Community First Fund (CFF), a regional community development financial institution (CDFI) based in Lancaster, Pa., has expanded its original focus on microbusiness lending to include larger small business loans, commercial real estate loans, and affordable-housing development loans.
Started in Lancaster in 1992 by a faith-based group, CFF has offices in Harrisburg, York, Reading, and Exton that serve a 13-county southcentral Pennsylvania region. CFF’s annual lending grew from $200,000 in 2000-01 to $5.2 million in 2006-07.
Daniel Betancourt, CFF’s president and chief executive officer, explained that “business lending is in our DNA, is our core competency, and will remain our primary focus,” but “we had to grow with our microbusiness clients and offer larger loans.” CFF also expanded its mix of products to achieve greater self-sufficiency.*
Joan M. Brodhead, CFF’s vice president and chief operating officer, pointed out that CFF strives “to have an impact on economic development in a relatively small geographic area” through highimpact commercial or mixed-use real estate projects in small-city downtowns. Roughly half of CFF’s borrowers are in small cities, while the other half are in suburban and rural townships and boroughs, she said.
In 2006, CFF obtained certification to make SBA 7(a) loans of up to $2 million with a 75 percent guarantee. CFF plans to use the product for businesses that are seeking to expand and that are requesting loans of more than $50,000. In 2007, CFF began offering larger loans for commercial real estate and affordable housing and hired Mary Kay Eckenrode, who has 10 years’ experience as a housing developer, to oversee these lending areas.
Technical assistance is key to CFF’s work. Betancourt explained: “We take a lot of time providing intense technical assistance to our borrowers, reviewing business plans, mentoring borrowers, and helping them understand the transaction and the implications of their financial information. Many of our businesses have not borrowed before, but they have business experience and ideas. They can become very loyal customers if you spend the time with them.”
Carlos Gonzalez (center), shown with his wife Lucciola and son Carlo Gonzalez-Navarette, renovated and sold eight houses on his block in Lancaster, Pa., with loans totaling $188,700 from the Community First Fund (CFF). Carlo recently received a $50,000 CFF loan to purchase a one-unit residence for renovation and resale.
Brodhead said: “We take a little more risk than a bank, but the amount of time we spend with clients is a bigger difference than credit quality. We spend more time than a bank can in underwriting and monitoring the loan closely.”
She explained: “CFF’s loans cannot be underwritten out of a box or using a scoring program because the entrepreneurs we support have distinctly different capabilities that need to be fully assessed. Underwriting is based on the ‘five Cs of credit,’ but the weight of each ‘C’ is assessed for every applicant; if the balance of strengths mitigates the underlying risk, we are able to make a loan. A hotel, grocery, and retail business must be underwritten very differently.”
CFF makes loans to a wide range of businesses, including retailers, service businesses, wholesalers, light manufacturing firms, construction entities, housing developers, and social service providers.
In 2006-07, CFF received its largest investment, $2 million from Bank of America, and made a $500,000 loan (the largest made by CFF) providing furniture and equipment in the adaptive re-use of a long-vacant warehouse into the Lancaster Arts Hotel. Fulton Bank provided construction financing for the project.
Recently, CFF provided two loans totaling $935,000 to Ken and Barbara Hammel of Hammel Associates Architects who were renovating a building in Lancaster’s Heritage Conservation District that had several businesses on the first floor but vacant second and third floors, a common problem in communities served by CFF. The Hammels worked with local developer John Meeder, whose adjacent building became part of the project. CFF’s loans provided permanent financing for the project along with support from the city of Lancaster and the Bank of Lancaster County, a division of BLC Bank. The project calls for a condominium containing three retail shops on street level; three businesses on the first level, including offices for the Hammels and Meeder; two apartments and the Hammels’ home on the second floor; and another apartment on the third floor.
CFF’s loan product terms and interest rates vary with the type of investment and the relative risk of the loan. The general parameters are:
CFF said that as of mid-December 2007 its delinquency rate (90 days or more past due) was 5.3 percent on outstanding loans, while its cumulative default rate was 1.6 percent of dollars lent. Its lending for the last three years is shown in the table above.
CFF said that of the 329 loans, 23 percent were made to borrowers of Latin American origin, 21 percent to African Americans, and 1 percent to Asians.
Before joining CFF, Betancourt had nine years’ experience in business and community development lending, and Brodhead had 17 years’ banking experience in retail and commercial lending and as a manager of community development programs. CFF’s 25-member staff includes 12 lenders who have an average of 15 to 20 years’ experience in business and commercial lending, Brodhead said.
CFF is an advocate on behalf of the communities it serves on downtown development issues. It does so, in part, through the membership of senior staff on economic development boards. In 2007, Betancourt was elected chairperson of the Association for Enterprise Opportunity, a national organization of microbusiness lenders.
CFF generally seeks investments from commercial banks, individuals, foundations, and governmental organizations at low interest for up to 15 years. In addition, CFF is currently working with Sovereign Bank to serve as a community development entity under the bank’s new markets tax credit (NMTC) allocation. Sovereign Bank will be investing $1 million of its NMTC allocation with CFF, which will reinvest these funds in eligible businesses located in lowand moderate-income communities throughout CFF’s market area.