Mercy Loan Fund is a financially sound Community Development Financial Institution (CDFI) that exclusively serves affordable housing communities by providing reliable, flexible funding to socially-responsible community developers in support of affordable housing and essential community infrastructure projects.
What is a community development financial institution?
A certified Community Development Financial Institution (CDFI) is a specialized financial institution that works in market niches that are underserved by traditional financial institutions. CDFIs provide a unique range of financial products and services in economically distressed target markets, such as mortgage financing for low-income and first-time homebuyers and non-profit developers, flexible underwriting and risk capital for needed community facilities, and commercial loans and investments to small start-up or expanding businesses in low-income targeted areas (i.e. urban and rural). CDFIs include regulated institutions such as community development banks and credit unions, and non-regulated institutions such as loan and venture capital funds.
In addition, because CDFIs are high touch, they don’t just provide funding without also providing support. So an important component of the CDFI model is that they provide technical assistance and form long-term relationships with their borrowers and find public and private partnerships with organizations that can provide training, that add value to the business.
Are CDFIs regulated?
CDFI’s are certified by the US Department of Treasury’s CDFI Fund. Certification as a CDFI means that an organization meets the eligibility requirements established by the CDFI Fund, inclusive of the following:
- Registered as a legal entity;
- Have a primary mission of promoting community/economic development;
- Be a financing entity (loan fund, venture capital fund, community development bank or credit union);
- Provide development services and technical assistance (financial literacy, business planning);
- Principally serve one or more eligible target markets (geographical and sector);
- Be accountable to its identified target markets;
- Cannot be a government entity or cannot be controlled by a government entity.
What is the primary source of CDFI capital?
CDFIs get their loan capital from national and community banks, socially-motivated individuals, religious institutions, foundations and corporations. These organizations and individuals lend money to CDFIs at a below-market rate of interest for periods of time ranging from one year to ten years. The CDFIs make regular payments of interest for the use of this money. At the end of the loan term, the capital is either returned or the term can be extended and renewed.
Why do banks lend money to CDFIs?
Banks understand that CDFIs serve a market that they do not or cannot serve. In exchange for their investments in CDFIs, banks receive positive Community Reinvestment (CRA) consideration under the investment or lending test at the time of their bank examination.
What types of loans are made by CDFIs?
CDFIs provide loans to individuals, small- to mid-sized businesses, microenterprises and nonprofit organizations. The loans made by CDFIs include loans to
- Small business owners to expand their businesses, fund their operations, purchase equipment or buy a building;
- Microenterprises to start their businesses;
- Nonprofit organizations to develop affordable housing, build community facilities, expand services and promote economic development initiatives;
- Individuals to buy their first homes or automobiles for transportation to and from work.
What all of these loans have in common is they create jobs, encourage long-term financial sustainability and stabilize communities.
*Note: Mercy Loan Fund only provides loans to socially responsible, affordable housing developers in support of their mission to create stable, vibrant and healthy communities for families, seniors and people with special needs who lack the economic resources to access quality, safe housing opportunities.
Watch this video created by Opportunity Finance Network to learn more about community development financial institutions (CDFI) and how they are making an impact in communities across the country.