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Applying for a Loan with a CDFI Lender- The Emotional Journey and the Personal Transformation

This summer we’ve been discussing the business funding milestones and the journey your business takes as it moves from being self funded to CDFI loan-ready and then finally to bank qualifying. We’ve focused mostly on how to get your business ready. But what about what you need to do personally to prepare for this process?

Applying for a business loan is a seemingly straightforward transaction, where an applicant provides documentation and the lender either approves or denies the loan request. However, the loan application process can be an emotional one, with the entrepreneur feeling vulnerable as everything about their business and finances is scrutinized, questioned and put to the test. It may even involve facing hard truths that are revealed along the way.

When an entrepreneur starts a business, it can feel like their baby—their signature creation—and a personal reflection of themselves and their passions. Naturally, it can be intimidating to have others analyze your baby, so it takes a lot of courage to pull through. Knowing what to expect from this process and being able to handle your own emotions is critical to success.

Keeping your expectations in check.

Applying for a business loan is generally an exciting endeavor because it’s an opportunity to grow to the next level. At first, it might seem easy because all you have to do is put together some documents and off you go. Especially if you are working with a mission-based lender, a CDFI like CFNMD, focused on supporting small businesses. They are helping entrepreneurs, they are a non-profit, and they will be flexible. Easy-peasy, right?

Not necessarily.

While it’s true that mission-based lenders are focused on helping, and that the loan application process is much easier if you have all of your documentation ready to go, that doesn’t mean CDFI lenders approve loans to any small business that needs some cash. On the contrary, the CFNMD and other CDFIs must be very responsible with the loan funds they receive from public and private sources. They do their due diligence like any other lender to make sure their resources support the businesses that both need help and are positioned for long-term success. Yes, their lending requirements may be less stringent than traditional lenders, but they still need to make sure that the funds they invest (through loans) in businesses like yours actually help grow jobs and the economy. They also have to make sure loan funds can be repaid, so that they can be reinvested into other businesses in the future.

All this to say that while CDFIs are flexible mission-based lenders, they still do their homework in evaluating your business. It’s not personal; it’s part of being accountable to the community. So go ahead and get yourself and your documents ready for the loan application process. Just be ready for some constructive feedback and even some tough love.

It might get worse before it gets better.

As you go through the loan application process you might be asked questions about your business you don’t immediately know how to answer. You might be asked to provide documentation using completely unfamiliar terms. You might find out that your long-time tax preparer doesn’t have the skills to support your finances now that you’re a business owner. Or you realize that you don’t know your numbers as well as you thought, that you don’t really know who your clients are, or that you’re wasting resources because you don’t really know what you’re doing.

This might all sound harsh, but it happens every day. And it’s alright. It’s all a part of the process.

If you have the courage to be vulnerable, open to guidance, and resolve to find solutions, you’ll come out of the process as a different, elevated entrepreneur, with a business poised for growth. The experience will transform you just like how a caterpillar becomes a butterfly.

It’s also important to develop a good relationship with your lender. The CFNMD and other CDFIs will guide and connect you with resources and professionals that can help you overcome whatever challenges arise during the application process. And as you tackle those issues, you'll become more empowered through having a deeper understanding of your business, the peace of mind of having a solid business foundation, and trusted professionals on your team that can support your ongoing business growth. You’ll get what you need to successfully complete your application and get approved for your business loan.

Mentally prepared. Documents ready. Go for it!

Now that you have reset your expectations, and are prepared to become CDFI Loan-Ready, it’s time to connect with your lender to start your business loan application.

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