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Venture CDFIs triple in two years; advice from SSTI members on pursuing this approach

December 03, 2020
By: Jason Rittenberg

The federal Community Development Financial Institutions (CDFI) Fund released a new report profiling certified CDFIs in FY 2019. Notably, 14 active CDFIs are certified as venture funds, an increase from just four in FY 2017. Between the periods covered by these reports, the CDFI Fund updated their certification process and received encouragement from SSTI and members to be more open to equity financial structures. The results suggest that this change has taken place. An overview of the CDFI program with insights from members who have recently received funding follows.

In order to use the term “CDFI” and be eligible for federal funding, CDFIs must be certified as such by the U.S. Department of the Treasury’s CDFI Fund. Certified entities have a primary mission of community development, are accountable to their target market, and are a financing entity. Applications are accepted on a rolling basis.

One of the top recommendations for an organization interested in CDFI certification is to work with a grant writer experienced with the process. As Marnie LaVigne, president and CEO of Launch NY put it, “I highly recommend working with an experienced grant writer who has a track record in the CDFI world and can assist starting with step one, which is assessing whether the CDFI designation and Fund is a fit for your organization.”

The CDFI Fund has annual, competitive funding for financial assistance (FA) and technical assistance (TA). FA awards can be used to supplement the CDFI’s assets to catalyze additional capital in the community, and the federal funding generally takes the same financial structure as the required match. TA awards are intended to expand the capacity of the CDFI to enact its mission. This funding is typically available in the spring.

Launch NY has received four FA awards since earning their certification in 2017. “These funds have been used for direct investment from our nonprofit seed fund that invests in high-growth potential companies in the western half of New York State,” Lavigne said.

Janice St. Onge, president of the Flexible Capital Fund L3C, said that CDFI program awards have enabled the fund to leverage more risk capital, particularly by expanding a loan loss reserve fund for their royalty-based finance program. Other awards have enabled the fund to provide a range of business assistance services.

Certified CDFIs are required to report detailed financial and operational information to the CDFI Fund (see the FY 2019 report for some of the information provided).

Despite the significant procedural steps to become certified, compete for funding, and meet reporting requirements, the CDFI program can be rewarding for the right organization. The CDFI Fund’s FA awards are the only regular source of federal funding that can be used for equity investments. Certified CDFI status can trigger Community Reinvestment Act (CRA) credit that may facilitate partnerships with banks and will be a recognized status marker among many community-oriented foundations.

The bottom-line advice from St. Onge about CDFI certification is to be sure it fits in your overall work and “is not just a tool.”

cdfi, federal agency, venture dev orgs