Inaugural Small-Dollar Loan funding round saw credit unions receive close to $3 million in 2021.
The Federal Reserve says many Americans do not have enough savings to meet an unexpected expense of $400. Where can those people go when they need money quickly?
A storefront check-cashing service. A payday lender. Or perhaps they can visit their neighborhood Community Development Financial Institution (CDFI).
What is the CDFI Small-Dollar Program?
Once again, the CDFI Program has funding for a Small-Dollar Loan (SDL) Program to encourage qualifying institutions to offer small-dollar loans.
The Fiscal 2021 funding round was the first-ever for the program and more than $10 million in grants were awarded to CDFIs. Of that total, 13 CDFI credit unions received grants totaling $2.8 million. The Biden Administration has requested that Congress appropriate enough money to provide grants in FY23.
How and When to Apply for the Program
The SDL program will be accepting applications for the next round later this Spring. The Treasury Department said that as part of an SDL grant application, financial institutions will be asked to provide a clear narrative about how the grants would benefit their organization and community.
The SDL program awards two different types of grants through a competitive process. Loan Loss Reserve grants may be used to cover losses on small-dollar loans associated with starting a new or expanding a current program. Technical Assistant grants may be used for staff support, equipment, technology, supplies and other costs to cover establishment of a loan program or the expansion of a current one.
Who is Eligible for the Program?
To be eligible, a CDFI must make small-dollar loans that do not exceed $2,500; are repaid in installments; have no prepayment penalty and have payments that are reported to at least one of the consumer reporting agencies that compiles and maintains files on consumers on a nationwide basis.
In its FY23 budget request, the Treasury Department said that because the program is in its infancy, it is too early to measure how well the program has operated. The department said that performance data will be included in its FY24 budget request.
How Your Credit Union Can Access the Small-Dollar Loan Program
To learn more about the SDL Program and CDFI eligibility for credit unions, including the numerous other award and grant possibilities it could unlock, visit our CDFI Certification page or contact us today for a free opportunity assessment.