$2.5 Million in IFF Loans Strengthen CDFI Industry and Support Small Businesses in the Midwest June 14, 2021

Communities hard hit by the pandemic have relied on CDFIs more than ever for their responsible, affordable lending. But CDFIs haven’t been immune to the financial realities of COVID-19, especially during the early months of the pandemic in 2020 when managing liquidity became an existential challenge almost overnight.

Between March and June of last year, more than half of CDFIs surveyed by the Federal Reserve experienced decreases in revenues, and more than 80 percent said they were at least slightly concerned they would not survive the pandemic. The reasons for this uncertainty varied from one CDFI to the next, but the Federal Reserve noted that “when asked to provide comments about their greatest challenges, respondents expressed concerns about limited access to capital and increasing concern over loan delinquencies and potential small business failures.”

In a Nutshell

What: Five IFF loans for fellow CDFIs in the Midwest to provide increased liquidity during the pandemic to support small businesses

Sector: Community Development

Location: Milwaukee, WI; St. Louis, MO; Columbus, OH; Detroit, MI; Kansas City, MO

Total Loans: $2.5 million

IFF Lender: Laurie Garrett, Senior Lender – Northern Illinois, Northwest Indiana, and Special Programs/Initiatives

In other words, at the same time need for capital was skyrocketing in communities served by CDFIs, the probability of losses on existing loans was increasing as COVID-19 restrictions and health concerns upended business models that were rock-solid just a few months earlier. That risk of loss further presented challenges to raising capital. Though government programs like the Paycheck Protection Program Liquidity Facility helped increase access to capital among CDFIs, particularly during the summer months of 2020, there was also an opportunity for larger CDFIs to play a role in supporting colleagues in the industry.

“From the first days of the pandemic, CDFIs not only served as financial first responders in their respective communities, they also jumped right in to support each other,” says Seth Julyan, Opportunity Finance Network Executive Vice President for Network Services. “From sharing knowledge to sharing funding, OFN saw our more than 300 member CDFIs come together to ensure an equitable recovery in all communities — and they continue to do so.”

As a large CDFI with a strong balance sheet and access to multiple sources of flexible capital, IFF created a COVID-19 Liquidity Program to support fellow CDFIs as part of our broader response to the pandemic, which also included PPP loans for 159 nonprofit borrowers between April and August of 2020 and more than 60 loan modifications with existing borrowers to relieve pandemic-related financial pressure.

“Though lending to other CDFIs for non-facilities needs is not a core tenet of our mission, the moment called for creative ideas to strengthen the CDFI industry,” says Matthew Roth, IFF’s President of Core Business Solutions. “Small businesses have been particularly vulnerable during the pandemic, and we wanted as many small businesses as possible to have access to capital through CDFIs. Providing additional liquidity to CDFIs that lend to small businesses was our way of strengthening our sector and more holistically supporting the communities we serve.”

After discussions with colleagues in the CDFI industry about the scope of the need, IFF approached long-time partner Northern Trust about financing the COVID-19 Liquidity Program. Northern Trust quickly agreed and provided IFF with $2.5 million of low-cost capital that IFF could easily deploy to colleagues in the CDFI industry.

By September 2020, IFF had closed five loans, each of which provided additional liquidity for CDFIs to deploy in Midwest cities. The loans included:

  • $500,000 for the Wisconsin Women’s Business Initiative Corporation (WWBIC) in Milwaukee to assist micro and small business owners across the state of Wisconsin
  • $500,000 for Justine Petersen in St. Louis, which was used to support its Contractor Loan Fund, a 90- to 180-day financing product that assists small and minority-owned sub-contractors in paying supply invoices and making payroll while waiting for general contractors to pay for work completed
  • $500,000 for Economic and Community Development Institute (ECDI) in Columbus, OH, to meet increased demand for microloans and working capital loans for its SBA Community Advantage program

During the pandemic, there were no one-size-fits-all solutions. But making short-term loans to our colleagues in the industry at very low cost was one of the ways IFF was able to create a ripple effect of positive impact across the Midwest.

  • $500,000 for the Detroit Development Fund to increase liquidity as loan payments from borrowers were deferred due to COVID-19
  • $500,000 for AltCap in Kansas City, MO, to help capitalize the KC Region Small Business Relief + Recovery Loan Fund, a $5 million fund intended to provide immediate relief to local small businesses experiencing economic disruption and financial strain caused by the government response to the COVID-19 pandemic

“During the pandemic, there were no one-size-fits-all solutions. But making short-term loans to our colleagues in the industry at very low cost was one of the ways IFF was able to create a ripple effect of positive impact across the Midwest,” Roth explains. “Not only did it help bolster the work of other CDFIs during a challenging period and contribute to the overall vitality of the CDFI industry, but it also supported small businesses in communities that count on them.”

“CDFIs have always bridged gaps where mainstream financial institutions don’t reach,” Roth continues. “During times of crisis and volatility, when access to capital tightens, our work is more important than ever. CDFIs don’t compete with one another; they help each other. Because while we are all different, we all share one thing in common: our desire to ensure financial opportunity is accessible to all.”

SIDEBAR

CDFIs Helping CDFIs

The COVID-19 Liquidity Program is not the first time IFF has worked to support fellow CDFIs and bolster the broader CDFI ecosystem. Through initiatives like the Chase Collaborative Partnership, IFF has identified strategic opportunities to help colleagues in the industry increase their liquidity, take risk out of new lines of business, and raise or aggregate capital for specific initiatives. Learn more.

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