October 6, 2010; Source: Wall Street Journal |With the announcement of 40 grants to nonprofit community lenders, Bank of America continues to set the pace on supporting community development financial institutions. Bank of America’s $3.7 million will be given to CDFIs for use in their loan-loss reserve funds, which are necessary for CDFIs in order to leverage other investment funds. If the CDFIs do not get money from charitable investors to put into their loan loss reserves, they often find themselves compelled to divert operating funds into reserves, an untenable situation.
This announcement appears to be part of a $10 million commitment by the giant bank this past July, anticipated to leverage as much as $100 million in low-cost long-term capital for the recipients. The Bank of America grants include six to CDFI’s in New York for $900,000 anticipated to leverage $5.5 million in federal microloans, nine in California for $790,000 to leverage $5.6 million, two to lenders in Minnesota that will use $187,500 from Bank of America to leverage $1.25 million, and two to groups in Kentucky for $191,100 to leverage $1.27 million.
The federal dollars that these grants will leverage come from the Small Business Administration (SBA) and the U.S. Department of Agriculture. What makes this program particularly important is the targeting of federal microlending funds from SBA and the USDA. CDFIs can get money from these programs with 10 to 20 year terms at rates of less than 2 percent. According to a Bank of America press release, that’s “twice as long and half the cost of other CDFI lending programs currently available.”
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Bank of America is already the nation’s largest investor in CDFIs, counting more than $1 billion in loans and investment to 120 CDFI’s in 37 states. In the game of nonprofit grants, sometimes it’s hard to figure out who leverages whom. In this case, it’s clear: Bank of America grants invested in CDFI loan loss reserve funds will generate as much as a ten-to-one leverage of some important federal programs. That’s real leverage, something Bank of America understands and is clearly modeling for its financial sector peers.—Rick Cohen