Report From the Field: Are CDFIs prepared for the new Certification application?
In just seven months, certified CDFIs must submit a new application for certification. From our corner of the universe, there are some themes that are emerging that, if played out as we suspect, will dramatically change the landscape of the industry - both in terms of the number of (re) certified CDFIs and their composition (loan funds, CUs, banks, and VC funds). Based on our conversations with CDFIs across the country - small, medium, large and regardless of their 'book of business', and also with emerging CDFIs, we have observed the following:
#1. Many CDFIs are not tracking the release of the new application, or if they have, they have not read it. Here is the link to the 'paper' version. Or better yet, here is the 292 page Certification Application Guidance Memo. We anticipate that many CDFIs are underestimating the level of complexity in the application and not make it through on their first try. We suspect that many others will not track the December 20 deadline and get an unexpected email from the CDFI Fund terminating their certification status. Want a quick but comprehensive analysis of the major changes? Click here.
#2: There is no such thing as "Recertification": We observe a common misperception among some certified CDFIs that they are applying to be 'recertified.' According to the CDFI Fund, “all currently Certified CDFIs will be required to reapply for Certification.” However, at public events, staff have made it clear that every applicant is ‘new’ to the CDFI Fund. One day soon, the published list of currently certified CDFIs will disappear and be replaced by a list of newly certified CDFIs. It’s not an issue of semantics; the Fund will not review your original certification application, past award applications, or previous Service Requests. This should be a sigh of relief for the certified CDFIs who are concerned about the status of their Target Market modifications, for example. Geographic restrictions have been removed! It’s very freeing when you realize that you now have more flexibility to define your Target Markets and Financial Products, among other things. Accountability? Now, there is explicit guidance on governing board/advisory board composition. Keep this in mind, as you review the application.
#3: Certified CDFIs will likely discover they fall short of at least one application requirement. We have assessed the ‘readiness” of over 125 certified CDFIs to submit an application, and not a single one has met all the new or expanded requirements. All have had to make some changes in order to obtain certification. The most common areas we have observed are: acceptable evidence of board approval on organizing documents*; Community Development Strategy and Target Market verification policies which are both brand new requirements; and an accountable board.
#4. The new Certification application will succeed in protecting the ‘brand.’ what does that mean exactly? Going back to creating, the CDFI Fund thoughtfully designed the original application to cast as broad a net as possible over the types of entities that could qualify for certification, not knowing exactly what to expect. However, many entities (‘bad actors’) fronted themselves as mission-driven lenders when they were not, and were able to exploit the broad guidelines and obtain certification. The new certification application will take care of that! It's a safe bet that the applications of hundreds of currently certified CDFIs will be denied entrance at the doorsteps of the Treasury Department. From our experience thus far with fielding inquiries from many ‘emerging CDFIs,’ the conversation ends once they understand that the goal of creating a CDFI is not ‘access to cheap money’. At the end of the day, the CDFI Fund will have restored the brand!
#5. Stop freaking out about the revised requirements to document Development Services. The new application added the terms "formal and structured" to explain the who, what, why and how about the DS you provide pre and post loan. And this is required for only one DS! It's no secret that the documentation required to verify DS in the original application was weak. It should be a given that CDFIs will be proud to explain how their Development Service(s) are designed to help borrowers build and grow sustainable small businesses, build financial capacity to improve their credit, purchase and maintain a new home, buy a vehicle, create community facilities that improve the lives of the people that are the beneficiaries of these investments, and more!
#6: Certification is a Professional Development Exercise. We’ve noticed that once an organization receives its initial CDFI Certification, it's easy to lose sight of what the requirements to remain certified are -- especially as it relates to Accountability and Target Market.** We recommend that you use certification as a great opportunity to educate staff and board about what it means to be a CDFI, what it takes to obtain certification, and why CDFIs are the lender of choice for financing a more inclusive and equitable economy. Ping us to get more ideas about professional development for your team!
Good luck!
*Pro-tip - The CDFI Fund requires a signed statement by the board as evidence of their approval of all organizing documents and the Community Economic Development strategy.
**For example, to complete the ACR previously, a CDFI simply had to attest that it continues to meet the certification criteria. Moving forward, you'll be required to document that you continue to meet the criteria.
