CDFI Research Update

Capital available for financing allows CDFI loan funds to invest in the communities they serve. Overall, CDFI loan funds’ capital available for financing comes from their capital stack, comprised of net assets (equity capital), debt capital (lines of credit and loans payable), and equity equivalent investments (EQ2). CDFI loan funds’ lending strategy and capacity are affected by shifts in this mix of capital. We assess the aggregate capital stack in the sample and changes by capital component.

Aggregate capital available for financing increased from $17.3 billion in 2023 to $19.8 billion in 2024. Broken down by components, we found:

• Net assets rose from $6.62 billion in 2023 to $7.67 billion in 2024.
• Debt capital rose by $1.30 billion, from $9.56 billion to $10.87 billion in 2024, which like 2023, was a strong year for growth in total debt capital.
• EQ2, a small share of the aggregate capital stack, grew from $1.13 billion to $1.29 billion.

The upward trajectory in 2024 continued the capital growth trends of the five-year period, especially in the latter part of the time frame. From 2020 to 2024, net assets grew from $4.89 billion to $7.67 billion (56 percent), debt capital grew from $8.06 billion to $10.87 billion (35 percent), and EQ2 grew from $0.65 billion to $1.29 billion (98 percent). Combined, this meant that aggregate capital available for financing increased 45 percent from 2020 to 2024, from $13.63 billion to $19.83 billion.

Organizational characteristics like size, lending sector, and geographic service area provide insights into how CDFI loan funds attract capital. This analysis shows trends in the average percent composition of capital stacks (i.e., average percent debt capital, percent net assets, and percent EQ2) over time for three organizational characteristics compared to sample wide baseline levels. Using these organizational characteristics, we created subgroups by sector (business, community and commercial, housing lenders), size (small, medium, large), and geography (major urban lenders, smaller urban and rural lenders).ⁱⁱ

There was little change in baseline capital composition between 2023 and 2024. Shares of net assets and debt capital changed by less than one percent, with a slight increase in the net asset proportion (staying at approximately 50 percent from 2023 to 2024) and a slight decrease in debt capital (from 44 to 43 percent). In other words, the post-2022 stability continued in 2024. Before 2022, there were noticeable changes in average capital composition. In 2020, debt capital was at its highest share (49 percent) due to pandemic-era funding programs and CDFIs’ vital role in administering pandemic-era relief. Into 2021 and 2022, pandemic-era programs wound down and debt capital decreased as a share. By 2022, net assets increased to their highest average share (50 percent) of member capital stacks.

Capital composition was not the same across organizational characteristics. Business lenders, smaller members, and members lending in smaller urban and rural areas were generally less able to attract debt capital than net assets. Meanwhile, community and commercial lenders, housing lenders, larger members, and major urban lenders had greater shares of debt capital. Even though some organizational characteristics can overlap, differences in the capital composition of members based on their size, lending sector, and geographic service areas reveal disparities in members’ ability to attract debt capital.

Across some organizational characteristics, shifts in capital composition diverged from the baseline trend. Notably, there was more stability in capital composition for community and commercial lenders, housing lenders, and large members. This is related to these members’ business model: They have large, collateralized portfolios and can more easily attract debt capital. Although the post-2022 period was stable across organizational characteristics, the share of net assets fell for business lenders, smaller lenders, and major urban lenders after a 2022 high point.

Greater access to debt is closely tied to the ability to scale lending, so we look at member strategies for accessing debt capital (i.e., borrowed funds). Diversified debt capital helps CDFIs manage changes in capital availability, reduce risk, and increase borrowing opportunities. While some CDFIs may tailor their business model around a single source of borrowed funds, greater diversification often suggests resilience and flexibility in response to changing capitalization contexts.

In the AMS, we collect data on the composition of borrowed funds across 12 possible sources, which we describe and analyze later in this CDFI Research Update. We used these 12 types of borrowed funds to calculate a debt source diversity score.ⁱⁱⁱ Using this score, we analyzed overall borrowed funds diversification changes across the five-year period. On this score, 0 represents a member borrowing from a single source type of borrowed funds, while higher scores represent greater diversification. Readers can choose the base year (dark blue) to compare to the 2024 sample (light blue).

From 2020 to 2024, member loan funds diversified their sources of debt. Compared to 2020, more member loan funds in 2024 scored in high diversification ranges of 0.7 to 0.8 and 0.8 to 0.9. Meanwhile, the share of members that had the lowest diversity scores (the 0.0 to 0.1 and 0.1 to 0.2 ranges) decreased by half between 2020 and 2024. Overall, the mean debt source diversity score rose from 0.49 in 2020 to 0.55 in 2024 (the median rose from 0.55 to 0.61).

Trends were mixed between 2023 and 2024. The share of member loan funds at the highest levels of diversification increased, and the share of member loan funds at the lowest levels of diversification decreased. Although these changes at either extreme suggest increased overall diversification, members at moderate diversification levels seemed to move in the opposite direction. There were more members scoring in the 0.4 to 0.5 range and fewer scoring in the 0.6 to 0.7 range, showing a decrease in diversification for members in the middle range. This suggests that, for these middle-range members, some new sources of debt capital raised in the pandemic may have been temporary.

The sources of member loan fund debt capital changed over the five-year period. We show total debt capital growth, broken out by each of the five borrowed funds’ source categories, as well as aggregate year-over-year changes within these five categories.

Aggregate debt capital increased from 2023 to 2024 across all five categories. This continued the trend of increases in total debt capital across the five-year period, although 2024 was the first year that all five categories contributed meaningfully to growth. Banks played the largest role in driving growth in debt capital from 2023 to 2024, increasing by $0.67 billion. All four other sources of debt capital increased from 2023 to 2024 at similar levels to one another, with increases in the range of $0.12 billion to $0.19 billion. Throughout the five-year period, banks were the largest total source of debt capital, followed by other, government, mission-based organizations, and for-profit companies, respectively.

Organizational characteristics like size, lending sector, and geographic service area provide insights into the sources of debt capital available to CDFI loan funds. This visualization shows the average percent composition of borrowed funds from five categories over time based on the organization’s lending sector, size, and geography of lending. We include baseline trends in the entire sample for comparison.

Over the five-year period, baseline member composition changed most because of pandemic-era disruptions. Government was a larger source of borrowed funds in 2020 (24 percent) and declined in following years to 21 percent in 2024. Banks ebbed and flowed as a source of borrowed funds during the five-year period. Borrowed funds from banks declined as a share from 33 percent in 2020 to 29 percent in 2022, and then increased to 33 percent in 2024. Mission-based organizations became an increasing share of sample members’ borrowed funds (from 18 percent in 2020 to 24 percent in 2024). Other sources and for-profit companies made up smaller shares overall and, largely because of the patterns in debt from banks and government in 2021 and 2022, peaked as shares in 2022 before falling to 13 percent and 9 percent in 2024, respectively.

Sample members’ access to sources of debt capital varied according to their organizational characteristics. Throughout the five-year period, banks made up a greater share of borrowed funds for community and commercial lenders, housing lenders, larger members, and major urban lenders. Meanwhile, business lenders, smaller members, and rural and smaller urban lenders relied more on government and mission-based sources of debt capital. For-profit and other sources of borrowed funds were often more available to community and commercial, housing, and major urban lenders. Such disparities across all five sources of debt capital suggest that organizational characteristics affect debt capital access—CDFIs that are smaller, that lend to businesses, or that are focused outside of major urban areas seem to face barriers accessing debt capital from institutional lenders.

Organizational characteristics also aligned with different trends in sources of borrowed funds. Housing lenders and large member loan funds generally have more diverse sources of debt (and are thus often more stable). For these members, shares of government and mission-based debt capital rose, while their share of bank debt capital did not substantially rise from a low point in 2022. Meanwhile, for business lenders and small member loan funds, debt capital from banks increased from low levels in 2022 to a five-year high point in 2024. Lenders in smaller urban and rural areas did not experience substantial post-2022 growth in bank debt capital. This indicates there was a promising increase in bank debt capital to some, but not all, member loan funds that experience barriers to access.

The costs and flexibility of debt capital can impact member loan fund operations. Rising rates can result in increased costs of lending and lead members to raise interest rates for their borrowers. Shorter-term capital limits how flexibly members can, in turn, provide financing. We show cost of capital (weighted average interest rate) and remaining term of capital (weighted average) for sample members’ debt capital as both average and median values.

Trends show rising pressures for member loan funds. In 2024, interest rates reached their highest level in the five-year period (2.58 percent on average, median of 2.44 percent), following a steady climb as member loan funds absorbed elevated interest rates. Because of the multiyear nature of their debt, member loan funds do not immediately absorb higher borrowing costs. It is important to note that these were not dramatic rises and are presented on a small axis: Member loan fund borrowing costs rose 34 basis points from 2020, substantially lower than market-level increases.^iv

Remaining terms to maturity rose in 2021 as the need for emergency capital fell and then remained stable between 2021 and 2023. In 2024, terms fell on average by about a year, from around nine years (107 months) to around eight years (95 months). This was a low point in the five-year period (median terms fell by about half a year to seven years, or 82 months, also a period low). This trend indicates that debt capital decreased in flexibility, just as rate trends showed rising capital costs. This is a concerning but not insurmountable trend for member loan funds that require flexible capital with favorable terms to meet their mission.