Addressing the Capitalization and Financial Constraints of CDFI Microlenders

Author(s): Brett Simmons, Revolve; Jonathan Brereton, Revolve; Joyce Klein, Business Ownership Initiative, The Aspen Institute

Community Development Financial Institution (CDFI) loan funds face a common capitalization challenge as they seek to grow—they must raise the net assets to enable the additional debt financing needed to support an expanding portfolio. Among CDFIs that focus on microlending—making small dollar loans of up to $50,000 to small businesses—the financial challenges are even greater, as the revenue earned on these small-dollar, relatively short-term loans typically does not cover the cost to originate and service them. Thus, CDFI microlenders must also raise grant (subsidy) dollars to support the increase in their lending costs as their portfolio grows.