By Manuel Tovar, July 30 – Hispanic Solutions Group
Financial experts say that: Alternative financing does not have to be predatory.
It is not surprising that a large part of the population does not have strong relationships with traditional financial institutions (banks or credit unions). Look no further than the recent Covid-19 relief program, the Paycheck Protection Program (PPP), where story after story pointed to business owners, particularly minorities, who couldn’t access the Paycheck Protection Program (PPP) because they didn’t have strong banking relationships.
As is known, even before the pandemic, low-income communities and individuals have experienced disproportionate access to traditional financial products. In South Carolina, 26.1% of the population is considered unbanked or underbanked, despite a great need for credit or financing.
Alternative lenders and finance companies such as payday lenders, car title loan companies, buy here and pay here lots, and check cashing locations are common options for people with bad credit, no credit or without a traditional banking relationship.
Unfortunately, many of these financial alternatives charge a high price for their services. In fact, many individuals or small businesses end up in a worse financial situation due to extremely high interest rates (up to 300%) and unfavorable conditions, or they end up trapped in a pattern of loan refinancing, leading to more debt.
In South Carolina, alternative finance companies are located on almost all major thoroughfares, particularly in low-income communities or areas of the “banking wilderness”. Predatory practices prey on unbanked customers by promoting their speed, convenience, and minimal requirements.
It’s true, loans are risky. However, the cycle that predatory practices have created has caused many with minimal financial education, low credit scores and a lack of understanding of all the components of a loan to become victims of loans that they cannot pay. The need for more education and more affordable alternatives is clear.
Lower-cost, community-minded solutions, such as Community Development Finance Institutions, are crucial. CDFIs can be traditional banks, credit unions, or loan funds, but in all cases, they are mission-driven and community-centered; many are also non-profit organizations.
These community lenders help support communities by investing in economically underserved or underrepresented individuals, small business owners, and communities that may not be served by conventional lenders. Today’s CDFI industry dates back to the 1970s, when activists moved to counter the red-marking practices of banks and redirect capital to urban areas through the formation of community-controlled banks.
Certified and funded in part by the CDFI Fund From the U.S. Treasury, CDFIs look at more than just credit, digging into collateral, character, capacity, payment history, and more. To support borrowers on their financial journey, CDFIS views loans through a lens of grace, understanding that “life happens” and, most importantly, CDFIS combines extensive personal and business financial training to help develop a plan. financial for borrowers, not just for a decision, but for future credit needs and financial stability.
Depending on the CDFI, available financial products could include consumer, small business, mortgage and / or commercial loans. CDFI banks and credit unions tend to carry a full range of financial products and training, while loan funds may specialize in affordable housing and / or small business loans. Some also offer cheap consumer loans as an alternative to payday lenders.
So why haven’t you heard of these mission lenders? In South Carolina, there are approximately 12 of these organizations. Various banks and credit union CDFIs, offering comprehensive deposit and banking services as well as loans with a focus on serving low-income households and communities.
These organizations are mission-based and focused on promoting community development in distressed urban and rural communities by increasing the availability of credit, investment capital, and financial services available with a strong focus on financial counseling. These organizations offer lower interest rates than predatory practices, have a more flexible underwriting, and provide extensive financial training.
Although there are over a thousand CDFIs nationwide, they may not have the financial capacity or loan capital of a traditional bank. Fortunately, in many cases, CDFIs partner with traditional financial institutions to help individuals and small businesses build a financial track record.
We invite you to follow our social networks: LinkendIn, Facebook, Twitter and Instagram to find more information related to finances. Also on our YouTube channel The Credit Channel to learn how to improve your credit. If you need help in repairing your credit, disputing debts that do not belong to you, or other services, call us at (612) 216-1599.