On Wed., April 21, we proudly hosted several state legislators, community leaders and Finance Fund project partners at the Capital Club in downtown Columbus. It was an excellent opportunity to share how Finance Fund has positively impacted some of the state’s most distressed communities.

We highlighted four partnership “success stories,” including Ohio Basic Minerals in Jackson; Save-a-Lot grocery store in Columbus; Noble Learning Center in Caldwell; and Miami Valley Child Development Centers (MVCDC) in Dayton. Each project touted key Finance Fund goals – job creation, safe childcare access and neighborhood revitalization.

We shared important information about the New Markets Tax Credits (NMTC) program. Last October, we were awarded $50 million in NMTC funding, with $30 million designated specifically for non-metropolitan, rural areas in Ohio. Funding is still available for qualifying projects – we strongly urge those interested to contact us for more information on a possible partnership with us.

We thank our distinguished guests for their presence, and look forward to new partnerships that will lead to more jobs, revitalized communities and safer access to care.

We are characteristically small business lenders and have been for more than 23 years.

Our mission is to move resources into low-income communities. We have experienced growth in assets (from $50,000 in 1989 to $160 million in 2009) and have funded more than 2,400 projects that have resulted in significant impact and dramatic increase in demand.

Due to this demand, Finance Fund has begun the careful exploration to purchase a national bank charter. The bank would be an affiliate of Finance Fund and will maintain the mission of Finance Fund, which is to invest in distressed communities. Its purpose will not be to compete with other local, regional and statewide banks. Simply, the purchase of a bank will enable us to maintain our altruistic mission and collaboration with a bank’s profit mission.

On Feb. 18, 2010, the inaugural meeting of the BISC (Bank Initiative Steering Committee) was held.  This group of experienced, mission-focused individuals debated at length, the pros and cons of types of banks, timing and potential obstacles to this endeavor.  It was unanimously decided that a professional consultant would be sought-out to guide the BISC through the process of potential bank identification, and acquisition.  To that end, an official RFP has been issued.  The RFP, which can be found here, details the scope of work and minimum requirements desired of prospective candidates.

This begins yet another exciting chapter for Finance Fund.  As this exploration unfolds, look for further details of our progress.

Jennifer Deuber (Director of Communication) and Valerie Heiby (Director of Development) were with me on the trip and in spite (or because) of their best efforts I was re-elected to the Coalition’s board of directors. In addition the board, through some slip-up in procedure, ended up electing me as Treasurer of the board. Though I ran a covertly non-existent campaign that backfired, I am honored to accept this role.

It is an exciting time for CDFIs. They are being identified and recognized as a part of the nation’s financial services industry that has long been a stable and credible provider of community lending. That recognition is resulting in additional resources and confidence as a player in economic recovery of the country. We heard at the Institute that the Obama administration believes that CDFIs have a key role in recovery and ongoing community stability. It is our hope that Congress will come to the same conclusion.

In the midst of clamor, distress, insecurity, and despair, 2009 was a good year for Finance Fund though it was, by most accounts, unique and demanding. William Shakespeare said “Is it not strange that desire should so many years outlive performance?” If 2009 were to judge us by performance and not desire my characterization might not stand. From investor fatigue, credit anxiety, client frustration, and employment turmoil there wasn’t much that the year didn’t throw at us. But, despite the challenges confronted I stand by my declaration. “What doesn’t kill you makes you stronger.”

This was a year of staging for the next step. Though not necessarily sought, it provided and opportunity to examine, scrutinize, and calibrate a response to the dramatically changed market conditions. This realignment of staff and strategy has resulted in a stronger staff, new approaches at deploying resources, renewed enthusiasm for engaging staff and board, and an invigorated passion for new initiatives that help distressed communities. We’ve gone back to check our values, vision and mission, held them up against our strategies and recharged our batteries. Finance Fund’s renewed circumstance is due primarily to the growing strength of our people and their ability to embrace change by making it work for us not against us.

2009 has positioned us to explode into 2010 with a new fervor for mission and accomplishment as yet un-experienced by Finance Fund.  We have more than $75 million in loan funds and nearly $3 million in grants and linked deposits to place into Ohio’s distressed communities in the next 12 months. This is five times more resources than ever before. We have a number of initiatives that are moving forward with deliberate speed; i.e. “Wisely, and slow. They stumble that run fast.” (William Shakespeare) These, like the bank initiative and the CDFI funding initiative, will be “blossoming” in 2010. To say we are excited is to significantly underestimate our sense of expectancy.

One man’s remorse is another man’s reminiscence. (Ogden Nash)

This round of New Markets Tax Credit funding enables us to continue to invest in projects that support Ohio’s distressed communities. These projects help stimulate local economies through capital investment, job creation, and community development. You can read more about some of those projects here and here.

Join me in congratulating our team that has spent endless days and nights working on our NMTC application. Kudos to all of them in this successful effort that will benefit all Ohioans.

The week included two NMTC conferences (Novogradac and NMTC Coalition), a NMTC Coalition Board meeting, a couple of media interviews (Cleveland Plain Dealer and Wall Street Journal), a panel presentation at the Coalition conference, a fundraising breakfast with Rep. Richard Neal of Massachusetts, and a number of hill visits.

The week was capped off by offering testimony to a Congressional public hearing held by the Select Revenue Measures (Chair Richard Neal (MA)) a subcommittee of Ways and Means and Domestic Monetary Policy and Technology (Chair Melvin Watts (NC)) a subcommittee of Financial Services. The topic was a report by the Government Accounting Office (GAO) entitled “NEW MARKETS TAX CREDIT: Minority Entities Are Less Successful in Obtaining Awards Than Non-Minority Entities” (blogged – A D.C. Visit, June 15, 2009). There were seven witnesses; Donna Gambrell, CDFI Fund; Michael Brostek, GAO; Ron Phillips, NMTC Coalition; Blondel Pinnock, Carver Federal Savings Bank; William Cunningham, Creative Investment Research, Inc; Joseph Haskins, Harbor Bank; and me.

It was a long but productive trip. We’re working on the Child Care Facilities Financing Act of 2009 (H.R.1625), the 5 year extension of the NMTC program(H.R. 2628) and the CDFI funding in the budget bill. Looks like I’ll be heading back that way in July.

The morning of June 17th, I sat eagerly listening to Chairman Bernanke give a speech that substantially focused on Community Development Financial Institutions (CDFI). Please check out the Chairman’s speech, as he gives his thoughts about CDFI lenders and the challenges they face in the current economic and financial environment.

The most prevalent is the recently release GAO report “Minority Entities Are Less Successful in Obtaining Awards Than Non-Minority Entities” that attempts to identify reasons for the lack of success. I have some opinions but will do more on that later.

Then it’s lunch with Rapoza Associates Friday, getting ready for the New Markets Tax Credit Coalition Board meeting on Monday, and preparing for the NMTC Coalition Policy Conference on Tuesday and Wednesday. The Coalition is working on a five-year extension of NMTC, a House version of which has been introduced by Rep. Neil and Rep. Tiberi (HR 2628).

Sprinkled into the mix are a number of Hill visits in the House and Senate talking about the Child Care Facilities Finance Act (HR 1685) introduced by Rep. McCarthy and the Senate companion (S 1002) dropped by Senator Casey. It all comes to a conclusion with my testimony (thanks to an invite by Rep. Tiberi) to the Subcommittee on Select Revenue Measures of the Committee on Ways and Means and the Subcommittee on Domestic Monetary Policy and Technology of the Financial Services Committee. I’ll be talking about the GAO report. Busy trip!

Stimulus money gives a boost to small start-ups

A little-known provision of the massive $787 billion stimulus law recently passed by Congress doubles federal funding for so-called Community Development Financial Institutions (CDFIs) such as Community First Fund. That includes local thrifts, banks and non-profits that serve low-income neighborhoods often ignored by large institutions or exploited by high-cost predatory lenders. President Obama’s 2010 budget includes more money for the financiers, to help distressed areas hit hardest by the recession.

Overall, the stimulus law and budget plan allocate about $400 million over two years to community lenders, a huge increase from the roughly $50 million the Bush administration proposed in 2008.

That may seem like chump change compared with the trillions the Treasury Department and Federal Reserve have poured into large financial firms. But every dollar of CDFI funding should leverage $14 to $20 in economic activity, providing vital activity in low-income areas that were reeling even before the downturn.

“We are an organization that is not capitalized because our community is not capitalized. We have to try to negotiate money from the other part of town and bring it to this part of town,” says Carlos Graupera, executive director of the Spanish American Civic Association, surveying a block of tidy row houses built with a loan from Community First Fund. Across the street, 12 older homes are being renovated, also with CDFI dollars. Most are presold, bringing new life into what was once a notorious drug market.

Despite the bleak economy, Graupera and Community First Fund are pressing ahead with their most ambitious undertaking: a 5-acre commercial site with riverfront access — and toxic waste issues that have scared away private developers. They will bear the cost and risk of cleanup, on the bet it will make the site attractive enough that private funding will flow in to build housing and stores.

Because CDFIs see their primary role as stabilizing local economies, rather than generating big profits, they are eager to expand lending using stimulus funds. Some big banks, by contrast, have remained tight-fisted even with federal bailout dollars. Business lending at the largest U.S. banks plunged in February, the Treasury Department said. Demand has doubled at some of the nation’s 800-plus CDFIs as anxious borrowers seek financing.

“The federal money is more needed than ever because other sources of capital are in so much trouble,” says Julia Sass Rubin, assistant professor at Rutgers’ Bloustein School of Planning and Public Policy. With foundation money, state and local funding and capital from bigger banks drying up, the stimulus is “a multiple benefit. …You’re helping poor communities. You’re funding (lenders) that otherwise would have a challenging time finding capital, and it’s a time when banks are not lending like they were.”

Tightened lending standards

Community First Fund CEO Daniel Betancourt and his staff have seen a surge in calls from traditional clients and established businesses that haven’t been able to get loans as regular banks tighten standards or have less capital to lend against.

“We’re going to use this (money) to take more risks for our clients in this tough time,” says Betancourt, who is applying for $2 million in stimulus funding to supplement the $15 million fund. “People are coming up to us with sales that have gone down, with business that is eroding.”

Betancourt hopes to use the stimulus dollars to bolster the CDFI’s small-business and affordable-housing portfolio.

Community First Fund offers loans to underserved borrowers, mainly minorities and women, often with low credit scores or limited experience. It also finances affordable housing and commercial real estate loans to tonier projects, such as the high-end Lancaster Arts Hotel, if they fit its overall strategy for reviving urban neighborhoods and attacking concentrated poverty in 13 Pennsylvania counties.

Even with its riskier portfolio, Community First Fund held loan charge-offs to less than 2% in 2008, while some big, sophisticated banks took enormous financial hits and a slew of subprime lenders failed. Nationwide, loan losses at other CDFIs are comparable or even lower. But if the downturn is deeper than expected, community lenders could face wrenching choices.

“We have more demand than capital,” says Mark Pinsky, CEO of the Opportunity Finance Network, a consortium of CDFIs around the country. In the past 30 years, the so-called opportunity finance industry has lent more than $25 billion with net charge-offs of less than 1%.

“We have to make some hard choices,” Pinsky says. “We have to decide if we’re going to lend money to a struggling minority entrepreneur … or a more established business that’s important to the community, important to jobs, but that we think a bank should be doing. We can’t help everybody as much as we want.”

For now, Community First Fund is doing both.

Champ Hall turned to Community First Fund a decade ago after several banks turned down his request for a small loan to buy equipment for a barbershop. Hall, who also received help developing a business plan, now owns several shops and Champ’s Barber School in Lancaster. His former students have gone on to open more than 20 barbershops in Pennsylvania and other states — several financed by Community First Fund. Hall has stayed with the CDFI as he has expanded.

“I got denied. No bank would help with my project,” says Hall, whose office wall is covered with plaques and newspaper clippings attesting to his success and his community involvement.

Business remains busy in the midst of the downturn, and Hall plans further expansion, saying, “In spite of the economy, people still want to look good.”

John Painter and his partners recently turned to Community First Fund after trying for months to get conventional banks to finance their purchase of Kegel’s Seafood Restaurant, an eatery that has been a Lancaster landmark since 1941. They found the CDFI through the local Chamber of Commerce. The loan was approved after a thorough review of the partners’ equity and business plan, even though the dicey economy is hurting restaurants.

“We thought (financing) would be a snap, but it was one roadblock after another,” Painter says.

Back to basics

The community lenders are both old school and new wave. Their emphasis on character lending, credit counseling and holding loans in a portfolio seemed quaint during the past decade as subprime lenders and big banks loosened standards. Now many are returning to the basics.

“The mortgage broker that was across the street from the CDFI is no longer there,” says James Ballantine, vice president of the American Bankers Association, who sees the lenders as complementing mainstream banks. “The financial institution remains that was there all along, providing a good source and a traditional source of banking.”

Among other Community First Fund projects: Chestnut Hill Café, a Lancaster coffee shop run by two female first-time business owners, and a loan to architect Gene Aleci to renovate two historic buildings downtown. One of the more dynamic is House of Clarendon, a high-end bakery selling wedding and other special occasion cakes designed by Martine Cajas, a former model who says, “These cakes are my models. I put them on the catwalk.”

To be eligible for federal aid under the CDFI program, started in 1994, lenders must meet stringent criteria, including making community development a primary mission, providing financial counseling and remaining accountable to local areas. A separate program is aimed at Native Americans. The Treasury Department’s CDFI Fund also runs the New Markets Tax Credit Program, created in 2000, which has generated $12.6 billion in investments in underserved areas.

Most CDFIs are loan funds, like Community First Fund, that also get capital from foundations and charities. About a fifth are credit unions. Big banks can invest in local lenders to comply with the Community Reinvestment Act, requiring certain banks to invest in underserved areas.

Ellen Seidman, a senior fellow at the New America Foundation, says local lenders have been having a tougher time getting funding under the Community Reinvestment Act as big lenders have merged or pulled back.

Though CDFIs must normally raise private capital to match federal dollars, that provision was waived in the stimulus bill in recognition of the tough economy.

Seidman suggests that as CDFIs become larger and more important, the Treasury Department should consider closer regulation. Many CDFIs are already regulated by the government as banks or thrifts. The industry has developed oversight standards.

Donna Gambrell, director of the Treasury Department’s CDFI Fund, sees the proposed expansion not only as a way to help stabilize low-income areas during this deep recession, but as a tool to help rebuild ravaged neighborhoods in coming years. The Treasury program now reaches just a sliver of eligible CDFIs.

“Even after the water is calm, there’s a lot more work for us to do,” says Gambrell. “This program fills a void for at-risk borrowers in the financial mainstream.”

The stimulus funding will soon wend its way to local communities, with Betancourt’s application due in a few weeks. Obama’s 2010 funding proposal is still in the first stages of congressional debate.

“In the last two to three weeks, we have started to see a surge in calls. I don’t know if it’s (the improving) stock market, but people are getting confidence back again,” Betancourt says, but adds that the economy and financial sector are not out of the woods. “Credit is still tight. While there’s some indication of things improving, nobody really knows.”

Just like my chair, Finance Fund has been trying to find the right fit for gaining CDFI certification for almost a decade but have not been able to find that perfect connection until now. This month we have received word from the CDFI Fund that our Finance Fund Capital Corporation (FCAP) has been certified as a CDFI, and just like my chair this seems to be a perfect fit.

We have received an assortment of honors and certifications for meeting various standards of excellence, but this one brings with it potential unique to our needs. In addition to the honor of being recognized as meeting the criteria and standards of a community development financial institution, this award allows us to annually request federal resources to fund community partner’s projects and to apply for membership in the Federal Home Loan Bank. The latter, for reasons of scale and sustainability, brings with it exceptional opportunity for expansion of service to our community based clients. As an active FHLB member we, like other financial institutions, can access lending capital to match equity for investment in community projects.

Now, just like my chair, we look forward to a good and comfortable fit helping us to further the mission of helping people.