Home > Community Development > Community Development Publications & Videos > Cascade > No. 83, Fall 2013
CDFIs Increase Access to Capital Markets, Federal Loan Programs, and Corporate Support*
Community development financial institutions (CDFIs) are increasing their access to funding from larger capital markets, such as the Federal Home Loan Bank (FHLB) System, federal grant programs, and private corporations. In addition, the new CDFI Bond Guarantee Program authorizes the U.S. Treasury to guarantee up to $1 billion a year in long-term capital to support CDFI lending and investment activities in underserved communities.
- FHLB System: The first CDFIs joined the FHLB System in 2010. As of March 31, 2013, FHLB members included 15 CDFIs, five of which had taken $38 million in advances.1 Sixteen CDFIs2 were FHLB members as of the second quarter of 2013, said Cheryl A. Neas, senior vice president of Opportunity Finance Network (OFN). CDFIs that have been certified by the CDFI Fund are eligible to join the FHLBs.
- U.S. Small Business Administration (SBA): The SBA launched Community Advantage, a pilot program that targets community-based, mission-focused financial institutions that had previously been unable to offer SBA 7(a) loans. The maximum Community Advantage loan size is $250,000, with SBA guarantees of 85 percent on loans up to $150,000 and 75 percent on those greater than $150,000.
Forty-eight CDFIs participated in the program and had approved 265 loans totaling $36.9 million as of June 2013, according to the SBA. CDFI Community Advantage lenders include the Progress Fund and the Washington County Council on Economic Development in Pennsylvania, the Trenton Business Assistance Corporation and Union County Economic Development Corporation in New Jersey, and First State Community Loan Fund in Delaware.3
- USDA Rural Development: Many CDFIs also participate in USDA Rural Development programs. OFN’s annual member survey for the 2011 fiscal year showed CDFI participation in the following programs: Intermediary Relending Program — 46 CDFIs; Rural Business Enterprise Grant — 40 CDFIs; Rural Community Development Initiative — 24 CDFIs; Business & Industry Loan Program — 16 CDFIs; and Rural Business Opportunity Grants — 16 CDFIs.
- Healthy Foods Financing Initiative: In 2011–12, eight CDFIs received a total of $5.8 million from the Healthy Foods Financing Initiative located within the U.S. Department of Health and Human Services.4 The Philadelphia-area grantees were The Reinvestment Fund in 2011 and the Enterprise Center Community Development Corporation in 2012.
- Starbucks–OFN Program to Create Jobs: The Starbucks Corporation developed a program with OFN in 2011 to address the issue of unemployment. The Starbucks Foundation made a grant of $5 million to seed the Create Jobs for USA Fund,5 and Starbucks stores provided “Indivisible” wristbands to donors who contributed $5 or more.
The fund has been supported by donations from 800,000 individuals and more than 20 corporate entities, including Citi Community Development, the Citi Foundation, Google Offers, and Banana Republic, explained Beth Lipson, executive vice president at OFN.
The fund has raised $15 million, supporting OFN capital grants to 112 CDFIs. The grants have supported CDFI loans of approximately $105 million to community businesses,6 creating or retaining 5,000 jobs, Lipson said.
Greg Forget had worked at Frechette’s Sales and Service, a landscaping and garden equipment center in Buckfield, ME, for about two years when the owner retired. Forget put together a business plan and obtained financing and technical assistance from Community Concepts Finance Corporation, a CDFI based in Maine, and Create Jobs for USA, a partnership of the Starbucks Foundation, Starbucks’ customers, and the Opportunity Finance Network. Today, the business employs Forget and two other employees.
According to Lipson, this program, which was created to tackle unemployment, shows “CDFIs as a solution to a difficult problem” and puts CDFIs in the national spotlight. In addition, the partnership demonstrates that many people, including a company’s customers, care about the issues in which CDFIs are involved, she said.
- Leadership at State and City Levels: CDFIs are leaders in 20 state and city initiatives on issues such as healthy foods financing, and sometimes they convene meetings with government, nonprofit, and business partners to address issues collaboratively, Pam Porter, executive vice president at OFN, pointed out.
- New Markets Tax Credits: CDFIs are among the entities that have been certified by the CDFI Fund as community development entities (CDEs) to participate in the new markets tax credit program. The program attracts investment capital in low-income communities by permitting investors to receive federal tax credits in exchange for equity investments in CDEs. Since the program’s inception in 2000, the CDFI Fund has made awards allocating $36.5 billion in tax credit authority.
- CDFI Bond Guarantee Program: The U.S. Treasury has received authority in the 2013 fiscal year to guarantee up to $500 million in bonds, which will be issued by Qualified Issuers (certified CDFIs or their designees).7 The bonds, including principal, interest, and call premiums, will be 100 percent guaranteed by the federal government with a maximum maturity of 30 years. The Federal Financing Bank will be the sole purchaser of these bonds.
Decisions regarding commitment of the 2013 Guarantee Authority are expected by the end of September. OFN believes that the program was oversubscribed by at least $100 million, indicating strong CDFI industry demand for the availability of affordable, long-term debt capital.
Greg Bischak, financial strategies and research program manager of the CDFI Fund, said that the program was “a hallmark of the maturation of the industry."