(October 21, 2009 – Landover, MD)  “We will make capital even more affordable to the community development financial institutions that focus on providing credit to America's small businesses in our hardest hit rural and underserved communities,” declared President Barack Obama at the roll-out of a series of Obama Administration initiatives to spur small business lending.  

The President’s address was delivered amid ceiling-high racks of documents in the warehouse of Metropolitan Archives, a building that this small business purchased with the help of a loan from the Small Business Administration (SBA).  The President was joined by Treasury Secretary Tim Geithner, SBA administrator Karen Mills, Maryland Governor Martin O'Malley; U.S. Senator Ben Cardin; U.S. House of Representatives Majority Leader Steny Hoyer; U.S. Congressman Chris Van Hollen; U.S. Congresswoman Donna Edwards; and various other elected officials.  

Cliff Rosenthal, President and CEO of the National Federation of Community Development Credit Unions (Federation), was one of approximately 60 invited guests at the announcement.  Among credit union movement attendees were Bill Bynum, President and CEO of Hope Community Credit Union/Enterprise Corporation of the Delta (Jackson, MS) and Chairman of the Community Development Financial Institutions (CDFI) Advisory Board of the U.S. Treasury Department; CUNA President and CEO Dan Mica; and NAFCU President and CEO Fred Becker.

Community development financial institutions include credit unions, banks, loan funds, and venture capital funds that are certified by the Treasury Department’s CDFI Fund in recognition of their mission and track record of serving low-income and underserved communities.  Since its founding in 1994, the CDFI Fund has invested nearly $1 billion in CDFIs.  The Federation, itself a certified CDFI, has been a leader of the CDFI movement since the early 1990s.

While details of the program remain to be elaborated, some key features were announced.  For credit unions, CDFI certification will be required.  Presently, nearly 150 credit unions are certified CDFIs, and the great majority of those are Federation members. “We believe that many more credit unions will seek certification now, and we are delighted that the CDFI Fund has committed itself to an expedited review process,” said Rosenthal.

The government’s investment in CDFI credit unions will be in the form of subordinated debt that will count as secondary capital, or regulatory net worth, for low-income credit unions.  “We are pleased that the Treasury Department has adopted this structure, and that the proposed rate is two-percent for the first eight years,” said Rosenthal.   He cautioned that credit unions must have both CDFI certification and low-income designation by the National Credit Union Association (NCUA) in order to participate.  “Only low-income-designated credit unions currently have the power to accept secondary capital.  Conversely, low-income designation without CDFI certification will not make a credit union eligible. It’s clear that CDFI certification will be a key credential for credit unions in the future, and the Federation will continue to provide technical assistance to members seeking certification.” 

The Obama Administration has provided tremendous momentum and support to the CDFI movement, more than doubling its appropriation request for the CDFI Fund and providing an additional $100 million in American Recovery and Reinvestment Act (ARRA) “stimulus” funding in the spring of 2009.   With such bright prospects, the Federation is adamant in its resolve to expand credit union participation in this high-impact program. 

The Federation’s Technical Assistance services with respect to the federal CDFI Fund are also available on this site, by clicking here.

The new strategy as outlined by President Obama takes a three-pronged approach to help small businesses:

I. Supporting Small Businesses with Access to Credit by Supporting Lending Through the Financial Stability Plan

Under this proposal, the Capital Purchase Program will strengthen community banks with assets under $1 billion by providing lower cost loans through the existing Capital Purchase Program (CPP).  Currently, banks participating in the program pay a 5% dividend on CPP funds, but under the new proposal elegible banks are eligible to receive up to 2% of their risk-weighted assets at a reduced 3% dividend rate.  Participating banks will be required to submit a small business lending plan explaining how the capital will allow them to increase lending to small businesses, and in addition, particiants will be required to submit quarterly reports detailing their small business lending activities.

Lending in the hardest-hit urban and rural communities will be increased by making low-cost capital available to CDFIs operating in those communities.  CDFIs must be able to document that at least 60% of their small-business lending and other economic development activites targer low-income or underserved communities, which is consistent with current CDFI certification standards.  Capital to CDFIs will be available at a 2% rate for the first 8 years, stepping up to 9% afterwards to encourage repayment. CDFI credit unions, which were previously unable to apply under the CPP program, will be eligible to apply for subordinated debt at rates equivalent to those offered to CDFI banks and thrifts.  Also, institutions that would like to participate in the program but have not yet been certified as CDFIs will be given an expedited review process by the CDFI Fund.

II. Increasing Maximum SBA Loan Sizes

Based on feedback from entrepreneurs, small business owners and the lending institutions, there is a growing need for larger SBA loans to affectively start and grow small businesses.  In response to this need, the administration has proposed increasing SBA loan maximums for the 7(a) Loan program to $5 million.  504 Loans, which support small business expansion, would be similarly increased to $5 million and up to $5.5 million for small businesses engaged in manufacturing.  Currently the maximum loan amount for both 7(a) and 504 Loans is just $2 million.  SBA microloan maximums will also be increased from the current level of $35,000 up to $50,000.

III. Convening a Conference between Congress, Regulators, Lenders, and the Small Business Community to Address Small Business Lending

Treasury Secretary Geithner and SBA Administrator Mills are charged with convening a conference to discuss additional efforts to support small business lending across the country.  Conference organizers will bring together regulators, Congressional leaders, lenders, and small businesses to discuss additional efforts that can be tajeb to improve the availability of credit to small businesses. Following that conference, the Treasury and SBA will work with Congress to develop ways to foster programs that promote small business lending.

© 2009 National Federation of Community Development Credit Unions.