Business Opportunities in Community Development Lending
Community development loans can be profitable for financial institutions.
At this meeting, nonprofits and lenders shared ideas for creatively financing small businesses, economic development, affordable housing and other community development projects.
The consensus: Expect to succeed, although the road to financing can be long.
To cosponsor a meeting on this topic, contact Claire.M.Greene@bos.frb.org.
Consensus of the meeting: Best practices for borrowers (small businesses and nonprofits)
- Work with partners (SBA, municipalities, public and quasi-public agencies, CDFIs, CDEs).
- It’s never too early to start talking with potential partners.
- Current economic conditions require creativity.
- Balance priorities of various partners.
- Have a business plan, understand your industry and competition and assess near- and long-term obstacles.
- Look at your board composition and governance practices.
- Tap the knowledge of consultants, attorneys, accountants.
- Green projects are attractive.
- Communicate at all stages of the deal.
- Expect to succeed, although the road to financing may be long.
Consensus of the meeting: Best practices for lenders
- Treat these loans as good business for the bank, not merely a way to satisfy CRA requirements.
- Partnerships with SBA, community development financial institutions and community development entities can provide financing and structure that makes loans bankable.
- Collateral may not be equal to loan value, so management experience is vital.
- Small business owners may need to work with an accountant to substantiate the business cash flow.
- Encourage business owners to hire experienced attorneys, accountants and advisors.
About the presenting organizations
- Children’s Investment Fund, a community development financial institution (CDFI), provides grants, early-stage loans and technical assistance for childcare facilities.
- Common Capital (formerly Western Massachusetts Enterprise Fund), also a CDFI, makes loans from $500 to $300,000 in order to create jobs and eliminate blight.
- Federal Home Loan Bank provides wholesale funding for member banks to make community development loans and offers technical assistance to nonprofits.
- MassDevelopment, a quasi-public agency, provides direct loans, guarantees and technical assistance. Loans and participations can be as much as $5 million.
- Mutual Housing Association of Greater Hartford borrows to advance its mission to provide affordable housing and stabilize 29 communities around Hartford.
- Nuvo Bank & Trust is a community lender in the Pioneer Valley. Maximum loan size is about $1.5 million.
- PeoplesBank lends to many nonprofits in Western Massachusetts. Loans cluster around $4 million or $5 million.
The Springfield meeting brought together organizations that provide financing at different stages and showed how they fit together. One affordable housing project, for example, had 16 participants, including 3 banks.
- DeAnna Green – Director, Financial Institution Relations & Outreach (FIRO), Federal Reserve Bank of Boston
Panel I: Business Opportunities in Small Business and Nonprofit Lending
“Getting to Yes”
- Jeff Sattler – Nuvo Bank & Trust
- Chris Sikes – Western Massachusetts Enterprise Fund
- Marian Poe-Heineman – PeoplesBank
- Charlene Golonka – MassDevelopment
Panel II: Investment Opportunities in Community Development
“The Collaborative Path to the Deal”
- Mav Pardee – Children’s Investment Fund
- Catherine MacKinnon – Mutual Housing Association of Greater Hartford
- Kenneth Willis – Federal Home Loan Bank