In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this sixth installment, we explain what New Market Tax Credit (NMTC) Qualified Low Income Community Investment (QLICI) loans and how they are pivotal in supporting projects that uplift communities living with low income by providing crucial financing under favorable terms.
Understanding the New Market Tax Credit Program
The New Markets Tax Credit (NMTC) program is a federal initiative designed to stimulate investment and economic growth in urban and rural communities living with low incomes, communities that often lack adequate access to capital. The primary goal of the NMTC program is to encourage economic development and job creation in communities that are economically distressed. This is achieved by providing tax incentives to investors.
Under this program, Community Development Entities (CDEs) like Capital Impact Partners provide subsidized financing for qualifying businesses or real estate projects that meet the federal definition of a Qualified Active Low-Income Community Business (QALICB).
A QALICB is typically a business that is located in, or provides services to, communities living with low incomes. The capital provided to these qualifying projects is known as a Qualified Low-Income Community Investment (QLICI), which is typically structured as a seven-year, interest-only loan.
Understanding QLICI Loans
A QLICI is a specific type of investment that is central to the New Markets Tax Credit program. It involves directing financial capital into projects or businesses in communities living with low incomes that meet the qualifications set under the NMTC program.
A QLICI is essentially the financial vehicle through which capital flows from CDEs to QALICBs at favorable rates and terms that traditional financing might not offer.
Why is QLICI Valuable to Developers?
Access to Favorable Financing
QLICIs often come with more favorable terms than those available through conventional financial products. This can include lower interest rates, longer amortization periods, and interest-only payment periods. Such terms can significantly reduce the cost of capital for developers, making projects more financially viable.
Filling Funding Gaps
Many projects in areas experiencing low incomes struggle to secure funding because they are perceived as higher risk. QLICIs can provide the essential capital needed to fill these funding gaps and make such projects feasible. This is particularly important for large-scale developments that can have transformative impacts on their communities.
The importance of this type of loan can be seen through two QLICI notes totaling $7.7 million that Capital Impact provided for Coastal Bank Food Bank in Corpus Christi, Texas. This funding was essential for constructing a new 108,200-square-foot warehouse and distribution center. The project addressed urgent facility needs sparked by explosive growth at the food bank and was critical in a community prone to hurricanes, requiring more expensive construction to meet specific safety standards. New Markets Tax Credits played an indispensable role in the capital stack, preventing potential reductions in food distributions that would have created significant community hardship.
Enabling Comprehensive Development Projects
Developers using QLICIs can undertake comprehensive projects that might include various community-serving elements such as affordable housing, health care facilities, educational institutions, and commercial spaces that create jobs. The flexible nature of QLICIs allows for multi-faceted development that addresses various community needs.
Leveraging Additional Financing
A QLICI can act as a critical piece in the capital stack that attracts other sources of funding. For example, the presence of a QLICI can help reassure other investors and lenders about the viability of a project, leading to increased overall investment.
Community Impact and Compliance Benefits
Projects funded through QLICIs are required to provide measurable community impacts. This aligns with the growing emphasis among developers and investors on social responsibility and impact investing. Additionally, engaging in projects that benefit communities living with low incomes can facilitate compliance with various regulatory requirements or corporate social responsibility goals.
For example, Capital Impact Partners closed on QLICI loans totaling $10.6 million to assist the Center for Transforming Lives in Fort Worth, Texas. The funding supported the conversion of a 102,000-square-foot warehouse into an early childhood education and economic mobility center, increasing childcare availability by 57 percent and boosting economic mobility services to 1,200 women by 65 percent annually. This initiative, crucially supported by NMTC, enabled the construction of a facility dedicated to breaking intergenerational poverty through programming that addresses physical, financial, and emotional needs.
QLICIs are a powerful tool in community development, providing critical financial incentives and benefits that support significant and impactful development projects in disinvested areas. For developers, the strategic use of QLICIs not only enhances the feasibility and scope of their projects but also contributes to their broader economic and social objectives, making them valuable partners in community revitalization efforts.
Check out our mission-driven lending page for more information about our products and to find out which might work best for you.
Whether you are an experienced charter school operator refining your approach or an enterprising newcomer ready to break ground in the charter school education sector, there is always more to discover and master to advance your institution and widen your impact. This series is crafted to deliver crucial insights and practical advice to drive your charter school projects and overall mission forward.
At the Momentus Capital branded family of organizations, which includes Capital Impact Partners, CDC Small Business Finance, Ventures Lending Technologies, and Momentus Securities, we are dedicated to expanding capital and opportunities for underestimated communities, including those innovating in charter school education.
Charter schools stand at the forefront of educational innovation, offering tailored learning experiences that meet the diverse needs of students. However, the journey from conceptualization to realization is complex, necessitating a deep understanding of community needs, financial intricacies, and the importance of a solid real estate development team. Inspired by the guidance provided in the report created by Capital Impact Partners, ‘The Answer Key: How to Plan, Develop, and Finance Your Charter School Facility’, this blog series distills critical insights and strategic advice, tailored to the unique challenges faced by charter school operators:
A Thorough Concept: Discover the importance of crafting a comprehensive and compelling concept that aligns with community needs and educational goals.
Meeting Lender’s Expectations: Navigate the financial landscape with confidence, learning what lenders seek in charter school projects and how to effectively present your vision.
Assembling a Solid Real Estate Development Team: Understand the crucial role of assembling a skilled team to turn your educational vision into reality, from architects to legal advisors.
Closing out this series, we explore the crucial aspect of assembling a solid real estate development team for your charter school. A well-rounded team is necessary to navigate the multifaceted journey of opening a charter school.
The Core of Your Real Estate Development Team
A successful charter school project relies on the collective expertise of several key professionals and essential roles:
Project Manager: Often the linchpin of the development process, a skilled project manager oversees the project from conception through completion, ensuring milestones are met and the project stays within budget. Their experience in charter school projects can provide invaluable foresight and problem-solving capabilities.
Architect: The architect’s role is to translate your educational vision into a practical, regulatory-compliant design. Their expertise is crucial in creating spaces that are not only conducive to learning, but also inspire students and staff alike.
Legal Counsel: Given the complex regulatory environment surrounding charter schools, having knowledgeable legal counsel is non-negotiable. They navigate zoning laws, compliance issues, and other legal aspects to prevent unforeseen challenges.
General Contractor: Responsible for bringing the architectural vision to reality, the right contractor will manage the construction phase, ensuring quality, timeliness, and fiscal responsibility.
Selecting Your Team
Selecting the right professionals is about more than verifying credentials and experience. The Answer Key suggests that all team members should have/foster:
Shared Vision: Team members should share your commitment to the school’s mission, understanding the broader impact of the project on the community;
Experience in Charter Schools: Professionals with specific experience in charter school projects bring a nuanced understanding of unique challenges and opportunities;
Community Engagement: Team members who value community input can contribute to a design and development process that reflects the needs and aspirations of the community your school will serve.
Team members should share your commitment to the school’s mission, understanding the broader impact of the project on the community
Fostering Collaboration
Collaboration among your team members can significantly influence the success of your project. Open communication and mutual respect among team members ensures that each professional’s expertise is effectively integrated into the project. Regular meetings and clear, shared goals help maintain alignment and momentum.
Building a solid real estate development team is fundamental to transforming your charter school vision into reality. By carefully selecting a team that not only possesses the requisite professional skills but also aligns with your educational mission and values community input, you set the stage for a successful charter school development. “The Answer Key” provides a framework for understanding the roles and relationships that will support your project from the ground up.
Collaboration among your team members can significantly influence the success of your project
Review “The Answer Key” in its entirety and use it as a resource as you plan and work through your charter school development. If you decide that you need financing, you can reach out to our Lending team to discuss your options; our Construction team is another resource to support you as your development progresses.
At Capital Impact Partners, we specialize in offering flexible and affordable financing to a broad spectrum of community development projects that yield significant social impact. We extend our support to educational projects that elevate communities and promote sustainable growth. Additionally, we provide extensive support and resources tailored to the unique needs of charter schools, helping to ensure equitable access to quality charter school education for all students, regardless of socioeconomic status, race, or ethnicity.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this fifth installment, we explore an essential financial tool in community development: loan refinancing.
What is Loan Refinancing?
Loan refinancing in the context of community development involves replacing an existing debt obligation with another under different terms. This strategy is often used to secure lower interest rates, extend repayment terms, or access additional funds for project development. Refinancing can alleviate financial pressure, provide more favorable terms, and free up capital for further investment into community-centric projects. If approved, the borrower gets a new contract that takes the place of the original agreement.
Transforming Communities Through Strategic Refinancing
Refinancing can play a pivotal role in sustaining and scaling community development efforts. It offers developers the flexibility to adjust their financial strategies in response to changing market conditions or project needs, ensuring long-term project viability and impact.
The Benefits of Refinancing
Refinancing offers several advantages:
Reduced Costs: Lower interest rates can significantly decrease the overall cost of borrowing.
Improved Cash Flow: Extended loan terms provide developers with better cash flow management, enabling them to allocate resources more effectively across projects.
Strategic Allocation: Access to additional funds allows for investment in other critical aspects of development, such as predevelopment costs and new projects.
Example: Capital Impact Partners provided a $10 million loan to refinance an existing loan on a 45,252-square-foot property located in Los Angeles. This refinancing was strategically executed to replace the existing loan and secure additional capital for soft costs, predevelopment, and approvals necessary for transforming the property. This loan enabled the conversion of the current vacant buildings into a six-story, 252-unit multifamily, 100 percent affordable apartment building targeting tenants living with low and moderate incomes, addressing the acute demand for affordable housing in Los Angeles.
For community developers looking to maximize the impact of their projects, understanding and utilizing refinancing can be a game changer. By adjusting financial strategies to better suit their needs, developers can ensure the sustainability and expansion of their community initiatives.
Check out our mission-driven lending page for more information about our products and to find out which might work best for you.
Whether you’re a seasoned real estate developer fine-tuning your strategies or an aspiring newcomer eager to make your mark in the industry, there is always more to know and learn to help grow your business and scale your impact. This series is designed to provide invaluable insights and actionable advice to propel your development projects and your business forward.
At Capital Impact Partners, in particular, we offer flexible and affordable financing to a diverse array of community development projects that deliver tangible social impact. From community health centers to affordable housing developments, we are committed to empowering projects that uplift communities and foster sustainable growth. We also offer programmatic services that equip you with the resources, support, and networking opportunities you need to succeed in the real estate development world.
In the competitive realm of real estate development, success hinges not only on vision and execution but also on the ability to navigate complex relationships, craft solid projections, and attract investors. These pillars serve as the bedrock upon which thriving projects are built, distinguishing between mere ventures and enduring successes.
In this final installment of our series, let’s explore the key elements that set a developer up for attracting investors for real estate development, as well as strategies for anticipating and meeting their needs.
Financial Statements and Bankability
Ensuring that developers’ balance sheets and other financial statements accurately reflect their business’ health is paramount to attracting investors for real estate development. Lenders and investors look for reliability, organization, and trustworthiness when evaluating potential projects. By conveying a deep understanding of the project, its financing strategy, and the market, developers can instill confidence and mitigate lender scrutiny.
“For the Bobbi project, I was able to prepare for lender scrutiny by knowing the deal inside and out better than any consultants on my project, and being able to articulate the vision, the financing strategy, and the market.” – Ronette (Ronnie) C. Slamin, Founder and Principal at Embolden Real Estate
Slamin: Ensuring that developers’ balance sheets and other financial statements accurately reflect their business’ health is paramount to attracting investors for real estate development.
Anticipating Investor and Lender Needs
Before approaching lenders or investors, developers must ask themselves critical questions about their project and financing strategy. Being upfront about personal finances, including credit score and debt payment history, is essential for building trust and credibility. By aligning project goals with lender portfolios and understanding their business models, developers can tailor their pitches to meet lender and investor needs effectively.
Professional Patience and Effective Communication
Patience is a virtue in real estate development, particularly during the funding and underwriting phases. Rushing the underwriting process can lead to misunderstandings and delays, so developers must approach it with professionalism and collaboration. Maintaining effective communication, especially in challenging situations, is crucial for building strong relationships, attracting investors, and hence securing financing.
By emphasizing transparency, aligning with lender objectives, and fostering collaboration throughout the underwriting process, developers can forge robust partnerships with lenders and investors, ensuring the financing needed for their projects.
Whether you are an experienced charter school operator refining your approach or an enterprising newcomer ready to break ground in the charter school education sector, there is always more to discover and master to advance your institution and widen your impact. This series is crafted to deliver crucial insights and practical advice to drive your charter school projects and overall mission forward.
At the Momentus Capital branded family of organizations, which includes Capital Impact Partners, CDC Small Business Finance, Ventures Lending Technologies, and Momentus Securities, we are dedicated to expanding capital and opportunities for underestimated communities, including those innovating in charter school education.
Charter schools stand at the forefront of educational innovation, offering tailored learning experiences that meet the diverse needs of students. However, the journey from conceptualization to realization is complex, necessitating a deep understanding of community needs, financial intricacies, and the importance of a cohesive real estate development team. Inspired by the guidance provided in Capital Impact Partners’ report “The Answer Key: How to Plan, Develop, and Finance Your Charter School Facility,” this blog series distills critical insights and strategic advice, tailored to the unique challenges faced by charter school operators:
A Thorough Concept: Discover the importance of crafting a comprehensive and compelling concept that aligns with community needs and educational goals;
Meeting Lenders’ Expectations: Navigate the financial landscape with confidence, learning what charter school lenders look for and how to effectively present your vision;
Assembling a Solid Real Estate Development Team: Understand the crucial role of assembling a skilled team to turn your educational vision into reality, from architects to legal advisors.
In the second installment of this series, we turn our focus to understanding what charter school lenders look for. Financing is the lifeblood of any charter school project, transforming visions into tangible institutions. We will highlight crucial factors that can influence a lender’s decision to fund your project.
Financial Stability and Revenue Streams
One of the core considerations for lenders is the financial stability of your charter school. Our report emphasizes the importance of demonstrating a reliable and diversified revenue stream. One of the elements charter school lenders look for is seeing your school has a solid plan for maintaining operational sustainability, which often includes state or federal per-pupil funding, grants, and other fundraising efforts.
Lenders need to see that your school has a solid plan for maintaining operational sustainability
Realistic Enrollment Projections
Lenders pay close attention to your enrollment projections. Accurate and realistic estimates are crucial as they directly impact the school’s revenue and financial viability. The Answer Key advises operators to conduct thorough market analyses to support their enrollment numbers, showcasing a clear demand for the school within the community.
Strong Leadership and Management
The expertise and experience of your school’s leadership and management team are critical to securing financing. Charter school lenders look for teams with a proven track record in education and school management. Demonstrating that your project is guided by knowledgeable and skilled professionals can significantly enhance your credibility with potential lenders.
Well-Defined Facility Plan
A well-defined facility plan – including details about the location, size, and condition of the property – is essential for lenders. Our report highlights the need for a clear understanding of the costs associated with acquiring, renovating, or constructing a facility. A comprehensive plan that addresses these aspects, supported by realistic cost estimates and timelines, is vital for gaining lender confidence.
Demonstrating that your project is guided by knowledgeable and skilled professionals can significantly enhance your credibility with potential lenders
Compliance and Accreditation
Ensuring compliance with all relevant educational regulations and working towards accreditation are key factors that lenders consider. Charter school operators are advised to be well-versed in state and federal education laws and to outline their strategies for meeting these requirements. Accreditation, or the process to achieve it, signals a commitment to educational quality and standards, making your project more appealing to lenders.
Moving Forward
Understanding and addressing these critical areas can significantly improve your chances of securing the necessary financing for your charter school project. By focusing on financial stability, enrollment projections, strong leadership, a well-defined facility plan, and compliance with educational standards, you present your charter school as a viable and attractive investment.
At Capital Impact Partners, we specialize in offering flexible and affordable financing to a broad spectrum of community development projects that yield significant social impact. From community health centers to affordable housing, we extend our support to educational projects that elevate communities and promote sustainable growth. Additionally, we provide extensive support and resources tailored to the unique needs of charter schools, helping to ensure equitable access to quality charter school education for all students, regardless of socioeconomic status, race, or ethnicity.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this fourth installment, we take a look at business acquisition loans, a vital tool in the realm of community development allowing developers to broaden their reach and create lasting impact.
What is a Business Acquisition Loan?
A business acquisition loan is a financial instrument designed to provide funding for individuals or businesses to purchase an existing business. These loans are often sought by entrepreneurs looking to expand their business portfolio, individuals seeking to become business owners, or existing business owners interested in diversifying their operations by acquiring complementary businesses. In the case of community developers, the specific goal would be to further community development initiatives.
Two noteworthy business acquisition loans within the realm of community development, and which we offer at Capital Impact Partners, are cooperative loans, and working capital line of credit loans. One of the most significant steps a business can take is acquiring another business or securing essential working capital. These pivotal moments can be catalysts for growth, job creation, and lasting community impact.
Unlocking Opportunities Through Cooperative Business Acquisitions: Cooperative Business Loans
Cooperatives have long been champions of community-driven economic development. Whether it is workers seeking to purchase a business from their employer, or a group of farmers joining forces to better serve their local markets, business acquisitions can be a game-changer.
Broaden impact: acquiring an established business can expedite a cooperative’s growth and its ability to serve the community.
Leverage expertise: gain access to experienced staff, established customer bases, and valuable industry knowledge.
Ensure stability: preserve jobs, retain local ownership, and maintain the legacy of the business being acquired.
Capital Impact Partners has closed a business acquisition loan to Ward Lumber Worker Cooperative, Inc. (WLWC) to support the acquisition of 100 percent of the capital stock of Ward Lumber Co. (Ward), representing the conversion to employee ownership of the company and all of its assets. The transaction marked the first employee ownership transition, or worker co-op conversion, and the largest of its kind in the North Country region of New York State.
This business acquisition that led to Ward’s conversion to the employee ownership model helps to continue to support the region’s farm and construction industries, provide for above-average employee retention and wages, sustain the future of the enterprise, and build wealth in the community through ownership.
The Lifeline for Day-to-Day Operations: Working Capital Line of Credit Loans
In the ever-evolving world of business, maintaining a healthy cash flow is paramount. Working capital lines of credit are the financial lifelines that enable businesses to navigate the ebb and flow of daily operations effectively. These small-business loans are a type of short-term financing that is used to cover a business’s operating expenses, such as rent, payroll or inventory.
Working Capital Line of Credit loans offer several advantages:
Flexibility: borrow what you need when you need it, providing the agility required to seize opportunities or address unforeseen challenges.
Stabilizing cash flow: ensure that your business can cover operational expenses, pay suppliers, and meet payroll without interruptions.
Fueling growth: invest in inventory, equipment, or marketing initiatives that drive business expansion and community impact.
In 2020, Capital Impact Partners closed on a Working Capital Line of Credit loan to The Achievable Foundation (Achievable), an organization focused on health and wellness, and supportive services for people with disabilities based out of Los Angeles, California. A year prior, a few setbacks had negatively impacted the business including the loss of providers, amongst other difficulties. This line of credit allowed Achievable to replenish their cash and weather the operational challenges that emerged that year.
Working Capital Line of Credit loans represent a necessary lifeline for organizations such as Achievable, that more often than not find it challenging to receive financing from traditional lending institutions, particularly in rough times. This loan has helped Achievable stay operational, and carry out their mission of serving their communities.
Check out our mission-driven lending page for more information about our products to find out which might work best for you.
Momentus Capital hosted a roundtable discussion highlighting efforts to increase access to capital and wealth building in underestimated communities and small businesses through Community Development Financial Institutions (CDFIs).
The discussion included a variety of government officials, community lenders, public-private coalition leaders, and small business owners. Participants included:
Mark Warner, United States Senator from Virginia; Co-Chair of the Senate Community Development Finance Caucus
Wally Adeyemo, Deputy Secretary, United States Department of the Treasury
Leah Fremouw, President, Virginia CDFI Coalition
Chris Weaver, Executive Director, Economic Opportunity Coalition
Ellis Carr, President and Chief Executive Officer, Capital Impact Partners and CDC Small Business Finance (part of the Momentus Capital branded family of organizations)
Caroline Nowery, Chief External Affairs Officer, Locus
Sharita Denise Walker, Executive Director, Let’s Be a Kid Childcare Center
Juanterria S Brown, Owner, Kidz with Goals
Below you will find excerpts from that discussion which have been amended for clarity and brevity.
Opening Remarks
Mark Warner, United States Senator from Virginia; Co-Chair of the Senate Community Development Finance Caucus:
Thank you all. I want to start by thanking Ellis Carr for hosting us here at Momentus Capital. He and I have crossed paths many times over the years. It’s great to be in your digs. Thank you all for joining us today on this CDFI Roundtable. This is a really significant event.
But CDFIs, as my friends at Locus know, go back. It was a passion to me when it was called Virginia Community Capital in 2005 when we started. I have always felt this sector, while small, is a critical part of our financial system.
And frankly, we needed to do so much more during COVID. We got $12 billion even under Trump, $3 billion in grants, $9 billion in tier-one capital. We are trying to see how we can continue to broaden this.
We’ve got a CDFI caucus that is bipartisan, co-led by Senator Mike Crapo of Idaho, 13-13, 13 D’s, 13 R’s. We’ve got legislation up that would create a digital tax credit for patient capital. We’ve got a plan to try to start a secondary market, which I think will be critically important. Ellis is probably going to address that. We are trying, as well, to do as many creative things as possible.
In the aftermath of the murder of George Floyd, corporate America made a lot of big promises. $300 billion. Unfortunately, they have not fulfilled 97-98% of that; about $5 billion has been paid out. So Chris [Weaver, Executive Director, Economic Opportunity Coalition], who worked for Wally [Adeyemo, Deputy Secretary, United States Department of the Treasury] – I managed to steal him for a year, came over as we were doing a lot of this stuff with CDFIs. His work through the Economic Opportunity Coalition [EOC] is an attempt to try to go to some of the large corporate America companies and others and say, “This could be a way that you could meet your promises in an easier manner, a one-stop shop, and a lot with patient capital.” And Wally will talk about what they’ve done, but also a series of other initiatives on how we make sure that workforce contracting and other issues, including what corporations could do to make sure that who they do business with looks more like the individuals in this room, than just folks looking like me.
And I think the work of the EOC has a great, great opportunity. But a lot of this would not have happened if the Deputy Treasury Secretary would not have embraced this. Wally has done a great, great job, and anything that’s been happening in not just the CDFI space, but in terms of trying to push an agenda that is more inclusive beyond just capital access issues, is all due to him. So I will stop and turn it over to my friend, Deputy Secretary of Treasury Wally Adeyemo.
Wally Adeyemo, Deputy Secretary, United States Department of the Treasury:
Ellis, thank you so much for hosting us. You’ve been such a great partner to us in all of this.
But I do need to tell those of you who live here in Virginia that you are very lucky to have Mark Warner as your senator. He’s both a leader in your state, clearly, but also a leader in the country. And frankly, he was the first senator to seek me out when I was nominated, and he took me to dinner with my predecessor. And he started, at that point, talking about the importance of investing in communities that have been left out and left behind, and told me that he wanted to partner on this work. And frankly, lots of people throughout my career have said, “I care deeply about these communities. I want to do work on it.” And then a few months later, they don’t come back.
But that is not Mark Warner.
Within days he was following up with me asking, “What are we going to do here?” And he has not only been a partner who talks, but he walks the walk, in terms of building this coalition that includes Republicans and Democrats who are supportive of CDFIs. And in a city where you often don’t see bipartisanship, you are seeing bipartisanship in this space. Because what we’re doing is investing in communities throughout the country, rural and urban, where not only finance hasn’t gotten to, because traditional banks don’t serve, but frankly opportunity hasn’t gotten to.
And what we’re doing with the Economic Opportunity Coalition is taking that bipartisan spirit, and we’re calling on corporate America to partner with us and make sure that resources get to those communities. We’re doing it through CDFIs. And I would say that CDFIs punch well above their weight class, frankly, in terms of their ability to help businesses in our country, to help housing in our country, in places where we don’t have enough of it.
And today, one of the things that excites me most about what’s happening in America is that we’ve seen the creation of 18 million small businesses over the last three years, which is a record. We’ve seen a doubling of small businesses owned by Black Americans, a 40% increase in small businesses owned by Latino Americans.
But the challenge these businesses have when I talk to them, and I sit down with them on a regular basis, is they need two things. They need access to capital: they need someone to believe in them enough to give them money. And two, they need access to customers: they need people to buy what they’re selling. And ultimately a CDFI or minority-owned depository institution is far more likely to give a loan to that local small business, to that woman who’s decided that she’s going to go out by herself with this business idea, to this person of color who has a new business, than any large institution. Because they know this person, they know their story, they know their community, they understand their business better.
And we’ve been able to make sure that these CDFIs were able to do that because of the work that Senator Warner did to make sure that they got a historic amount of capital at the end of the last administration, that we’ve deployed. But as the financial institutions of this room know, it’s great to have capital, but if you don’t have deposits, you can’t unlock it. And that’s what we’ve been focused on now, getting the private sector to actually provide deposits.
And we’re happy to announce that of the billion dollars of deposits that we’ve gotten through the EOC, $850 million have been deposited in the hands of these CDFIs, and they’re now getting out the door to those small businesses. We’re in the process of raising another $2 billion working with the EOC, so that these CDFIs and minority-owned depository institutions can do even more.
But in addition to making sure that we’re working on the capital, we’re also focused now on the customer side. And the best customer a small, medium-sized business can get is a large corporation. And that’s why we’re calling on large companies who are part of this coalition that are committing to making sure that small businesses in these underrepresented communities are part of their supply chain, so that they have the types of customers that are going to last for a long time.
Because ultimately I think the thing that we know about Senator Warner is, he is committed to this work. He was committed to it when he was governor, helping to create one of the CDFIs that are in the room today. But he’s been committed to it as a champion for this cause in the Senate, and there’s no better champion who speaks about the importance of them investing in it. So I’m going to kick it off with the first question to you, Ellis, to talk a little bit about the work you do here at Momentus Capital, and to tell everyone in the room about it.
Roundtable Question & Answer Session Excerpts
Momentus Capital Overview
Ellis Carr, President and CEO of CDC Small Business Finance and Capital Impact Partners (part of the Momentus Capital branded family of organizations):
Welcome everyone, and thank you Senator Warner and Deputy Secretary Adeyemo. I appreciate all the work that you all have done. Thank you all for allowing us the opportunity to host this important conversation.
For those of you who don’t know, my name is Ellis Carr. I’m president and CEO of CDC Small Business Finance and Capital Impact Partners. We are part of the Momentus Capital branded family of organizations that also includes Ventures Lending Technologies and Momentus Securities.
Momentus Capital is a family of companies that came together in 2021 to support more holistic community and economic development across the country, focusing on how do we help drive inclusive and equitable communities. And since that time in 2021 that we came together, we’ve invested about $2 billion across the country, and nearly $200 million in the Washington, D.C. region alone. Part of coming together with CDC Small Business Finance in 2021, we were really excited because it built on the history and track record and the trust from Capital Impact Partners, but we also could bring a small business lending component to this region.
Senator Mark Warner:
How did that get funded, was that SSBCI [State Small Business Credit Initiative] funds?
Ellis Carr:
So these were two 40-year-old nonprofits that came together to really take charge of the moment, and to really capture some of the opportunities that Deputy Secretary Adeyemo just talked about in terms of small business start-ups.
Part of what we were hearing in the beginning with Capital Impact Partners, because we focused on community development efforts, was access to healthcare, housing, education, and healthy food. But what we heard from folks was, “We need jobs and we want opportunity. We want the opportunity to build wealth and entrepreneurship. Go.” So leveraging our trust across the country, and particularly in this area, and then bringing the small business component has been invaluable.
So just in terms of our work and how we support small businesses in this particular environment, we think about three forms of capital that we provide.
The first is knowledge capital, and that’s really about how do we get people capital-ready? So we provide programs – capacity building programs and one-on-one business advising – so we can really meet the needs of the entrepreneurs in which we’re working with. So that could be an entrepreneur that has a great dream and needs some help actually getting the business plan done, or needs some help actually getting and filling out financial spreads so that they can actually present that package to a CDFI like the ones in this room.
The second area that we focus on is around creating social capital. And both of you alluded to this. We all know that it’s not necessarily about who you know, it’s about who knows you, and making sure that we can create opportunities and access to networks of committed individuals who are committed to the success of those entrepreneurs. We have Lauren Counts, who runs our national programs in the room, who really has leadership over a number of programs, from diverse real estate developers and connecting them to mentors and a network of individuals who are committed professionals who are invested in their success, to a public-private partnership called Nourish DC that we’re working with food entrepreneurs in the D.C. area, and connecting them to opportunities. So we make sure that we provide them with access to those social networks that can really help and support them.
And lastly, we focus on financial capital, which we’re here today talking about in large part. And that’s really providing loans and investments in a continuum of capital, to meet entrepreneurs where they are depending on their cycle.
And to give you all some perspective of the types of capital that we provide, I’ll give you two examples of two local businesses that we supported most recently.
One was a small business, a woman-owned small business, where we provided a $45,000 SBA Community Advantage loan to really start her business. And that business is to create and manufacture waterproof baby carriers. And she’s a registered nurse, she’s a doula, and a mother. And so through her lived experience, she created a product that she now is selling. I’m happy to report that that is just one of the types of businesses that we provide financing for.
As I mentioned, we’re a SBA Community Advantage lender. We’re the largest in the country, and 50% of our production in the SBA Community Advantage program are for start-ups. Our average loan size is under $200,000. So we’re doing a lot of loans to get to the $80 million production target that we have for this year.
Secondarily, we’ve created, because we recognize that debt is not always the answer, we created an impact investing group in 2022. Through that business line, we provided a blended capital stack to two veterans who have corporate experience, to acquire a government contracting business that’s currently operating, that they want to take to the next level.
We provided $16 million in debt financing and $5 million of preferred equity, which actually self-liquidates, to give them the capital they need to grow and expand. So as we’re talking about the work in the Economic Opportunity Coalition, and around getting to supplier diversity and giving the businesses the fuel, the literal fuel they need to succeed, we’re trying to provide a range of tools to be successful in that pursuit.
I’ll just end by saying again, thank you all for the work that you’re doing, because without the work from you, Senator Warner, and from the CDFI Fund and Treasury, we wouldn’t have that continual capital to continue to evolve our product suite to really meet the need of the market. And we’re trying to go in long to really take advantage of the growing opportunity for small businesses in this country.
Deputy Treasury Secretary Wally Adeyemo:
And I think the thing that you just did, which I think is really important is, we talk about these big numbers of billion dollars here, a billion dollars there, but it is always about the story of the entrepreneur. And that nurse wouldn’t be able to launch your product without you. Those two veterans who have a dream needed that help to do it.
Economic Opportunity Coalition Overview
Senator Mark Warner:
The Economic Opportunity Coalition was built out of this notion: could we get companies and organizations to do what they said they want to do, in a way that was simple. Chris, why don’t you talk about EOC, what our goals are, what the value of getting this patient capital is .
Chris Weaver, Executive Director, Economic Opportunity Coalition:
Thank you, Senator Warner. I also wanted to start by thanking both the Senator and the Deputy Secretary. That the Senator has been leading the charge and getting the EOC stood up.
For those who don’t know me, I’m Chris Weaver. I’m the Executive Director of the Economic Opportunity Coalition. We are, as the Senator said, a public-private partnership. We have 30 corporate members. We are designed to capture some lessons that were learned during the pandemic. We were created in the wake of the murder of George Floyd, in the pandemic. And that Paycheck Protection Program experience, I think, brought a lot of people around to CDFIs to understand the role that they play in our communities.
There was $15 billion set aside for CDFIs. The CDFIs went to $35 billion. Far out, it punched above their weight. And the goal of the EOC is to sort of take that magic of thinking about the public sector, private sector, and social sector all working together. That something magical happens, and we’re trying to take that and turn that into something sustainable and long-term through this coalition, working closely with the administration and our private sector partners.
Our first initiative was on the tail of the Emergency Capital Investment Program (ECIP) dollars that went out. And so for them, I think it’s a good thing to say that for the first time in history if you talk to CDFIs, they won’t say that equity is their number one challenge. But they have a liquidity challenge now. And that’s a challenge, but that’s a good thing. It’s something that we can work with and work on. We have been out with our partners, and talking to new partners about making deposits in CDFIs. As the deputy secretary said, last year, we reached a billion dollars in deposits, and have set a goal for another $2 billion this year. One of the things that I really wanted to flag that’s so important about that is that we’ve started having a conversation beyond the regular entities that are motivated by the Community Reinvestment Act. And that’s really important if we’re going to scale this work to reach more institutions.
If you add up the top 15 companies in terms of cash holdings, you quickly get to over a trillion dollars in cash. So there’s a lot of opportunity out there for us to introduce folks to this work, which is what we’ve been doing. And I’m proud to say that in the first billion dollars in commitments that we have, almost 40% of that has come from non-banks, which is a really positive term that we want to keep trying to build upon.
And then lastly, I want to highlight the importance of bipartisan support to change the narrative around CDFIs, where it’s not like an “us versus them” conversation, that this is something that’s important to the overall economy. And that messaging getting out there and seeing Senators Warner and Crapo standing together on this as we go around the country talking to people, that’s really important.
And I’ll end by just talking about two other things that the EOC has been up to. One was mentioned earlier around our supply chain work. Making sure as new investments are being made in this country, in the new economy, that small and disadvantaged businesses are part of the supply chains of those companies. So we’ve been asking our members to make the same pledge that the federal government has made, as a 15% diverse spend. And we’ve also asked them to think much deeper about more than just low-margin supply chain businesses. Historically, we think about janitorial services and construction. Let’s take it there. We’ve asked our partners to provide technical assistance to try to diversify up and down their supply chain, to bring more of the high-margin sectors into their supply chain work.
And then lastly, our newest initiative that we’ve been working on with JPMorgan Chase is that there are 3 million businesses in the country owned by baby boomers. And we recognize that there are just not enough minority businesses in the country, or even businesses from underserved communities that have a single employee. And so we have been working with them with their succession planning, to integrate into that training for entrepreneurs that can be equipped to acquire those businesses. And so in short, the EOC is more businesses, more capital, or more customers. That’s what we’re focused on, and I really appreciate the opportunity to be here to talk with everyone about this.
The Impact of Secondary Markets
Deputy Treasury Secretary Wally Adeyemo:
I do want to get back to this question of a secondary market, which you’ve been a big advocate for. And Ellis, just to get from you a sense as to, if we were to have something like this, how would it impact your business?
Ellis Carr:
Yeah, great question. I think earlier, you mentioned that small businesses needed two things, capital and customers. That is actually the same thing that CDFIs need, amongst other things.
Deputy Treasury Secretary Wally Adeyemo:
Very small businesses.
Ellis Carr:
Yeah, no doubt about it. No doubt about it. And I think, so given all the discussion we had today, and the opportunities that exist in the market around supporting small businesses, we’ve actually been pretty aggressive in setting our kind of ambitious goals between now and 2030. So specifically, we said we wanted to quadruple our production from now to 2030. A lot of that is that growth is really focused on small businesses. We believe we can get there from a production perspective, but what we need is two things.
One is capital. Our balance sheet right now is $800 million. We currently produce around $600 million in annual originations. We want to be at $2.4 billion. That can’t all be on our balance sheet and that all won’t be SBA loans either. We need to be flexible and develop new products to do that. The CDFI Fund is helpful, and through grants from the Financial Assistance Award program, we are able to create new products.
But we need constant liquidity. It needs to be two things. One, we need to expand that investor base. And I think a secondary market can do that. And what it also needs to do is that the market needs to have products where customer investors can easily invest. And so what we’ve created is a mission-driven broker-dealer and investment bank to begin to do that work. That organization is called Momentus Securities. And just earlier this year, as an example, to take it from the theoretical to the practical and concrete, they recently became an SBA Pooler. They are exclusively focusing right now on SBA Community Advantage lenders, who are funding the small mom-and-pop businesses. And what we’ve noticed is that we have investors in the market who specifically want to invest in that specific security that’s being created. And as a mission-driven organization, we’re passing those proceeds back to the originating CDFIs and CDCs, which is actually making that business proposition more profitable.
Senator Mark Warner:
Tell me the profile of the entity that wants to invest in the product of mom-and-pop businesses?
Ellis Carr:
We’re talking corporations. Because again, it’s a guaranteed security that is being sold in the market. So it’s very akin to a treasury, mortgage-backed security, etcetera. There’s an explicit guarantee for the loan, the securities that are being sold. So it’s almost a risk-free investment, and you’re also getting the social impact. We can actually fund loans across the CDFI spectrum here, and create a security for that corporation to invest in and put in their treasury. So that’s what we’re trying to do.
Senator Mark Warner:
Because these are riskier, you have to have some additional layer of capital in there. So where are you getting that?
Ellis Carr:
Right now, it’s SBA-backed loans. However, we’ve also begun to develop alternative products to the SBA Community Advantage program, because we’ve noticed that additional products are required. So we’ve created an alternative SBA 504 program, which effectively is a commercial real estate-secured small business loan, for someone who needs a loan who may not be eligible for the SBA 504 program. That currently is on our balance sheet today, but we’re working to actually develop a security to do that.
To answer your question specifically, we have philanthropic organizations who are willing to help bring down the misperception between real and perceived risk, between the actual investments that CDFIs are making. In the future, we need other participants to be able to play that role going forward. So I think to your question, both; that could be potentially a public sector play, or that could also be a private market play, as most folks understand how good the loan performance is for the CDFIs who are in this room and operate across the country.
So in short, what I think a secondary market can do is, it allows CDFIs to recycle the capital and get to scale. Because oftentimes we spend a lot of energy and effort trying to raise capital in very inefficient ways. And in some cases, we get beholden to basically the person who’s providing us the capital. And we have to provide those onerous systems to you because we’re an intermediary ourselves.
And so getting to a place where we can actually have a number of folks playing different roles in that secondary market, who are willing to take different risk profiles, creates an opportunity for us to scale beyond anything that I think we can even have contemplated.
Contact us today to start a conversation about how Capital Impact Partners and Momentus Capital can support your community or small business.
Whether you’re a seasoned real estate developer fine-tuning your strategies or an aspiring newcomer eager to make your mark in the industry, there is always more to know and learn to help grow your business and scale your impact. This series is designed to provide invaluable insights and actionable advice to propel your development projects and your business forward.
At Capital Impact Partners, in particular, we offer flexible and affordable financing to a diverse array of community development projects that deliver tangible social impact. From community health centers to affordable housing developments, we are committed to empowering projects that uplift communities and foster sustainable growth. We also offer programmatic services that equip you with the resources, support, and networking opportunities you need to succeed in the real estate development world.
In the competitive realm of real estate development, success hinges not only on vision and execution but also on the ability to navigate complex relationships, craft solid real estate development projections, and attract investors. These pillars serve as the bedrock upon which thriving projects are built, distinguishing between mere ventures and enduring successes.
Solid real estate development projections are a key to success, providing a roadmap for project feasibility and financial viability. In this installment, we’ll explore the critical aspects of creating pro forma models and building capital stacks, essential for navigating the complexities of the development process.
Creating Pro Formas: A Vital Tool for Success
A pro forma model is a financial projection tool that forecasts the potential financial outcomes of a real estate development project. It serves as a crucial guide for developers, investors, and lenders, offering insights into project feasibility and potential returns on investment. To create a robust pro forma model, developers must consider a range of factors, including land acquisition costs, construction expenses, operating expenses, and projected rental income.
Key Considerations in Pro Forma Development
Developers must carefully balance short-term and long-term real estate development projections in their pro forma models, taking into account factors such as vacancy rates, management costs, taxes, and rent projections based on cost per square foot. Challenges may arise during the creation and updating of pro forma models, requiring developers to adapt and address uncertainties effectively. Pre-development phase costs, including environmental reports and market studies, are crucial considerations that must be prioritized in pro forma development.
“One of the critical elements that need to be in your pro forma are projections into the future, which are costs and rent, and more importantly, how long it’s going to take.” – Christopher Agorsor, Principal at Agorsor Equities
Agorsor: Solid real estate development projections are a key to success, providing a roadmap for project feasibility and financial viability.
Lessons Learned and Tips for Success
Throughout the development process, developers must remain vigilant and adaptable, learning from their experiences and refining their strategies for future projects. Transparency and open communication with lenders are essential for building strong relationships and securing project financing. By attending industry events, networking, and staying informed about market conditions, developers can streamline their capital stacks and secure financing tailored to their project’s needs.
Building Capital Stacks: Navigating Project Financing
A capital stack represents the various sources of funding, including debt and equity, that finance a real estate development project. Developers must carefully structure their capital stacks to ensure project feasibility and mitigate risk.
By mastering the art of pro forma development and capital stack structuring, developers can navigate the complexities of the development process with confidence and achieve their goals. Training and resources provided through our programmatic services will help give you the confidence needed to build solid projections.
Whether you’re a seasoned real estate developer fine-tuning your strategies or an aspiring newcomer eager to make your mark in the industry, there is always more to know and learn to help grow your business and scale your impact. This series is designed to provide invaluable insights and actionable advice to propel your development projects and your business forward.
At Capital Impact Partners, in particular, we offer flexible and affordable financing to a diverse array of community development projects that deliver tangible social impact. From community health centers to affordable housing developments, we are committed to empowering projects that uplift communities and foster sustainable growth. We also offer programmatic services that equip you with the resources, support, and networking opportunities you need to succeed in the real estate development world.
In the competitive realm of real estate development, success hinges not only on vision and execution but also on the ability to ensure real estate development relationship building, craft solid projections, and attract investors. These pillars serve as the bedrock upon which thriving projects are built, distinguishing between mere ventures and enduring successes.
Real estate development relationship building is the cornerstone of success in the field, spanning two critical areas: building a stellar development team, and engaging local stakeholders and the community. Let’s delve into each of these aspects to understand their significance and how they contribute to project success.
Building a Stellar Development Team
Real estate development relationship building starts with building a great team. A successful development project begins with assembling a stellar team that shares your vision and values. From project managers to architects, each team member plays a vital role in bringing your vision to life. As a new developer, being actively involved in the team-building process is essential. Seek out experienced professionals who align with the specific needs of your project, whether it’s historic preservation or meeting energy requirements. By asking for references and recommendations and ensuring each team member is comfortable and capable in their role, you can build a cohesive team poised for success.
“The advice I would give to new developers when building a team is to make sure they are experienced with the type of project you are working on. Ask around for references and recommendations – but most importantly, make sure that they believe in your vision.”
Ronette (Ronnie) C. Slamin, Founder and Principal at Embolden Real Estate
Slamin: Engaging with local stakeholders and the community is fundamental to the success of real estate developers.
Engaging Local Stakeholders and Community
Engaging with local stakeholders and the community is not just a box to check—it’s a fundamental aspect of successful real estate development. From the early stages of planning to project completion, involving the community in the decision-making process is essential for building trust and goodwill. Define ‘community’ in the context of your project and understand the unique dynamics at play. Be deliberate in your outreach efforts, ensuring that community input informs every stage of the project lifecycle. While challenges may arise, proactive engagement and genuine listening can help overcome obstacles and foster meaningful connections.
As you embark on your journey as a real estate developer, remember that success is built on relationships. Whether it’s with your development team, lenders, or the local community, cultivating strong connections is essential to bringing your vision to life.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this third installment, we turn our attention to construction loans, the financial cornerstone that transforms plans into reality and buildings into vibrant community assets.
What is a Construction Loan?
A construction loan is a short-term loan that propels your development project from the drawing board to a physical structure. It provides the necessary funding to cover the costs associated with building, renovating, or expanding community assets. Construction loans may also cover the costs of buying land, drafting plans, taking out permits and paying for labor and materials. Construction loans typically have higher interest rates than other types of loans because lenders are taking on more risk by financing the construction of a new property.
Turning Blueprints Into Bricks
At the heart of any community development project lies the construction phase. This is where ideas take shape, and communities begin to witness tangible progress. Construction loans provide the essential capital for hiring contractors, purchasing materials, and overseeing the entire construction process. They also empower developers to maintain high standards of quality by financing skilled labor, sustainable materials, and adherence to safety standards. Moreover, construction loans cover costs at various stages of construction, from groundbreaking to final touches, keeping the project on track and minimizing delays so communities can start benefiting sooner.
How are Construction Loans Used in Community Development?
Construction loans enable developers to borrow money to purchase materials and pay for labor necessary to build or rehabilitate a real estate project. Unlike traditional loans, construction loans are tailored to the unique financial needs and timelines of development projects, ensuring that funds are available precisely when they’re needed the most. Because construction loans generally are intended to cover the building process, they’re typically issued for a period of 12 to 18 months. Community developers can use construction loans towards projects such as building or rehabilitating spaces into affordable housing. Capital Impact Partners has closed on a loan to finance the construction of a 37-unit apartment building for veterans and their families living with very low incomes and experiencing homelessness. Once completed, the six-story, 28,0000-square-foot apartment building in the Brightwood Park neighborhood of D.C. will play an important role in building the resilience of the local community.
Construction loans can be used towards the rehabilitation or construction of charter schools as well. Capital Impact Partners has closed on a construction loan to fund the renovation of a 25,000-square-foot former Kaplan College into the Betty M. Condra School for Education (Condra School) in Lubbock, Texas. When complete, the renovations will allow the Condra School to increase its capacity by 88 percent to 375 students, with larger classrooms and more play spaces to benefit students with attention-deficit/hyperactivity disorder (ADHD).
Flexible, Short-term Financing for Long-term Impact
In the case of a construction loan, disbursement happens in phases. This means that the lender pays the developer in installments, called “draws,” instead of transferring a lump sum. This is to ensure that the developer is using the loan funds for the intended purpose. Each installment coincides with an important phase of the project, such as pouring the foundation, framing, and finishing work.
One benefit of construction loans is that developers would only pay interest on installments that have been drawn, versus paying interest on the entire loan amount. Another benefit is that construction loans offer more flexibility in terms of loan terms, compared to traditional loans. Developers can make loan terms around the needs of their projects.
Check out our mission-driven lending page for more information about our products to find out which might work best for you.
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