Community Development Bank and Business Loans

A community development bank can offer commercial loans that may help your business get started or expand when other lenders will not. Community Development Banks offer a full range of lending programs, ranging from those to very small businesses to large real estate developers. The goal is local economic development.

Community Development Bank Background


In the lending industry, Community Development Banks fill a special niche of targeting economic development in low- and moderate-income communities. The goal of a Community Development Bank is not only to make loans available to borrowers in such neighborhoods who may not qualify with traditional lenders, but also to encourage business borrowers to create projects in the community and spur growth.

Community Development Banks are not limited to small banks working exclusively in the communities they serve. Large, national lenders can petition the Treasury Department for the status of being a Community Development Financial Institution. Most large national banks have a division for this purpose that has branches working in targeted communities.

Loans to Small Businesses

Individual small business owners are among the target markets for a Community Development Bank. Working primarily through the Small Business Administration loan programs, the small business borrower can apply for funds for starting or expanding a business or for capital equipment purchases.

These programs are not limited to low-income urban markets. Rural communities that qualify as low- or moderate-income can participate as well.

Additionally, there are numerous programs targeting minority- and women-owned businesses. These firms or individuals often are considered too much of risk for conventional financing and so either do not qualify or face high interest rates, making borrowing unaffordable.

Economic Development

A Community Development Bank is required to seek opportunities to develop new business in the communities it serves with an eye toward spurring neighborhood growth.

Specific loan programs exist for real estate developers building commercial and retail projects. These programs, often backed in whole or part by the government, can provide financing at below-market interest rates to offset the risk of developing in an historically depressed community.

Housing

Similar to economic development loans, a Community Development Bank has programs for  developers building affordable housing. The goal is to increase homeownership in the community and spur social and economic gains.

Additionally, where applicable, tax credits can be available for developers in historic neighborhoods and are administered by the Community Development Bank. This is an added incentive for outside businesses to take the risk of developing in high-risk communities.

Non-Profit Intermediaries and Microloans

In many low- and moderate-income communities, microloans are made to small businesses through local non-profit organizations. These loans, ranging from a few dollars to no more than $35,000, often are too small to be attractive to larger banks. A Community Development Bank is authorized to loan money to these non-profit intermediaries. So, if you have a very small business, the Community Development Bank can help as well, by funding the organization that will fund you. Again, these are loans with competitive interest rates because they are backed in part by the government.