S2 Ep2 – All About Brokers!

Speaker 1 (00:01):

Hi, welcome to Funded. I’m Katelyn Phinney and this is a Clearinghouse CDFI podcast, here to give you a glimpse into the community development work Clearinghouse CDFI is doing around the country. Listeners can expect to tune into conversations discussing what a CDFI is, how getting funded by a CDFI works, community impact stories and how we are all working towards building better communities together. Hello and welcome back to Funded by Clearinghouse CDFI. I’m your host, Caitlin Finney and every month we are addressing common CDFI industry blind spots in hopes to connect more community members to accessible financing. Thank you for joining us. I’m so excited to have you here on season two, episode two of Funded. Today we’re talking all about brokers. I am hoping that after you finish this episode, you will be able to walk away with a better understanding of the relationship between brokers and CDFIs, specifically on how that relationship connects everyday people to financing.

Speaker 1 (01:07):

Obviously, connecting with community members directly one-on-one would be the most direct form of communication, but using a broker is a great buffer between everyday people and the finance world. As we’ve mentioned before, CDFI services and products aren’t common knowledge to the general population and brokers are kind of that connecting piece that joins the two together. So as we’ve discussed in previous funded episodes, CDFIs are a lot different than traditional banking institutions. We know that CDFIs can come in many forms in the form of credit unions, banks and other kind of financial institutions, but typically they all offer loans, investments, and other financial services that are tailored to meet the unique needs of the communities that we are serving. Those tailored services are essential. They play an important role in expanding access to important financial services while also promoting economic development in underserved communities. If you need a full refresher on what a CDFI is and what they’re all about, please go back and listen to episode one of funded.

Speaker 1 (02:10):

It was titled What is a CDFI and who is Clearinghouse CDFI? And you’ll get a better explanation about the role that we play in the financial landscape or you can go check out episode seven, which was CDFI 101 with our very own Kioni Gray. It had a lot of the common terminology used in our day-to-day dealings in the CDFI industry and it’s full of little nuggets of information for you. But between those two episodes, you should have a pretty comprehensive understanding about how CDFIs function. But essentially, CDFIs are performing two main functions. We are promoting economic development by providing financing for projects in historically underserved areas. We are also filling a gap in the financial market by providing tailored services that are not readily available through traditional banking institutions. Okay, so we have an understanding of how CDFIs operate in the financial landscape, but what about brokers?

Speaker 1 (03:07):

Let me give you a general definition about brokers. Brokers are the intermediaries who connect clients with financial products and services. They work across various sectors, including mortgages, insurance, investments, but primarily their role is to understand their client’s needs, identify suitable products, and facilitate the transaction between the client and the financial institution. After a transaction has been completed, the broker receives a commission for their work based on the project’s portfolio. The key functions of a broker are to facilitate the transaction and connect the clients with financial products. They maintain lines of open communication between their client and the CDFI in our case to address any issues and share updates on the funding status. Think of a broker as a middleman who helps people make deals. Let’s say you’re in the market to buy a new pair of sneakers, but instead of going directly to the store to purchase them, you go to somebody who knows how to get the best deal.

Speaker 1 (04:09):

That person would be the broker. They don’t own the sneaker store or the sneakers themselves. They just connect you, the buyer, with the seller, and make sure that the deal goes smoothly. In return, you would pay them a small fee for helping out. So in business, brokers help everyday people buy and sell investments, things like houses, stocks without owning any of them. They just connect the dots to make sure both sides get what they need. Okay, let’s talk about how this partnership can be a total game changer for clients looking to finance their projects. Think of brokers as the navigators of the financial world. They’ve got this great radar so that they can scan the entire landscape or the best financing options available. But where things can get really interesting is when brokers team up with CDFIs. Then they become these super flexible funding superheroes because they’re able to get deals done in a really creative way.

Speaker 1 (05:07):

Clients who come from a low income community may not have the financial wherewithal that a broker would and brokers end up becoming your guide to this whole process. They would be the ones to connect you with a bank or a CDFI and they know all the questions to ask to get you the best deal possible. So with a broker buyer side, you’re not just navigating all the options, you’re stepping into a whole new world of financial possibilities, especially when partnered with a CDFI. The financial possibilities are custom built for your needs and that’s pretty exciting, right? By leveraging their networks and expertise, brokers are able to identify and connect qualified clients to CDFIs, which specialize in providing flexible and mission-driven financing. This kind of collaboration not only expands the reach of CDFIs, but it also ensures that more borrowers and communities are receiving the financing support that they need.

Speaker 1 (06:01):

This support will ultimately help them thrive fostering more economic growth and social equity in areas that need it most. There are a ton of mutual advantages to this kind of working relationship. For brokers, partnering with the CDFI isn’t just expanding your services. It’s about leveling up in a big way. So imagine being able to offer your clients a whole new range of diverse financing solutions. And by doing this, you’re not just helping find your clients funding, you’re helping change the game for underserved communities. And here’s where it gets even better. Some CDFIs offer incentives to brokers. Clearing house CDFI, in fact, is offering its very own broker incentive. This kind of incentive allows any brokers who fund a deal through Clearinghouse CDFI, 25 basis points on that funded project. These kind of incentives are designed to foster more relationships between brokers and CDFIs. So not only do brokers have more to offer to their clients, they also get a little something in return and that’s a win-win.

Speaker 1 (07:00):

Okay, what are the advantages from a CDFI perspective? Brokers for CDFIs are kind of like a secret weapon because they really help us increase our visibility. Brokers are really able to shine a spotlight on the products and services that CDFIs offer, which means more clients, more business, and more momentum behind our mission of community development. So I guess brokers aren’t technically just connecting the dots, they’re really expanding our reach. Brokers can sometimes help us tap into a group that may have never even heard of a CDFI, helping us tap into an entirely new community and offers us more opportunity to do what we do best. Now, like any relationship, this one has its complexities that need to be worked out. Now from the broker perspective, CDFIs being so outside of the box and tailor made to their client, brokers may find it challenging to fully understand and explain to their client the unique financial products that are offered through a CDFI and that can hinder some effective client matching.

Speaker 1 (08:03):

So finding a CDFI and becoming familiar with their operations and the deal packs that they’re able to fund is very important. For CDFIs, it’s important that we are investing in the mutual education between the two entities. CDFIs and brokers may need to invest in mutual education to bridge gaps of understanding in this relationship to improve collaboration. Potential referral programs and long-term partnerships would significantly increase the activity of information going along this financial highway. Okay. Well, in summary, the relationship between a broker and CDFIs is a dynamic one that requires a lot of mutual understanding and communication for effective collaboration. By effectively collaborating, brokers and CDFIs have the opportunity to enhance financial inclusion, support community development, and create meaningful impact amongst underserved populations. All right, folks, let’s break it down one last time. Brokers and CDFIs work together on their own, they’re great, but when they team up, something magic happens.

Speaker 1 (09:10):

They’re out here boosting financial inclusion, supporting community growth and opening doors for underserved communities. And hey, who doesn’t love a good partnership? It’s like that time you try to put together IKEA furniture alone. Sure, you could do it on your own, but everything goes so much smoother when you’ve got somebody helping with the instructions. So to all you future borrowers and brokers yourselves, remember that when you collaborate with the CDFI, you’re not just making deals, you’re building something solid without all the missing screws. Okay. I hope that explained how the financial lanes of brokers and CDFIs intersect and you’re walking away with a little bit clearer of an understanding of that relationship. Thank you guys for tuning into Funded. In our next episode, we are going to be diving into a conversation based all around affordable housing. We are going to be taking a closer inspection about how we can push through more affordable housing projects and discuss kind of the roadblocks that have stopped these projects from being funded.

Speaker 1 (10:09):

If you are a broker looking to partner with a CDFI on any future projects, please reach out to the loan inquiries at CCDFI email. I’ll have it linked below in the description for you. Also check out our flyer with our current broker incentive and see if we can make some magic happen. Well, thank you guys again for tuning into Funded by Clearinghouse CDFI and I will see you in the next one. Bye.