Bank of America’s $10 Million Grant Program to CDFIs Unlocks Federal Funds for Small Businesses
Mar 22, 2011
Bank of America awarded the first 92 grants of its $10 million commitment to Community Development Financial Institutions (CDFIs) and other nonprofit lenders, enabling them to unlock U.S. Small Business Administration (SBA) and U.S. Department of Agriculture loan capital before the fiscal budget expired on September 30, 2010. Additional grant funds will be available through December 31, 2011.
The bank is helping set opportunity in motion by directing private sector capital, unlocking exponentially greater amounts of federal dollars for small businesses. Since the grants were first made available, these lenders have received $6.2 million from Bank of America, allowing them to leverage $51.27 million in loan capital for small businesses and start-ups. Once complete, the grants could leverage as much as $100 million in low-cost, long-term loan capital over the next 12 months, helping as many as 8,000 small businesses across the country grow and create jobs.
CDFIs help drive economic development by channeling low-cost federal loans to small businesses across the U.S. In past years, however, federal funds for small business microloans have gone unused because the lenders have been unable to meet required loan loss reserves—up to 15% of the amount borrowed—to access the capital. Bank of America recognized the need to supply grants to nonprofit lenders, shoring up their reserves and helping them access available capital for small businesses.
The grants and federal capital accessed in 2010 will enable the CDFIs to make nearly 3,000 new microloans to small businesses and start-ups, retaining or creating about 6,400 jobs in local communities across the nation, which is critical to the economic recovery.
David Darnell, president of Bank of America Global Commercial Banking, announced the initiative at the National Urban League Centennial Conference in July 2010. “Helping strengthen small businesses and new start-up companies stimulates job creation and is critical to our nation’s economic recovery. Now is the time to be innovative and pursue every resource that helps small businesses grow,” said Darnell. Even the smallest grant enables a nonprofit lender to leverage an average of 10 times that amount to lend to small businesses, creating an opportunity for job growth, spending and overall economic expansion.”
The first grant recipients serve small businesses in urban and rural communities in 17 states, enabling lenders to access low-cost loan capital and expanding their lending programs into new communities. One grant recipient, Community Economic Development Fund, based in Meriden, Connecticut, providing microloans to small businesses, was coming to the end of its lending limit because it had depleted its loan-loss reserves. A grant from the bank’s program allowed the organization to make $350,000 in new microloans available. The organization plans to use the $125,000 grant to access a total of $833,000 in federal funds for microloans.
Bank of America is the nation’s largest investor into CDFIs, with more than $1 billion in loans and investments to 120 CDFIs in 37 states. As part of the bank’s broader support for small businesses, the company also included a pledge to increase lending to small and medium-sized businesses by $5 billion in 2010. According to the SBA, the country’s small and micro-businesses are the chief generators of new jobs, creating two out of every three new jobs in the country.