Community Loans Explained: How CDFI Financing Can Support Local Growth and Long-Term Impact 

Community Development Financing: A Project-Specific Approach

Community development projects can have financing needs that do not fit one set template. Multi-family affordable housing and community facilities, for example, may rely on very different revenue models. Small businesses and other community-focused projects can bring their own considerations, such as ownership or sources of capital, that shape the financing request.

Community development financial institutions (CDFIs) are mission-driven financial institutions certified by the U.S. Department of the Treasury’s CDFI Fund to support community development. CDFIs take several different forms with different approaches. At Clearinghouse CDFI, that mission is carried out through commercial real estate-secured lending. We evaluate financing requests individually. That means taking the time to understand the borrower and the project, including what the borrower is trying to accomplish, so we can structure disciplined financing around those specific needs. 

If you’re considering CDFI financing for a community development project, it helps to know what a lender will want to understand about your project. This article examines those considerations and explains how Clearinghouse CDFI approaches projects intended to create long-term economic and community impact. 

Different Projects Require Individual Approaches

Community development projects vary widely. A multi-family affordable housing development may have income shaped by affordability requirements or subsidies, while a community facility may depend on the operating performance of the organization that occupies it. Other projects may bring together several sources of financing. The property itself can introduce additional considerations, as can property ownership and operation. 

Those differences do not change the need for sound financial fundamentals. They do mean that a lender needs to understand the borrower and the project, along with how its pieces work together. Clearinghouse CDFI reviews each request on its own merits rather than applying one set template to every project. 

What Lenders Consider When Evaluating a Financing Request

Every financing request is evaluated individually, and underwriting considers multiple factors. Depending on the project, these factors commonly include: 

• Cash flow and debt service: Does the project generate sufficient income to support the proposed debt? 
• Loan-to-value (LTV): What percentage of the property’s value would the requested loan represent? 
• Collateral and valuation: What commercial real estate will secure the loan? What factors affect its value? 
  • Want to learn more about collateral? Watch Clearinghouse CDFI’s short video on how collateral factors into commercial real estate-based financing. 
• Borrower and project experience: Does the borrower or project team have relevant experience to execute the project and operate it successfully? 
• Project and capital structure: What other financing is part of the project? This can include subsidies, investments, grants, or other commitments. 
• Repayment: What is the expected source of repayment over the life of the loan? 

This list is not exhaustive, and no single item tells the whole story. The relevance of each factor can vary by project. Clearinghouse CDFI considers the financial fundamentals in the context of the borrower and the project when structuring a community development loan.  

Multiple Sources of Financing

Community development projects may rely on multiple sources of financing, sometimes referred to collectively as a project’s capital stack. A project might pair a loan with tax credit equity or a grant. Others may include public funding or borrower equity. The mix depends on the project.

Apache Railway received $2.5 million in financing through a public-private partnership supporting rural jobs and transportation in Arizona.

A $7.5 million financing package brought together $2.5 million from Clearinghouse CDFI, in partnership with the Arizona Commerce Authority, and $5 million from other investors. The financing helped preserve a critical piece of rural infrastructure and support the railway’s continued operation and growth.

Borrowers should understand how those pieces fit together. A lender may need to know which sources are committed and when the funds will be available. Requirements tied to another source of financing can also affect the project or closing.

Projects Clearinghouse CDFI Finances

Clearinghouse CDFI provides commercial real estate-based financing for a range of projects designed to create economic and community impact. Examples include: 

• Multi-Family Affordable Housing 

• Charter Schools & Educational Facilities 

• Special Needs Housing 

• Healthcare Facilities 

• Churches & Faith-Based Facilities 

• Nonprofit Facilities & Community Spaces 

• Small Businesses 

• Office & Retail 

• Mobile Home Parks 

• Industrial & Mixed-Use Projects 

Financing may support acquisition, refinancing, or construction. It can also be used for renovation and rehabilitation, gap financing, or operations expansion. These examples are not comprehensive. Eligibility depends on the individual project and proposed loan use, as well as the requested amount and other factors. 

Projects in Action

Clearinghouse CDFI provides community development financing for projects in rural communities across the country. The examples below show some of that work in practice.

• NTUA Wastewater Treatment Facility — Apache County, AZ 

• Fairchild Medical Center — Yreka, CA 

• Rock Springs Affordable Housing Complex — Rock Springs, WY 

• J&D Distilling Company, LLC — Springfield, KY 

What Borrowers Can Expect

Clearinghouse CDFI begins each community development loan request with a pre-application designed to help determine whether a project aligns with basic lending criteria. Borrowers should be prepared to describe the organization and the project. They will also need to provide high-level information about the financing request, the real estate involved, and expected sources of repayment. 

If a request appears to be a potential fit, a lending advisor can discuss the project in more detail. As the review continues, borrowers may be asked for financial statements or budgets. Property and project documentation may also be needed, along with other materials relevant to the financing request. When multiple sources of financing are involved, borrowers should be ready to explain how those pieces fit together. Timing or approval requirements tied to those sources may affect the transaction. 

Starting the conversation early can help borrowers understand whether a request may be a fit and what information will be needed. It also gives them a clearer picture of what comes next. Current lending criteria and the full pre-application process are available on Clearinghouse CDFI’s borrower webpage. 

Where Clearinghouse CDFI Fits

Clearinghouse CDFI combines disciplined commercial real estate-secured lending with a thoughtful, project-specific approach. Our mission is to provide responsible financing backed by deep lending expertise to expand economic opportunity and improve quality of life for individuals and communities with limited access to traditional capital. We evaluate each financing request on its own merits. This approach allows us to structure financing around the specific circumstances of each borrower and project. 

For borrowers and brokers, that means the conversation begins with understanding the project and its financial fundamentals. A project-specific approach should not be confused with easier financing or less rigorous underwriting. 

Next Step

If you are considering community development financing for a project and have commercial real estate that can serve as collateral for the loan, review Clearinghouse CDFI’s current borrower information and pre-application process. You’ll find current lending criteria there, along with details about what happens next.