For anyone seeking to access lending for community development projects, understanding the different types of loans can be confusing.
At Capital Impact Partners, our commitment to fostering positive social impact drives us to support mission-aligned real estate developers and community development leaders with a range of flexible and affordable financing solutions.
Our community development lending offerings include predevelopment loans, real estate acquisition loans, construction loans, working capital loans, refinance loans, New Market Tax Credit (NMTC) leverage loans, and NMTC Qualified Low-Income Community Investment (QLICI) loans.
Our loan products are designed to help our borrowers achieve their goals and revitalize disinvested and underestimated communities, whether that constitutes developing or preserving affordable housing, creating jobs through a small business, or building the resilience of communities through access to health care, healthy food, and education.
In this series of blogs, we aim to shed light on the diverse types of loans we offer and explore their significance within the context of Capital Impact’s mission-driven financing, in the hope that it will provide clarity to help borrowers make informed decisions about applying for community development loans.
We walk through the different types of loans we use to support developers and community leaders in bringing their community-centered projects to life:
As a real estate developer looking to deliver social impact, the process of finding and engaging with a lender can be hard. Once your mind is set on starting a community development real estate project, who do you turn to? Where do you find them? What is the process like?Â
As part of the Momentus Capital family of mission-driven lenders, Capital Impact Partners – a certified Community Development Financial Institution (CDFI) – provides flexible and affordable loans of $650,000+ ($350,000 under special circumstances) to finance key community pillars, including health centers, education facilities, food retailers, affordable housing, small businesses, and cooperatives.
We are a national lender, capable of providing loans across the country, but we also have a place-based focus in specific regions, including California, Michigan and northwest Ohio, the New York Tri-State Area, the Southeast, Texas, and the Washington metropolitan area.
We know you have got questions about the community development real estate process. To help get your process started, we offer some answers here about working with a CDFI lender.
1. When in the development process should I start working with a CDFI lender?
It is never too early to start gathering information from lenders, but you’d ideally want to get started when you are about six months from starting construction.
By then, you would have a good estimate for the timing of obtaining permits and starting construction.Â
CDFIs such as Capital Impact Partners will work hand in hand with real estate developers looking to deliver social impact
2. What types of reserves will a CDFI lender require?
Lenders will have contingencies on your project that may go above and beyond what you have budgeted; usually 7.5-15% of hard costs expenses and 5% of soft cost expenses.
If you are capitalizing interest during construction, which is recommended when there are no operations ongoing during construction, that will need to be included in the overall project budget.Â
Once construction is completed, there may be lease up reserves, debt service reserves, and/or facility maintenance reserves.Â
3. Where does the capital that CDFIs lend come from?
CDFIs serve as capital aggregators that attract capital from the market, banks, government sources, and foundations.Â
4. Will a CDFI lender hold the loans or will they sell them?
CDFIs do both. At Capital Impact, if they are sold, we ensure that there is no impact on the Borrower’s experience or relationship.Â
5. What influences CDFI lenders’ rates?
Primarily it is the Treasury rates, unless the CDFI has a sector/geographic fund that is independent of Treasuries.Â
6. Who approves the loan and how does the loan committee work?
CDFIs have groups that review deals. Capital Impact has an internal credit committee that reviews deals on a weekly basis.
Some CDFIs or specific loan products require external review and approval. Underwriting packages must be submitted at least a week in advance to receive approval the following week.
The committee cares about the financial strength of the transaction, the deal fitting into our established credit guidelines, and the impact of the transaction on the community. Â
8. Who will be my main contact for loan closing and will it change afterwards?
You may first interact with a business development officer or someone with a similar position, who will be the initial point of contact until a term sheet is signed.
Then you’ll speak with a loan officer who will underwrite your transaction until it is approved.
Once approved, a legal and closing team will drive the process, but the loan officer will remain involved to ensure the loan is closed according to what was agreed to with the borrower and as outlined in their underwriting.Â
9. As a non-legal person, how do I review a loan agreement?
Consider seeking legal counsel to review a loan document. But generally, check that the interest rate, fees, and dates match your understanding. Check the reporting and financial covenants to ensure you can meet them.Â
10. What should I do if I think I am going to default on my loan?
Tell your lender as quickly as possible. CDFIs are lenders with a mission to provide fair, responsible financing, and they will work closely with you when things are tough. Another very important element to take into consideration when looking to establish a relationship with a community development real estate lender is that lender’s value system. You have the right and responsibility to vet the lender to make sure that their values, goals, and philosophies align with yours. It is a two way street and any conversation about funding should be as much about the entrepreneur evaluating the funder as the funder evaluating the entrepreneur.
This blog also appears on the Engage R + D blog. You can find it here.
How can foundation dollars be more powerful in a time of crisis? As COVID-19 continues to disproportionately impact communities that have long experienced economic disinvestment, many are asking how to leverage philanthropic funding differently for more immediate impact and greater social good. One solution comes in the form of impact investing, which includes a range of financial tools for both individuals and institutions seeking to do greater good with their dollars. While impact investing is not new, it is a powerful tool that many foundations seek to better understand and that remains relatively underused in philanthropy. [1],[2]
Grants vs. PRIs: What’s the Difference?
Grants are most foundations’ bread and butter. They support a foundation’s charitable mission and are limited to 501(c)3 tax-exempt organizations. Grants do not require repayment.
PRIs are an IRS designation that allow private foundations to make charitable, mission-aligned investments. These investments typically take the form of low-cost financing and loans, which require repayment within a specified time. While many require a return or accrue interest, they are not expected to produce market-rate returns.
By Danielle Graceffa, Senior Director, Legal Services
Real estate development has always been a risky proposition, fraught with numerous challenges that must always be carefully balanced against the promise of reward.
Throw in the possibility of rehabbing historic properties and that risk-reward scenario is certainly amplified. The city of Detroit, where we have our Midwestern office, is a perfect example.
Founded in the 1700s, the city has witnessed various transformations, with Henry Ford setting the stage for Detroit to become the booming manufacturing center that it is best known as. During that time, the population swelled from around 200,000 residents to well over 1.5 million.
By Ellis Carr, President and CEO and Scott Sporte, Chief Lending Officer
Note: This Op-Ed originally appeared in the publication Capital Weekly.
According to the U.S. Census Bureau’s report The Supplemental Poverty Measure: 2015, nearly eight million people in California were living in poverty in 2015. The report indicated that the state’s poverty rate was 20.6 percent—well above the national rate of 15.1 percent—and surpassed the rates of every other state in the nation.
I am excited to kick off 2017 with the news that Capital Impact Partners has earned a ‘AA’ issuer credit rating with a stable outlook from S&P Global!
California may be an agricultural center of the nation, but more than one million Californians live in neighborhoods without easy access to a full service grocery store. This lack of access to fresh foods can lead to poor health outcomes and diet-related diseases, including diabetes, heart disease, and obesity. Communities of color are disproportionately affected.  Capital Impact Partners has worked for years to address this issue, and to help more communities get access to grocery stores or mobile markets.
The lack of capital for real estate projects, community facilities, and small businesses in low-income communities is a problem that spawns a host of other problems. When there is limited access to capital, there are fewer businesses and jobs, fewer sources of affordable housing, and fewer chances for these communities and their residents to enter the economic mainstream of American life. In short, the lack of capital perpetuates the lack of opportunity.
By Candace Baldwin, Director of Strategy, Aging in Community
Making a community a great place to live and work while also supporting the needs of low-income and vulnerable older adults is difficult. It takes patience, planning, and a group effort.
With this goal in mind, Capital Impact Partners joined with the AARP Foundation and Calvert Foundation to create the Age Strong initiative. Our goal? To build a first of its kind program that enables all of us – whether individuals or retail operators or philanthropic enterprise – to support strong and vibrant communities that can help low-and-moderate income individuals who are 50 and older to age with dignity, independence, and security.
There is no doubt that improving access to fresh, nutritious foods in low-income communities can help people improve eating habits and prevent diet-related diseases, such as obesity, high blood pressure, diabetes, and heart disease.
But the impacts for people and communities are even greater than that.
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California may be an agricultural center of the nation, but more than one million Californians live in neighborhoods without easy access to a full service grocery store. This lack of access to fresh foods can lead to poor health outcomes and diet-related diseases, including diabetes, heart disease, and obesity. Communities of color are disproportionately affected.  Capital Impact Partners has worked for years to 
