The SDL Program operates through CDFIs, which are financial intermediaries that provide small dollar loans to underserved and distressed communities. Here’s a step-by-step overview of how the program is administered:

1) CDFI Fund Allocation: The CDFI Fund allocates SDL Program Awards to CDFIs through a competitive application process. CDFIs must demonstrate their capacity to offer small dollar loans and their ability to meet the program’s objectives.

2) Loan Characteristics: The SDL Program prioritizes funding for applications that propose to offer small dollar loan programs with the following characteristics:
a. Loan terms of at least 90 days
b. Underwriting based on the borrower’s ability to repay, considering both income and expenses
c. Loan decisions made within one business day (24 hours) after receipt of required documents
d. Reduction in loan rate for borrowers using automatic debit payments
e. Automatic savings features built into the loan
f. Access to financial education, including credit counseling

3) Community Impact: The SDL Program aims to help unbanked and underbanked populations build credit, access affordable capital, and integrate into the mainstream financial system. The program supports activities that result in more favorable financing rates and terms for borrowers.

Eligible Activities:

• Loan Loss Reserves (LLR): Funds to cover potential loan losses, ensuring the sustainability of small dollar loan programs.
• Technical Assistance (TA): Support for staff training, credit monitoring, marketing, and other operational needs.
• Financial Education: Providing borrowers with access to financial education and credit counseling.

Ineligible Activities:

• Prohibited Lending Practices: SDL Program Awards cannot support small dollar loan programs with lending practices that do not align with the program’s objectives, such as high-cost loans or loans with terms less than 90 days.

The CDFI Fund evaluates applications based on several criteria:

• Alignment with Program Objectives: The extent to which the proposed SDL Program aligns with the identified small dollar needs and financing gaps.
• Favorable Financing Rates and Terms: Demonstration that the program will result in more favorable financing rates and terms for borrowers.
• Achievability: The feasibility of the projected activities based on the organization’s strategy and track record.
• Borrower Selection Process: A clear process for selecting borrowers with a demonstrated need for small dollar loan financing.
• Credible Pipeline: Evidence of a credible pipeline of potential borrowers.

The SDL Program offers several benefits to both CDFIs and communities:

CDFI Benefits:

• Funding Support: Grants for LLR and TA to establish and maintain small dollar loan programs.
• Operational Support: Assistance with staff training, credit monitoring, marketing, and other operational needs.

Community Benefits:

• Access to Affordable Loans: Providing alternatives to high-cost small dollar loans.
• Credit Building: Helping unbanked and underbanked populations build credit and access affordable capital.
• Financial Education: Offering access to financial education and credit counseling.

The Small Dollar Loan Program is a vital initiative for expanding access to affordable financial services in underserved and distressed communities. By providing grants for LLR and TA, the program supports the establishment and maintenance of small dollar loan programs that are safe, affordable, and responsible. For more information on how to apply and detailed guidelines, please visit the official CDFI Fund website.
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