenders circulating like wildfire. The main reason for this is the barrage of obstacles that a small business owner has to face, in order to secure a loan. According to statistics, 4 out of 10 small businesses have below $1 million annual revenue, causing difficulties in applying for a loan at any bank.
In a survey conducted by the Federal Reserve Small Business Credit, women entrepreneurs start a business with 50% less capital than men. Moreover, businesses owned by minorities are rejected for loans more frequently than non-minority-owned businesses. In this kind of situation, mission-driven lenders become the beacon of hope.
Mission-driven lenders are committed to working for the betterment of communities in ways that traditional banks aren’t. Their purpose is less focused on individual profit and more geared towards community development. These lenders procure funds from the treasury department, after getting certified as a CDFI. To get funds from a CDFI, your business must prioritize helping society.
It can be a service rendered to a targeted low-income area or aiding in the economic development of marginalized zones. CDFIs provide affordable loans that help small business owners grow and access finance, to bolster their businesses. They even provide industry knowledge and counseling, to support the creation of a well-structured organization for their businesses.
To get a loan from a CDFI, you will first need to locate one. You can use a mission-driven lender locator map for the same. The documents needed for a loan at a CDFI are similar to those for traditional banks. Your business should have the over-arching purpose of upliftment of underprivileged people and places. A CDFI staff will guide you through the procedure, and answer your questions if you have any. They will make you understand the loan terms and tenure in a lucid manner.
Why Mission-Based Lenders are Important in the U.S.A?
Mission-based lenders are very important as small business owners have a tough time finding financial help without them. According to a post-recession bank report, small business loans have dropped by 20%, whereas loans given to larger enterprises have increased by 4%. Now, we all know how fair and honest entrepreneurship can uplift society.
In that regard, CDFIs ensure that small businesses run by women or minority community members are given opportunities to prosper as well. Based on the recent report by the CDFI Coalition, 945 CDFIs are already at work, helping communities nationwide.
Right after the recession, CDFI lending had a positive growth compared to banks. For every $1 dollar awarded by the CDFI, the money was converted to $12.23, in terms of loans given out by CDFIs. With this capital, they managed to provide financial assistance to various communities. They helped in the development of business solutions for small businesses and also gave them affordable housing units.
Based on the 2003-2015 report published by the CDFI, it provided approximately 63,249 loans and 47,866 permanent jobs from 2003 to 2012. 47,866 out of the given jobs were in the construction industry. Even highly-esteemed law and finance firms acknowledge their relevance with DLA Piper drafts legal framework to support financial inclusion, etc.
At the U.S. Congress, the House of Representatives voted to furnish the CDFI department with $250 million dollars, due to their successful operation. It is an engine running the nation’s small businesses. After this amendment, CDFI can help more people and communities, and uplift them. The impact of mission-based lenders is huge and the proof is this amendment.
How Mission-Based Lenders Have Helped Communities?
Accion is a mission-based lender. It has helped a lot of small business owners in the U.S. prosper. We have researched the after and before of a CDFI loan for a small business. The research states that every small business loan application is in search of financial resources that will be helpful for their business. Another study through financial diaries about M-Pesa use shows that people are much more comfortable performing transactions with acquaintances or friends.
Based on the Aspen Institute’s FIELD program, we got to know that loans provided by the CDFIs increase the annual revenue of a small business after 1 year. In addition to this, they also generate three jobs per business. However, the impact of mission-based lenders cannot be quantified by numbers alone.
So, full-fledged research was initiated by big MNCs like W.K. Kellogg Foundation and JPMorgan Chase & Co. The motive of this research was to study the long-term impacts of mission-based lenders. The research followed a multi-year evaluation effort, which will evaluate the impact of mission-based lenders nationwide.
In the beginning phase of the research, 571 Accion were surveyed, and the survey was conducted across 27 states. They interviewed 188 out of them.
After Effects of Mission-Based Lenders
Based on the research conducted we have clear results. The service done by mission-based lenders has a positive impact on small businesses. The majority of businesses (62%) had an increase in their annual revenue there was an increase in profit of 55%. Among the businesses surveyed, 76% had hired additional workers to their organization. Due to the loans, the projected growth of around 80% of businesses has increased.
We have discussed the positive impact on their business, but loans did more than just help them grow. They also gave them confidence and mental/emotional support. Their confidence was many times shattered by the loan denials at traditional banks, but mission-based lenders gave them hope and financial support due to which they have increased their businesses and given a boost to the nation’s economy.
Entrepreneurs who utilized the loan in growing their businesses said that they will be handing over their businesses to their children as a legacy of their family. They also said that after the growth, they had less stress and could spend more time with their family. Around one-third of the businesses surveyed had a 40% increase in their take-home pay.
Finally, according to our research, it has been established that mission-based lenders have an undeniably great impact on any business. Service by Accion and Opportunity Fund has helped entrepreneurs uplift their businesses. It boosts the confidence of entrepreneurs and backs them up when they have been denied loans multiple times by traditional banks. Most business owners feel less stressed now that they spend more or even plenty of time with their families.
Overall, personal income has increased, resulting in the economic growth of the nation, and since honesty is the new frontier, facilitating transparency, and slowly evening the playing field out, so to speak, we can hope for a more equitable distribution of, and access to, economic resources and opportunities.
- Elizabeth Jones is one of our editorial team’s leading authors on credit card offers, services & more. With over two decades of experience in the consumer credit industry and as a nationally recognized credit expert, Elizabeth provides in-depth analysis of both traditional & alternative forms of credit. Elizabeth regularly appears on many major media outlets including NBC Nightly News, Fox Business Network, CNBC & Yahoo! Finance. She is also a frequent contributor to Forbes Magazine. As a highly appreciated author for our exclusive Editorial Team, Elizabeth strives to provide readers with a trustworthy advice on how to manage their credit accounts while staying informed on the latest offers in the marketplace.