Introducing community development finance institutions (CDFIs) and how to raise money from them as a small business.
It’s still a common story. A small business owner with a good track record goes to a bank for a loan, but the computer says no. And it’s a slow, costly and complex process trying to find an alternative.
There is now a place to go, where you can get a straightforward loan from someone who’ll get to know you and your business. That place is your local community development finance institution or CDFI. You don’t need to be a community group or development organisation to apply, but you do need to have a viable business or a sound business idea.
There are about 60 CDFIs around the country. They have emerged over the past 20 years, and new ones are springing up to meet the growing demand for finance. Some began life providing ‘microfinance’ – very small loans to people on low incomes wanting to set up their own business. But now most support businesses of all sizes. As banks have changed the way they operate and the credit on offer, CDFIs have grown to meet the gap in finance that SMEs also experience. So CDFIs can lend from £100 to £100,000.
Because they lend where banks don’t they tend to help those deemed as higher risk, including start-ups and sole traders.
Faye Harrison, for example, was keen to set up her own jewellery business but recalls, ‘I had managed to raise some of the money I needed for start-up costs but fell short of the amount I needed to set up properly. With no business track record it would have been extremely difficult for me to get finance from a bank.’
Harrison approached her local CDFI, Merseyside Special Investment Fund (MSIF), for a loan to secure premises for a shop and workspace. She got the money and opened her ’Blingstar’ shop in Liverpool. She says, ‘The funding from MSIF has helped me realise a dream of running my own business.’
CDFIs are businesses. But unlike payday lenders, they have a purpose that isn’t just about making as much profit as they can. They are committed to supporting local jobs, local businesses and the local economy. All CDFIs have a social mission. They lend fairly at affordable rates and they want to help as many businesses as they can.
Their focus is on people. They will get to know you and your business in order to work out the best finance option, and will provide advice and support where it’s needed.
Mick Pilling runs the Ivythwaite Lodge guesthouse in Windermere and took a loan from his local CDFI, Enterprise Answers, to complete renovation work on the guesthouse and holiday lets. Pilling says, ‘It is like going back in time when bank managers worked in the branch and actually personally looked at a business and made the correct decision themselves without the need to reference to head office and a computer.’
CDFIs are independent organisations, they vary in size and scope but are all staffed by committed, experienced teams who understand business.
Sugarcane is a design agency based in Doncaster which has provided marketing, branding and design services for over eight years. Sugarcane approached the local CDFI, Donbac, when it needed a loan to grow the business, reach new clients and take on new staff. Since receiving the loan, Sugarcane has enjoyed its best month of trading for three years.
Martin Abonyi, creative director at the company comments, ‘The process with Donbac was exceptional, the team were personable, knowledgeable, professional and full of integrity. The process was smooth and concise and once the decision was made, everything went through very quickly and without incident.’
The Community Development Finance Association is the trade body which represents CDFIs in the UK. We have a code of practice that all members sign up to, to ensure they are providing a good standard of service. Our members are delivering vital services to thousands of customers and we want to make sure that more people know who they are.
To find your nearest CDFI visit www.findingfinance.org.uk.