Editor’s note: Earlier this year, Joan M. Brodhead, senior vice president and chief operating officer at Community First Fund in Lancaster, PA, spoke at a Philadelphia Fed Community Affairs Department event in Delaware. The following is a summary of highlights from her presentation.
Community First Fund provides financing for small businesses, community revitalization, and affordable housing in a 13-county region of central Pennsylvania. It focuses primarily on small cities and towns with a population of 5,000 to 50,000 residents and has a mission of supporting economic revitalization in older cities, deconcentrating poverty, and supporting community wealth building.
Since its inception in 1992, Community First has lent $32 million. Annually, Community First makes about 75 loans totaling $6.5 million, which is almost double its level of lending from five years ago. Real estate values in central Pennsylvania have been relatively stable during the past 10 years; they didn’t soar as they did in some parts of the country and haven’t dropped greatly in the past three years or so.
The biggest change in Community First’s business is an intense focus on delinquency management. The community development financial institution (CDFI) now reviews delinquencies on a daily rather than weekly basis and has strengthened its internal reporting systems to track delinquencies, added a collections staff person, and increased on-site visits to borrowers. It analyzes delinquency and write-off trends by industry and product.
Community First reviews its financial performance data within 30 days of the end of each month. It also gives a risk rating to each loan and sets aside loan-loss reserves for all loans.
Community First strives for a balance of managing risk and providing reliable capital to small businesses and nonprofit borrowers. It provides an average of 20 to 25 hours of technical assistance at no charge to borrowers prior to the issuance of a loan.
Each year, Community First raises about $9 million in debt, $2.5 million in equity, and $3 million in operating funds. A full-time development director has led the CDFI fund-raising efforts for more than eight years. Its equity grants have come primarily from the U.S. Treasury’s CDFI Fund, the Pennsylvania Department of Community and Economic Development (DCED), and the U.S. Department of Health and Human Services’ Office of Community Services. Its investments are primarily from national, regional, and local banks; the Opportunity Finance Network; individual investors; and social investors, including religious orders. Its operating funds come from public and private sources, such as the DCED, the U.S. Small Business Administration, local community development block grant programs, foundations, banks, and individual contributors.
In order for CDFIs to raise loan capital and grants from financial institutions, CDFIs must communicate well with these institutions and understand what information is needed and when. CDFIs must also respond quickly to requests for new or additional information.