CDFI Small Business Lending Program Finally a Go

The economy’s downward spiral couldn’t have come at a worse time for Ronald Woods, president and CEO of the Kansas-based firm Industrial Supply. The work he’d begun on a mixed-income, mixed-use construction project had to be halted because banks simply weren’t providing the lending he needed to continue. The Kansas City government, which had contracted him for the project, couldn’t help because, like urban cores around the nation, its finances were tight, too.

Woods has traditionally turned to major banks for his lending needs. But after last week’s announcement that the Treasury Department will provide up to $1 billion in Troubled Asset Relief Program Funds to spur lending by Community Development Financial Institutions to businesses in the areas hardest hit by the economy, he’ll be taking a closer look at some of the participating CDFIs that may well be the key to restarting his construction project.

“These institutions operate in parts of the country where unemployment is way above the national average and where there’s been a huge amount of damage to people’s faith and confidence in the system,” Treasury Secretary Tim Geithner told a group of reporters following the announcement. “This program is a very powerful way to try to make sure that we’re starting to open up some of the credit channels for businesses in parts of the country where it’s most needed, and we think there’s going to be a very high return.”

The terms of the program, first announced last October, have been enhanced based on input from members of the CDFI community.

The amount of capital available to participating institutions has been increased from 2% to 5% of their risk-weighted assets or loans, and credit unions can apply for an equivalent amount of total assets. CDFIs that previously received TARP funding will be allowed to transfer that capital to the new program. Participants will pay a dividend rate of 2%, compared to the 5% rate applied under the Capital Purchase Program. That rate will increase to 9% after eight years. The Treasury will begin accepting applications for funds by the end of February.

According to Dorothy Bridges, CEO of Washington, D.C.-based City First Bank, she and several other community bankers had several extensive discussions with Geithner, members of Treasury’s CDFI staff and, on occasion, President Barack Obama himself about how the program could be improved.

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