CDC and CDFI FAQs
What is a CDC?
A community development corporation (CDC) is a nonprofit corporation which is chartered pursuant to Chapter 31, Title 33; is tax exempt pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as amended; has a primary mission of developing and improving low-income communities and neighborhoods through economic and related development; has activities and decisions initiated, managed, and controlled by the constituents of those local communities; has a primary function of developing projects and activities designed to enhance the economic opportunities of the people in the community served, including efforts to enable them to become owners and managers of small businesses and producers of affordable housing and jobs in the community served; is not a nonprofit organization with the sole purpose of providing housing to neighborhoods or technical assistance to other nonprofit organizations.
What is a CDFI?
A CDFI has a primary mission of promoting community development by providing credit, capital, or development services to small businesses or home mortgage assistance to individuals including, but not limited to, capital access programs, microlending, franchise financing, and guaranty performance bonds; maintains, through representation on its governing board, accountability to persons in need of the institution's services; is not an agent or instrumentality of the United States, or of a state or political subdivision of a state nor maintains an affiliate relationship with any of them; maintains a goal of providing a majority of its services to low-income individuals, minorities, females, or rural areas; provides capital and technical assistance to small and micro businesses or mortgage assistance to individuals; has been certified or recertified as a community development financial institution as provided in this chapter; and may be a federally-chartered or state-chartered financial institution holding company which qualifies as a community development financial institution only if the holding company and the subsidiaries and affiliates of the holding company collectively satisfy the requirements of this section.
What do CDC’s do?
A CDC helps a community address poverty and its symptoms. For example, many CDCs build affordable housing and create jobs for area residents. Jobs are often created through small-business loans or commercial business projects. Some CDCs create programs that tutor children after school, care for senior citizens, organize neighborhood watches and/or mobilize residents to affect local, state or national laws.
Much of a CDC’s strength comes from its community-based model. The term community-based means that people who do not live in the neighborhood will not control the work that occurs there. When used, this term is a commitment to justice and a promise to community residents. A CDC is located in the community it serves and staffed by residents in that community. At least half of CDC’s Board of Directors must be area residents. This model means that CDCs tailor projects and programs to community need, not their own.
What do CDFI’s do?
A CDFI is a specialized financial institution that works in market niches that are underserved by traditional financial institutions. CDFIs provide a unique range of financial products and services in economically distressed target markets including: mortgage financing for low-income and first-time homebuyers, financing for not-for-profit developers, flexible underwriting and risk capital for community facilities, and assistance to small start-ups or expanding businesses in low-income areas. CDFIs include regulated institutions such as community development banks and credit unions and non-regulated institutions such as loan and venture capital funds.
Why is a community-based model so important?
History has shown that police, government, private and non-profit forces monitor money-poor communities more than money-rich areas. In spite of good intentions, this surveillance is a form of control, and it can have devastating effects.
For example, studies from places like the Harvard Civil Rights Project (now housed at UCLA) show that illegal drug use in rich neighborhoods is equal and sometimes greater than it is in poor areas. But due to un-equal search and seizure laws and policies, more poor people are arrested for possession of illegal drugs than rich. This means that it is not only drug use but income that decides whether one person is free while another is in prison.
Organizations with a community-based model empower community members to create change where it matters most—in their own backyard.
How are CDC’s funded?
Like any non-profit agency, a CDC relies on grants, loans and donations from government, private companies, foundations and individuals to help fund their activities. Some CDCs have successfully created for-profit ventures that fund their non-profit work.
How are CDFI’s funded?
CDFIs attract capital from private and public sources. Private sector funds come from corporations, individuals, religious institutions and private foundations. Depository CDFIs, like community development banks and community development credit unions, derive capital from customers and non-member depositors. To operate effectively, CDFIs use long term and low-cost debt, equity investment, capital grants and operating grants. One crucial source of support for CDFIs is the federal CDFI Fund, administered by the Department of the Treasury. The CDFI Fund makes capital grants, equity investments and awards to fund technical assistance and organizational capacity-building. CDFIs apply for limited funds through a competitive process that requires the CDFI, in most cases, to provide at least a 1:1 match of non-federal funds to receive financial assistance. CDFIs use the money awarded through CDFI Fund programs to leverage private-sector resources into distressed communities. The CDFI Fund estimates that CDFIs leverage each federal dollar received from the CDFI Fund with an average of $20 in private and other non-CDFI Fund dollars. CDFIs have helped banks reassess their initial perceptions of risk in underserved markets and help them enter niche markets, cultivate future customers and deliver financial products and services to underserved communities. The work of CDFIs reduces bank risk because CDFIs are thought to have a deeper understanding of the local markets and have an ability to manage risk and provide critical technical assistance to customers. CDFIs also provide credit enhancement to bank financing providing subordinated debt to a bank’s commercial credit.
How can I support a CDC?
CDC’s are always looking for help. Contacting the CDC of interest is the easiest way to get involved. Find a CDC near you.
How can I start my own CDC?
Thinking about starting a CDC? Check out our CDC Startup Kit to learn how.
How can I form a CDFI?
How does SCACED help CDCs and CDFIs?
SCACED helps CDCs and CDFIs find capital by providing funding alerts, a collective advocacy platform and technical assistance. Technical assistance includes phone and email support, referrals and site visits. SCACED also helps member CDCs and CDFIs to gain exposure through listing opportunities and member spotlight features.
SCACED members receive:
Assistance with SC Department of Commerce Certification <text link to SC Commerce Certification Page>
Onsite technical assistance
Organizational assessments (board, staff and financial capacity)
Referrals to qualified consultants that can help to create new programs or enhance existing programs
Assistance with community meetings
Introductions to state lawmakers and national funders
Regional networking opportunities
Access to information (funding opportunities, industry news and events)
Exposure through the SCACED website
CDC Startup Kit
Step 1: Establish a Nonprofit
There is no national entity that certifies an organization as a CDC. Legally, a CDC is the same as any other nonprofit entity organized under section 501(c)3 of the Internal Revenue Code. Local community residents who are interested in forming a CDC should elect a board of directors, draft bylaws and file for incorporation with the SC Office of the Secretary of State. Once that process has been completed, they may apply to the federal Internal Revenue Service for designation as a tax-exempt nonprofit. The IRS designation is usually necessary for an organization to obtain grants and gifts from government entities, corporations, foundations and individuals.
The SC Association of Non Profit Organizations (SCANPO) serves as a statewide network for nonprofit board members and staff. SCANPO provides a lot of information about effective organizational practices and acts as an advocate for the nonprofit sector. It offers services directly to nonprofits of all sizes and types.
Step 2: Get Certified
Community Development Corporations and Community Development Financial Institutions were created to service the needs of the low-income population through community and economic development initiatives. Fortunately, resources are available to support those initiatives. To qualify for the available resources you must be a state certified organization through the SC Department of Commerce. State certified organizations are eligible for funding opportunities, technical assistance, and training.