Partnerships between big banks and Community Development Financial Institutions (CDFIs) play a pivotal role in small business banking. Banks such as Bank of America and Wells Fargo form provide grant money which the CDFIs use for small business loans.
With looser rules on lending, CDFIs are able to assist start-ups with financing. They also assist those with a poor banking history and businesses in underserved areas.
As we move farther and farther away from that economic downturn, we're really seeing more startup businesses coming to us, more individuals excited about the opportunity to start a business.
Bank of America
Karen Harrison, Bank of America senior vice president of small business banking, said that Bank of America works with CDFIs to provide more than $1 billion in financing to a variety of organizations including Accion and CDC Small Business Finance in San Diego.
The bank helps start-ups by being the largest investor in CDFIs with investments to more than 240 CDFI partners.
Harrison said that since the recession there has been a transformation in the loans handled by Bank of America with their partners.
"During the recession, it was more around credit challenges or lack of cash flow," Harrison said. "As we move farther and farther away from that economic downturn, we're really seeing more startup businesses coming to us, more individuals excited about the opportunity to start a business. Their challenge is that they just haven't been in business that long."
CDFIs can be presented as a community development loan fund, a community development venture capital fund and a community development bank or credit union.
According to Harrison, in order to receive a loan, Bank of America requires someone to have been in business for at least two years.
Small businesses often have a hard time qualifying for conventional loans from banks because the amount of money they need is too small for traditional banks.