Loans Expert

The Obama administration is trying to prop up small businesses with more funding for community development banks.

Obama’s fiscal 2011 budget seeks $250 million in additional funding for community development financial institutions, or CDFIs, a Treasury Department official told Congress Tuesday.

“We strongly believe that further support is needed for CDFIs to help serve distressed areas manage through the economic downturn,” said Michael Barr, assistant secretary of the U.S. Treasury for financial institutions.

Barr testified before the House Financial Services Committee, which is considering proposals for making federal funding more accessible to small businesses.

CDFIs are financial institutions certified by the Treasury Department to receive federal funds to be passed on to small businesses in underserved markets as loans with favorable rates.

The program is receiving $328 million from the federal government this year.

The 824 registered CDFIs are either banks, credit unions, loan funds or venture capital funds.

They were established by the Reigle Community Development and Regulatory Improvement Act of 1994. Since then, they have made billions of dollars available for small businesses in economically distressed communities.

More recently, as the recession that began in December 2007 fell hard on low-income households,

Officials from the CDFIs say they have lacked the federal funding they need to meet demand for the loans.

The Treasury Department wants Congress to match the money CDFIs loan to small businesses dollar-for-dollar.

The Obama administration also is asking Congress for $50 million for a “Bank on USA” program to counsel low-income persons on improving their finances and credit scores.

Barr said the program would promote “much needed private sector innovation.”

A separate proposal would make $25 million in food assistance available through CDFIs. The proposal also would use tax credits to provide $375 million for low-cost, healthy food in low-income areas.

Financial industry witnesses at the congressional hearing said CDFIs lack the funding to do everything needed for underprivileged communities during the current economic downturn.

William Bynum, Enterprise Corporation of the Delta chief executive officer, said a recent survey showed demand for loans has increased in recent months for 56 percent of CDFIs.

In the last fiscal year, 200 qualified applicants for the loans were rejected because the CDFI program ran out of money, Bynum told the congressional committee.

Bynum’s credit union serves Arkansas, Louisiana, Mississippi and Tennessee.

With prolonged unemployment hurting rural areas severely, the need for small business financing is growing, other witnesses said.

“Many times, we have almost an absence of access to capital,” said L. Ray Moncrief, chief operating officer for the CDFI Kentucky Highlands Investment Corporation. “We are faced with stark poverty.”

Judith Kennedy, National Association of Affordable Housing Lenders chief executive officer, said Congress needs to update definitions in the CDFI legislation to avoid confusion over who is eligible.

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