Community Development Finance Institutions (CDFIs)

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What does it mean?

CDFIs are small independent organisations that will typically only lend to underserved markets and to those who have been unable to obtain finance from mainstream sources.
 

Who might use it?

Small and medium-sized enterprises, social enterprises and individuals can apply to a CDFI for a loan if they cannot obtain a loan from mainstream financial sources. CDFIs operate in deprived areas where there are numerous organisations or individuals who cannot secure credit from traditional financial institutions. Some providers may require proof that the customer was unable to acquire finance from traditional lenders, so that their funds offer new, increased finance, rather than replacing traditional sources. Some CDFIs offer loan finance, others provide equity investment and a few offer both. Some also provide debt advice.

This finance can be used for a variety of purposes such as for working capital, bridging capital, start-up capital, tangible asset purchase and personal loans. Even though these loans are cheaper than those from high risk funds, it would be more expensive than credit unions and traditional credit providers.

Who provides it?

CDFIs operate in different areas and for different purposes. Therefore, to find the most suitable institution, use the CDFI finder at www.findingfinance.org.uk

Case study - Fair Finance

Fair Finance is a social business based in London.  They offer a range of financial products and services designed to meet the needs of people who are financially excluded. They focus on people and communities who have difficulties accessing funds from mainstream providers, offering a fair deal through a socially responsible investment process.

They offer personal finance, money advice, and micro credit loans. Their micro credit loans are designed for new and existing businesses, including social enterprises looking for a small injection of cash.

Social enterprises can access up to £10,000 over 5 years at an affordable interest rate of 15% – 19% (this allows Fair Finance to cover their costs). For example, a £3,500 loan repaid over 36 months would incur a total interest of £999, at a fixed rate of 19%. Monthly repayments would work out at £128.30 for the borrower. With an admin fee of £120, the total repayment would be £4618.80, representative of 21% APR.

There is no requirement to provide collateral, and they can give a decision in 2 weeks. They also offer an innovative peer lending service, where borrowers join a group where they can share ideas and inspiration.

Their commitment to responsible lending and fair money advice means that Fair Finance is a good option for a social enterprise needs cash to start up or grow.

Find out more about Fair Finance.