Banks and community development financial institutions (CDFIs) each play important roles in financing projects that strengthen communities. While most borrowers are familiar with traditional banks, many are less familiar with CDFIs and the role they play.
Banks and CDFIs work together in various ways to expand financing opportunities for community development projects. Greater awareness of CDFIs and their relationships with banks provides valuable context for borrowers, brokers, and developers as they navigate financing decisions.
The Many Ways Banks and CDFIs Work Together
While banks and CDFIs operate independently, their relationships take many forms, some directly visible to borrowers and others happening behind the scenes.
Depending on the needs of the project, banks and CDFIs may refer borrowers to one another, participate in the same financing, purchase existing loans, or collaborate through programs such as the New Markets Tax Credit (NMTC) Program. Clearinghouse CDFI has participated in partnerships supporting projects such as:
- Infrastructure: Chinle Wastewater Treatment Plant – Chinle, AZ
- Healthcare: Fairchild Medical Center – Yreka, CA
- Food Access: Lower Brule Grocery Store – Lower Brule, SD
- Childcare: Santo Domingo Pueblo Childcare – Santo Domingo, NM
Many partnerships occur at the institutional level rather than through a specific borrower transaction. Banks often invest in or lend to CDFIs to increase the amount of capital they have available for community development financing, strengthening CDFIs’ ability to finance projects in communities with limited access to traditional credit.
CDFIs and banks work together to finance housing, facilities, and community-serving projects
When a CDFI May Be Part of the Financing Solution
No two Certified CDFIs are exactly alike. They vary widely in their missions, lending focus, geographic reach, and the communities they serve. The U.S. Department of the Treasury’s CDFI Fund recognizes a nationwide network of Certified CDFIs with diverse missions and target markets that provide a broad range of financing and financial services tailored to the communities they serve.
Some CDFIs specialize in affordable housing or small business lending, while others focus on healthcare, agriculture, Tribal communities, or other community development priorities. Each organization’s mission shapes its lending focus and the financing solutions it provides.
Understanding the diversity of CDFIs, as well as their relationships with banks, helps borrowers evaluate potential financing options more effectively.
Learn more about Clearinghouse CDFI Financing.How Clearinghouse CDFI Fits Within the Financing Landscape
Like every Certified CDFI, Clearinghouse CDFI has its own mission and lending focus.
We provide commercial real estate–based financing nationwide, working directly with borrowers and collaborating with banks and other lending partners when appropriate. Every financing request is evaluated on its individual merits, with the goal of helping finance projects that strengthen communities.
Although CDFIs represent a relatively small part of the financial system, they play an outsized role in expanding access to capital for communities across the country.
For those seeking financing, a broader understanding of CDFIs and their relationships with banks is critical. It reveals financing opportunities that might otherwise be overlooked, helping projects that strengthen communities move forward.
Banks and CDFIs: FAQs
What is the main difference between banks and CDFIs?
Banks and CDFIs serve different but complementary roles. Banks provide financing aligned with standardized underwriting and an established financial record, while CDFIs support projects where the structure, use, or revenue model calls for a more tailored approach.
How do CDFI loans work alongside traditional bank loans?
Many projects are financed through a combination of bank and CDFI capital, with each institution supporting different components of the financing. The structure depends on the needs of the project and the institutions involved, with terms agreed on before closing. Separately, many partnerships occur at the institutional level rather than through a specific borrower transaction: banks often invest in or lend to CDFIs to increase the capital they have available for community development financing, strengthening CDFIs’ ability to finance projects in communities with limited access to traditional credit.
Do banks and CDFIs work together on the same project?
Yes. Many projects are financed through a combination of bank and CDFI capital, with each institution supporting different components. This is common in multifamily housing, community facilities, and mixed-use developments, where each institution supports different components of the financing.
Do CDFIs offer more flexible lending structures?
No two Certified CDFIs are exactly alike, and their approaches vary with their missions and target markets. Because each CDFI’s mission shapes its lending focus, they can bring a more tailored approach to projects that call for it, while still evaluating each request on its individual merits.
What types of projects are commonly supported by CDFIs?
CDFIs commonly finance real estate tied to housing, community facilities, and community-serving businesses. That includes multi-family affordable housing, nonprofit facilities, and mixed-use developments where the financing must match how the project operates and earns revenue.
