How to Get a Business Loan from a CDFI

Community Development Financial Institutions (CDFIs) offer an invaluable alternative to traditional business finance routes, such as banks, in providing accessible funding to small businesses and underserved communities. 

The algorithm-led approval processes of mainstream volume lenders can often be detrimental to smaller businesses and their ability to obtain finance, which is why CDFI’s take a much more holistic approach, taking into account all elements of the business rather than just what the numbers show. 

If you’re considering applying for a business loan through a CDFI, understanding their unique process can help you prepare and improve your chances of success. 

In this article we’ve collaborated with Let’s Do Business Finance to produce this step-by-step guide.

As always, it’s a good idea to seek independent specialist financial advice to help you decide if a financial product is right for you and your business.

What do CDFIs look for in an application?

Community Development Finance Institutions (CDFIs) take a relationship-based approach to lending, focusing on understanding the whole business, its vision, and the ideas behind the need for finance rather than a computer says ‘yes’ or ‘no’ approach. 

They will want to get to grips with all elements of your business - what it is, how it works, who your target market is, and your plans for the short and long term.

They’ll focus on:

• Character: What is your experience, knowledge, ability, and commitment as a business owner?  Do you, the management, and wider team have the skills and expertise to deliver your plans?  Do you have the right professional support in place to help you grow?
• Your Vision and Plans: What are your plans and how realistic are they?  Is your business model sustainable and able to deliver your plans?  How do your plans align with your business model and growth plans?
• Viability and Creditworthiness: What does your and your business’ credit history look like.  Does it demonstrate an ability to successfully manage debt.  Do your financial forecasts evidence an ability to repay your financial commitments, including the new borrowing. 
• Contingency Plans: What happens if your plans don’t quite work out.  What are your contingency and back up plans.  How will you be able to continue repaying your loan and other business commitments.

How can a business prepare a CDFI application?

Due to the variety of options available to businesses, one of the first things to consider before starting your application is deciding which lender is the right fit for your business. 

Seek out expert advice to ensure that you are applying for the right type of finance and that you have all the right documentation available for your application.

There is a wealth of information out there, from free business support and advice available from local organisations, to accountants, banks or commercial finance brokers, who can provide clarity on your options.

• Research the CDFI: understand their mission, values and the types of businesses they support.
• Develop a solid business plan: include a clear description of what you plan to do, how, how much funding you require, what for along with your financial projections, market analysis, and growth strategies.
• Organise financial records: ensure your historic accounts, including balance sheet, profit and loss statements, tax returns and management information are accurate and up to date.
• Build a strong case: highlight your investment plans and your business’s potential.

Common Mistakes when completing a CDFI application

Most businesses find themselves considering additional finance at some point in their growth journey. 

However, any number of common oversights can prevent or delay your fundraising from being successful. 

Before submitting your application, ensure you have avoided these common issues:

Incomplete applications

Double-check that all required fields and documents requested are included.  

Omissions will lead to delays in getting you a decision.

Insufficient Planning

Applicants often second-guess the amount of money they will need when asking for financial help. 

Many simply ask for the largest amount on offer, without considering exactly what is needed or how it will be repaid. 

It’s a good idea to do your homework on what you are looking to achieve and get quotes to support your application.  

You often need less than you think you do.

Poor financial documentation

Ensure your financial records have been filed, are accurate, are up to date and you understand them. 

Ensure your cash flow and profit projections are realistic, are based on robust assumptions, and cover different scenarios e.g. what happens if you don’t grow as quickly as planned.  

Ask yourself, if that happens will my business still be sustainable and am I able to repay the loan?  

Ignoring credit issues

Highlight any credit challenges you have had or are still experiencing.  

They will come to light during the assessment process, so it is better to be upfront about them rather than hoping the lender won’t find out or ask you about them. 

Be ready to explain what they are, how they came about, and how you’re addressing them.

Risk and Contingency Management

Whilst we all want your business to achieve all its goals, plans rarely go exactly to form.

So, when the unexpected happens it’s important to be prepared for some curveballs and plan how you’ll mitigate some common risks.

Documents you’ll need to provide

When applying for finance from a CDFI, it’s helpful to know beforehand what you can expect to be asked for, so that you can begin to gather evidence for a strong application. 

By preparing in advance, you are not only increasing your chances of securing finance; but are heading off any potential hiccups in good time that will avoid delays as well as making the whole process a less stressful one for you.

Your documents should give a comprehensive picture of how, if your application is successful, you will use the finance to achieve your goals, and if you will be able to make the repayments.

Documents you will be asked for include:

• your business plan which, depending on the complexity of your business and plans, doesn’t need to be an overly complex document and could be one or two sides of A4 
• financial accounts which typically might include a balance sheet or profit and loss statements. Lenders may ask for documents covering the last 2–3 years
• up to date Management information which is usually contained within a balance sheet and profit and loss statements
• cash flow and profit forecasts typically covering a minimum of the next 12 months
• business and often personal bank statements (typically covering the last 3 – 6 months) 
• legal documents such as any relevant licenses, registrations, or leases required for your business or plans
• owner identification
• credit report
• summary of personal assets and liabilities.

How long does applying for a loan with a CDFI take?

CDFI’s are generally small agile teams that can work at a fast pace providing they have all the information required.  

A lending decision can easily be achieved within a week and the whole process to releasing funds to you can be completed in as little as 7 – 10 working days.

However, this is only possible if the applicant is able to provide all the application information requested and there are only a few queries.

More commonly most applications take up to 4 or more weeks to complete, which is usually due to queries or delays in producing information.  

Typically, the process will look something like this:

1. Initial review: 2 or 3 days for preliminary evaluation and feedback
2. Follow-up and documentation requests: 1–2 weeks depending on the quality of information provided and how quickly the applicant can respond to queries and provide any additional information
3. Full assessment and final decision: 1 – 2 weeks depending on any further points of clarification
4. Preparation of documentation: within 24 – 48 hours of a decision
5. Drawdown funds: usually within 24 – 48 hours of signed paperwork being received.

Who is involved on the CDFI side?

The following will vary from CDFI to CDFI, but you can typically expect the following people to be involved in a loan decision:

Loan Officer

Your initial point of contact, who is there to help clarify any initial queries you have, help check your eligibility, and ensure you have provided all the application information required. 

Business or loans Manager

The Business Manager will guide you through the assessment process, assess and analyse your application and, where supportable, prepare your business case for the underwriters.

Underwriter or Credit Committee

These people make the final decision on loan approvals.

What is the difference between a CDFI and a High Street Bank?

Unlike traditional banks or online lenders, CDFIs look beyond credit scores and algorithms, by getting under the skin of your business to understand your potential and goals. 

This can be slower but allows them to offer tailored support and the right financial package to meet your needs.

They can guide you through the application process, helping refine your business plan and strengthening your application, maximizing your chances of success. 

More than just lenders, CDFIs can function as partners in your journey toward sustainable growth providing guidance and access to other experts who can help you achieve your goals and plans.

CDFI’s offer:

• Personalised support: CDFIs often offer mentorship and business development services.
• Flexible requirements: more willing to work with businesses with limited credit history.
• Mission-driven: focus on overall impact, not just profitability.
• Longer review times: more thorough and relationship-based evaluation process.

What are the next steps after a decision?

If an applicant’s application is approved for a loan:

• their loan documentation and supporting paperwork will be prepared and issued, and usually sent electronically
• they will need to review and sign all required documentation
• they will need to fulfil any final conditions e.g. confirmation of lease being signed
• the CDFI will require the applicant to submit all signed documentation and supporting information to the CDFI
• when those documents are received the CDFI will check through the documentation for accuracy and completeness
• once signed off, funds will be sent to your designated bank account.

If an applicant has their application rejected:

• CDFIs will provide feedback on why the application was denied.
• where possible, the CDFI will look to re shape the application to something that might fit the CDFIs criteria e.g. a reduced amount or loan term.
• where possible, the CDFI will provide feedback and guidance on areas of weaknesses that the applicant could address such as any issues with their financials, credit, or their business plan.
• where possible the CDFI will help the applicant explore alternative financing that might support your plans.

By understanding the CDFI application process and preparing accordingly, an applicant could enhance their chances of securing a loan that supports their business’s growth and future.