2025 CDFI Survey: Can Secondary Markets Help CDFI Loan Funds Grow

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Introduction

Our recent 2025 CDFI Survey Key Findings Report summarized responses from all community development financial institutions (CDFIs) who took the survey. However, "CDFI" is a broad moniker for a very diverse set of organizations. Many people are familiar with community banks and credit unions, but perhaps less so with loan funds. Loan funds are place-based organizations, often nonprofits, that can leverage external funding to deliver financing for undeserved individuals and communities. They are the most common business model type of all certified CDFIs, and they accounted for just under half of 2025 survey respondents.

The unique benefits of the loan fund business model lie in their flexibility, as laid out in a recent report by the Opportunity Finance Network (OFN). CDFI loan funds respond quickly to economic need because they know their localities well, they blend multiple sources of capital allowing for accessible and responsive interest rates for their borrowers, and they underwrite their loans differently than depository banks and credit unions.

However, one challenge of the loan fund model is that it relies on external sources of funding. This makes the model highly susceptible to funding changes from public, private, or philanthropic sources. A potential strategy that CDFIs could use to increase their liquidity is to sells loans on a secondary market.

This Regional Matters post will examine loan fund responses to the 2025 CDFI Survey: the business lines and top funding sources, as well as how many have leveraged secondary markets as a funding strategy.

Respondent Loan Funds

What were the characteristics of the loan funds that responded to the 2025 CDFI Survey? Half of loan fund respondents were small business lenders, while just under 20 percent were residential real estate lenders.

About half of all loan funds in our sample could be considered medium asset size with total assets between $20 million and $375 million. More than 40 percent were smaller, with total assets less than $20 million.

Small business loan funds in the sample had median assets around $20 million, with modest staffing levels (a median of 12 full-time employees). Loan funds that primarily offer home purchase (mortgage) finance tended to be larger, with median assets around $66 million and median staff of 16 full-time employees. While there were fewer real estate development-focused loan funds (both residential and commercial) in the survey sample, they had both the highest median assets and highest median full-time employees.

Although loan funds are typically highly localized, most of the loan funds that answered the CDFI Survey reported that they serve one full state or multiple states. This may indicate that respondent loan funds serve a larger geographic area than the average CDFI loan fund.

Funding Sources and Challenges

As noted, loan funds have to rely more on external sources of funding compared to depositories. Many loan fund respondents reported that funding from the federal government, philanthropy, and financial institutions constituted one of their top three funding sources. However, they don't only rely on external sources: Two-thirds of respondent loan funds reported earned income as one of their three largest sources of funding.

For years, loan funds (along with the overall CDFI industry) have been growing at a fast pace. In 2025, 76 percent of loan fund respondents said that their demand had recently increased, and the same share anticipated demand would continue to rise throughout the year. To keep up with consistently rising demand, loan funds have continually sought new methods of capitalization.

Loan funds also reported that their ability to meet more demand was most limited by challenges with lending and operational capital. They identified the cost of debt (interest rates) as the most challenging aspect of finding new lending capital. Additionally, they indicated that funders were not providing adequate operational funding for CDFIs to keep up with demand growth - a challenge that has long been cited by the CDFI industry.

Secondary Markets and Loan Funds

Selling loans enables financial institutions to free up capital on their balance sheet, which they can then relend. The secondary market refers to the financial market for those previously issued loans. CDFIs have identified this as a potential funding strategy, and the Federal Reserve Bank of New York's 2022 research showed that some loan funds were leveraging secondary markets. In addition, the New York Fed found that most of the volume of CDFI loans sold on the secondary market is from credit unions and banks, but there is a higher number of loan funds selling lower volumes of loans.

In response to survey questions on secondary market usage, 21 percent of 2025 loan fund respondents said they have sold loans as a funding strategy. Respondent loan funds that had used secondary markets tended to be larger. The median assets of loan funds that had sold loans as a funding strategy were double those loan funds that had not ($23 million in assets, compared to $47 million).

Loan funds are more likely to sell low volumes of loans than depository CDFIs. About 30 percent of respondent loan funds had sold a volume of $1 million or less. Importantly, CDFIs' primary business line does not directly dictate the types of loans they sell. Forty-four percent of respondent loan funds sold small business loans, while around one-fifth had sold home purchase (mortgage), commercial, or residential real estate loans.

Of respondent loan funds with experience selling their loans, half said that they were challenged to find buyers for the type or volume of loans that they sought to sell. Forty-five percent of respondent loan funds that have not yet sold loans expressed that they have considered it. They may face similar challenges in finding buyers when they try to sell or may have already been deterred by similar conditions.

Conclusion

The loan fund business model relies on external funding sources. This could present a challenge if interest in funding CDFI activity from typical sources (federal, philanthropy or bank) wanes.

One potential solution could be selling loans on the secondary market, but it may not be a viable solution for every CDFI. Based on responses in the 2025 CDFI Survey, secondary market loan sales are not likely to be a full replacement for large funding sources. Additionally, smaller CDFIs who do not have sufficiently high volumes of loans to sell, or those who are not selling small business, mortgage, or real estate loans may be challenged to find an existing market.

Read more about CDFIs and secondary markets through Fed Communities. Interested in more sector-specific posts from the 2025 CDFI Survey? The Richmond Fed will continue to release findings from the most recent CDFI Survey throughout 2026, so stay tuned!

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.