The state of Michigan will offer $19 million in funding to organizations that offer loans and other support services to small businesses across Michigan that have difficulty accessing credit.

Lawmakers allocated the funding in a budget for the state's 2024 fiscal year that starts Oct. 1 and awaits Gov. Gretchen Whitmer's signature. The funding will go to certified community development financial institutions (CDFIs) that work with entrepreneurs, particularly in underserved, low-income and rural markets, and support projects for affordable housing.

The $19 million included in the next fiscal year state budget follows the $75 million that legislators earmarked for the 2023 fiscal year for nonprofit CDFIs in Michigan. The Michigan Economic Development Corp. that administers the Michigan CDFI Fund distributed about $67 million to dozens of CDFIs that operate in the state.

The more than 50 federally designated CDFIs in Michigan must use 80% of the funding they receive to provide financial services and products to small businesses that may not otherwise qualify for a conventional commercial loan from a bank or credit union because, for example, they lack adequate collateral or credit history, or their venture is deemed too risky.

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​​​Another 10% can go to support technical assistance to entrepreneurs, such as providing skills training and business coaching. The remaining 10% can go to operations and administration.

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The funding "will provide low-cost capital to the CDFI community so that we can continue to grow our lending programs," said Jennifer Hayes, senior vice president of operations and policy at Invest Detroit that operates a CDFI "A lot of the challenges we face in Detroit, we're seeing in Grand Rapids, we're seeing in Northern Michigan. There's a lot of need for capital to different businesses, especially minority-led businesses, that banks aren't able to lend to because of the way they're regulated," Hayes said. "We can really provide some great financing."

A coalition of CDFIs that formed last year that secured $75 million in state funding sought another $75 million this year. Lawmakers who crafted the new state budget initially pared that amount to $35 million, and later to $19 million.
Just as with last year, the MEDC intends to seek applications from CDFIs for the new funding round.

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​"This is an opportunity to make sure that all Michiganders enjoy the same economic prosperity and access to resources across the state," said Amy Rencher, senior vice president for small business services at the MEDC.
Language in the budget that legislators adopted established the same guidelines for the Michigan CDFI Fund as last year that caps how much each CDFI can receive. Nonprofit loan funds can get between $500,000 and $4 million, based on criteria in the budget bill.

Deposit institutions such as credit unions that have net assets of $500 million or less can receive up to $1 million for their CDFI, or up to $2.5 million if they have assets of $2 billion or more.

CDFI loan funds usually borrow the capital that they lend, said Elissa Sangalli, president of Northern Initiatives, a Marquette-based CDFI that works and lends throughout the state and issued $9 million in loans last year. Sangalli, who chairs the Michigan CDFI Coalition, said the state funding will help to keep capital costs down amid higher interest rates of the last two years.

"The state's support will help Northern Initiatives offer reasonable loan terms to our borrowers during this rising interest rate environment." she wrote in an email to Crain's Grand Rapids Business.

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​​​​​​​​​​Elissa Sangalli, Northern Initiatives. Credit: https://northerninitiatives.org/

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The Michigan CDFI Coalition will continue to pursue additional state funding for CDFIs, Sangalli said. CDFI lenders can help borrowers who don't qualify for a conventional business loan to access the credit they need and prepare them to qualify for future credit from a bank or credit union, the MEDC's Rencher said. They offer "character lending" that can "get you in the door" and "help to bring people into the capital continuum," she added.

"CDFIs play a critical role in our lending and banking ecosystem and eventually we want to get people in the more traditional lending sphere," Rencher said. "The goal, ultimately, that we're all working toward is helping people move up the capital continuum."

According to Washington, D.C.-based trade group and financial intermediary Opportunity Finance Network, more than 1,300 CDFIs operate across the United States, with approximately 30 in Michigan. Some 60 percent of CDFI borrowers are people of color, 84 percent are low-income, and 50 percent are women.
The MEDC expects to open the application process this fall and quickly deploy the available funding, said Jake Winder, manager for community development incentives "We have all of the infrastructure in place," Winder said of the application process. "The bones of the program are still the same. So, I think we can move a lot faster than last vear."

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