Breaking Down Barriers, Rebuilding Walls: The Role of Community Development Loan Funds

Community Development Loan Funds (CDLFs) make up the largest sector of the community development finance industry, with more than 800 certified CDLFs. Ninety-eight percent of CDLFs are nonprofit, servicing mainly the small business sector, with the help of the CDFI Fund, the Small Business Administration, and, increasingly, mainstream banks. CDLFs venture into risky areas where others sometimes fear to go, yet they have high repayment figures and low loss rates. Excerpt UVA-ENT-0108 April 8, 2009 BREAKING DOWN BARRIERS, REBUILDING WALLS: THE ROLE OF COMMUNITY DEVELOPMENT LOAN FUNDS Community development loan funds (CDLFs) are financial institutions that combine capital from a variety of sources to provide funding to low-income communities. There are four categories of loan funds—small business, microenterprise, housing, and community service—but the majority of loan funds support affordable housing. Loan funds are located throughout the United States in urban, rural, and suburban settings. As of 2006, 98% of loan funds were nonprofit organizations. Loan funds are the largest sector of community development financial institutions (CDFIs). There are between 1,000 and 1,200 loan funds in the United States, and approximately 700 to 800 are certified by the Community Development Financial Institutions (CDFI) Fund, a division of the U.S. Treasury Department designed to increase financial services in underserved communities. Loan funds are different from banks because they are not insured depository institutions, which means they do not take deposits from individual customers; furthermore, this absence of federal insurance means that the government does not protect CDLF investorsfrom loss. . . .