What Does CDFI Mean?

A few weeks ago, many of you joined us at the Nonprofit Finance & Sustainability Conference. If you were one of the over 400 attendees, thank you for joining us. I love this annual event because it brings together nonprofit finance leaders to talk about the most pressing issues in a sector I care deeply about.  

This year, I was attuned to the message from Aisha Benson, President and CEO of the Nonprofit Finance Fund as she called on fellow nonprofit leaders to do the hard and necessary work of supporting mission-driven organizations, especially those who have been disinvested of their own resources, so they can thrive.  

It got me thinking about the incredible clients I work with every day and have worked with over the past five years as a Lender and Financial Specialist at Propel. And it made the work of my new role as Portfolio Director – where I can ensure our capital is going to the “right” places (more on that later) feel more urgent than ever.  

It also got me thinking about one of the most common questions I get asked when I talk about my work, even to those who know Propel well: What is a CDFI? With the goal of educating more of my colleagues in the sector about what it means, let me try and answer that for you.  

What is a CDFI? 

You might have heard that Propel Nonprofits’ loan fund is a “CDFI.” But what does that mean exactly?  

CDFI stands for “Community Development Financial Institution.” These financial institutions are mission-driven lenders certified by the CDFI Fund at the U.S. Department of the Treasury that work to move capital into historically underinvested and undercapitalized communities. Since 1973, CDFIs have worked to expand economic opportunity, and over time, many have made social and racial justice a priority of their work. CDFIs take a few forms:  

• Community Development Banks 
• Community Development Credit Unions
• Community Development Loan Funds 
• Community Development Venture Funds  

Each CDFI has a different area of focus or specialty: many serve primarily small businesses and entrepreneurs, some focus on affordable housing, and most serve low-income communities. We all have a shared goal of expanding economic opportunity and sharing more opportunity in funding and finance. There are currently approximately 1,300 CDFI’s in the US and more than 40 in the State of Minnesota.  

What makes Propel Nonprofits’ loan fund unique?  

Propel is a nonprofit CDFI whose loan fund only makes loans to fellow 501c3 organizations in our service area of Minnesota, and neighboring states. Our loan fund is one of the ways that we can work to achieve our vision of a diverse network of mission driven nonprofits building a healthy, vibrant and more just community. We want to steer our capital to communities and organizations whose missions and visions fit ours. Propel is in a unique position to show up for communities of color, and communities that have been historically under-resourced, under-capitalized, and underserved.   

In 2022, 77% of the loans Propel originated served low/moderate income individuals; 44% of loans went to BIPOC-led organizations and 75% of loans went to women-led organizations.    

Because we are not regulated in the way traditional banks are, Propel and other CDFIs can take a more holistic approach to lending. We can provide technical assistance with budgeting, business planning, cash flow planning and governance. We are able to offer payment terms flexible to the clients’ needs, and extra wrap-around service to clients that traditional banks cannot. We can make riskier loans to organizations, some that might not otherwise be bankable, because of our relationship-based approach to lending. Where banks might see too much risk, we see the opportunity to meet our mission.  

What else do CDFIs like Propel do?  

Over the past few years, CDFIs played a huge role in making sure nonprofits had access to PPP (Paycheck Protection Program) loans at the onset of the pandemic. Propel has had the opportunity to develop and deploy products like our Recovery Capital Loans, to help nonprofits recover from the pandemic and uprising following the murder of George Floyd. We are always working to be responsive to community needs.  

Recently, Propel’s lending team participated in the first ever CDFI Day at the Minnesota State Legislature where we joined with other members of the Minnesota CDFI coalition to talk to legislators and agency leaders about the priorities of CDFIs in Minnesota including support for homebuyers and small business owners. See the fact the sheet from that gathering.   

Later this year, we’ll share some of our thoughts on how to know when you’re ready for a loan, what using debt strategically could look like for your organization, and how you can talk to your board about it. Subscribe to our newsletter to stay up to date on these topics.