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Community Development Finance Institutions

Looking for funding to take your business to the next level can be a daunting process and fear of being declined can be enough to put some off applying in the first place.

Unlike mainstream lenders like banks, Community Development Finance Institutions (CDFIs) get to know your business and, by taking an in-depth but supportive look at your application, could lend when other providers might not be willing to.

Our research shows that 200,000 viable businesses are declined, or discouraged from applying, for finance they need to grow and create jobs annually; this accounts for £4-£6bn of lending each year. A disproportionately high number are based outside London and the South East, and are led by women and Black and Minority Ethic entrepreneurs. CDFIs have a superb track record of reaching businesses underserved by mainstream and challenger banks; 9 in 10 of our customers have previously been declined and 85-90% go on to fully repay their loan and succeed (many then become banks’ future customers). Theodora Hadjimichael CEO, Responsible Finance

According to Responsible Finance's 2022 Impact Report, CDFIs advanced more than £228m in UK communities in 2021, a 32% increase on the year before.

What is a Community Development Finance Institution?

A CDFI is a non-profit lender that provides debt finance and support to businesses through a relationship-based approach to lending.

The loan is repaid with interest, along with any agreed fees over a set period.

They generally lend amounts from £25,000 up to £250,000, but some will lend from as little as £1,000 and above £250,000.

How do Community Development Finance Institution’s work?

When deciding on whether to approve your loan application a CDFI relationship manager will ask you to complete an application form based on a range of information including your annual accounts and business plan.

They will also use other information they learn through getting to know you and will sometimes consider any potential social impact the loan will have, like if it will support job creation.

What are the benefits?

As locally based small, and flexible lenders, CFDIs could benefit your business in several ways like:

  • if you have been declined by another lender, they may still be able to approve a loan for you
  • they aim to lend to businesses that find it harder to access finance like women-led businesses, ethnic minority-led businesses, and businesses located outside of city centres
  • offering support and mentoring
  • allowing you to retain complete control of your business.

What are the risks?

As with any loan, if you fail to make your repayments (known as defaulting) this might affect your credit report.

CDFIs may require you to use your business or personal assets to act as security for the loan.

Any assets you do put forward may be at risk if you default on your loan repayments.

CDFIs may also ask the business Director(s) to sign a Personal Guarantee.

Is it right for me?

Any business can apply for finance via a CDFI regardless of annual turnover, sector or stage of business development.

Many CDFIs also deliver the British Business Bank’s Start Up Loans programme.

You'll need to consider a few things before proceeding with borrowing from a CDFI like:

  • can I afford the repayments?
  • what interest rate will I be charged for taking the finance?
  • when will I be expected to repay the finance?

How do I get in touch?

You can search for your local CDFI online at findingfinance.org.ukLink opens in a new window.

Case study: Bay’s Kitchen – Gloucestershire

Award-winning Bay’s Kitchen opens creates sauces, soups, stocks, and gravies which are specifically designed for people suffering from Irritable bowel syndrome, as well as people on Gluten free, Dairy free and Vegan diets.

After being declined by its high-street bank, Bay’s Kitchen’s CEO ‘Bay’ Burdett was able to benefit from the Coronavirus Business Interruption Loan Scheme (CBILS) via SWIG Finance, a local CDFI.

The loan, backed by Triodos Bank, helped the business to expand its product lines and create a new sales and marketing role to support continued growth.

When we initially approached our high street bank for a CBILS loan, they immediately said no without even speaking with us. It is great that SWIG takes the time to understand the business. I was impressed with the process, as it matched the entrepreneurial culture we have at Bay’s Kitchen. Our business manager Nicola was a delight to deal with, she really took the time to understand our journey and why we needed finance. Ben Haynes Commercial Director, Bay's Kitchen

Disclaimer: We make reasonable efforts to keep the content of this article up to date, but we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. This article is intended for general information purposes only and does not constitute advice of any kind, including legal, financial, tax or other professional advice. You should always seek professional or specialist advice or support before doing anything on the basis of the content of this article. 

Neither British Business Bank plc nor any of its subsidiaries are liable for any loss or damage (foreseeable or not) that may come from relying on this article, whether as result of our negligence, breach of contract or otherwise. “Loss” includes (but is not limited to) any direct, indirect or consequential loss, loss of income, revenue, benefits, profits, opportunity, anticipated savings, data. We do not exclude liability for any liability which cannot be excluded or limited under English law.

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