Did you know that the CDFI Fund has a program that can help your organization expand and strengthen your small dollar lending program? The CDFI Fund’s Small Dollar Loan Program (SDL Program) was created to help expand consumer access to financial institutions by providing alternatives to high cost small dollar lending.
The SDL Program provides two types of awards through an annual competitive application process. SDL Program Loan Loss Reserves (LLR) and Technical Assistance (TA) Awards are tools that can help an organization establish a new small dollar loan program or expand an existing program. For this program, small dollar loans are defined as unsecured loans of up to $2,5001.
- LLR Awards may be used to cover losses on small dollar loans associated with starting a new small dollar loan program or expanding an existing small dollar loan program.
- TA Awards may be used for technology, staff support, supplies, equipment, development, and other costs associated with establishing a new small dollar loan program or expanding an existing small dollar loan program.
- SDL Program award funds may not be used to provide direct loans to consumers.
The CDFI Fund will open the fiscal year (FY) 2022 application round for the SDL Program later this Spring. If you’re interested in applying this year, now would be a great time to think about how an SDL Program award might benefit your organization. As part of the FY 2022 application, you will need to provide the CDFI Fund with a clear narrative of how your proposed award types will benefit your organization and your community.
For example, an organization interested in applying for an LLR Award may wish to think about how receiving an award would transform its small dollar lending program. How would an LLR Award affect its expected ability to attract new capital? How might it need to adjust its risk and impact profile for increased reserves? An organization interested in a TA Award, however, might want to consider the staff and resources it may need to grow its lending.
Different financial institution types may decide to use an SDL Program award in different ways. Past successful applicants have proposed using their awards in the following ways:
- A previous award recipient will use its LLR Award to attract additional capital to increase deployment. Because of the historic loss rates that occur with small dollar lending programs, many investors require at least a 15% reserve.
- A different award recipient will use its TA Award to track the impact outcomes of its small dollar lending program by assessing credit pulls at the time they applied for an award and one year later.
- Another award recipient will use its TA Award to partner with a technical services company to provide quick processing capabilities and a user friendly interface for its small dollar lending program.
- Finally, a previous award recipient will use its LLR Award to increase its loan loss reserves for a new small dollar loan product that is unsecured and available to borrowers with a lack of credit history or lower than average credit scores.
Thinking through your organization’s strategy for your small dollar lending program will help you prepare for the application process. To learn more about the Small Dollar Loan Program, please visit the CDFI Fund’s website at www.cdfifund.gov/sdlp. And be sure to sign up for notifications about upcoming educational opportunities about the program and for more details when the FY 2022 application round opens later this year.
Tanya McInnis is the Program Manager of the Small Dollar Loan Program
1 Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111–203).
