A new first-of-its-kind model of small business, nonprofit, and community financing has been launched in Bloomington under the direction of Mayor John Hamilton. Over the past few years, city and development officials recognized a need for greater flexibility in the way local projects and business ventures could secure funding.

As described by the city, officials “saw small businesses, including startups, commercial real estate projects, and affordable housing deals stalled by limited access to financing.” So, they sought ways to establish an option that would be “more flexible, risk-tolerant, and creative than seemed available from banks and other conventional sources.”

Enter the CDFI

Fortunately, Mayor Hamilton spent decades working in a type of organization called a community development financial institution (CDFIs) prior to being a mayor. He and his administration realized that a custom-built CDFI could be designed to fit Bloomington’s business and community needs. After about a year and a half of market research, the city announced the launch of a new organization called CDFI Friendly Bloomington.

Partners that helped establish the organization included the Bloomington Urban Enterprise Association (BUEA), the Community Foundation of Bloomington & Monroe County, and Five/Four Advisors, a firm with extensive experience in the CDFI industry.

How is this Unique?

CDFI Friendly Bloomington is a 501(c)(3) that will pair local investment opportunities with regional and national investors, known as CDFIs, that specialize in markets and populations that often cannot qualify for traditional financing. Stated simply, it’s a nonprofit that helps other nonprofits and also nontraditional entrepreneurs.

CDFIs provide capital and services to underserved populations – low-income, low-wealth, and other disadvantaged groups and areas. They also provide financing with development services like technical assistance and training to help their borrowers succeed.

More than 1,000 CDFIs operate in the U.S., providing billions of dollars of financing annually. What sets Bloomington’s model apart from others is the way its been structured to designate Bloomington as the nation’s first “CDFI-Friendly City,” meaning it will be using national sources of financing to enhance local entities.

“The launch of this new organization represents public and private collaboration at its best. Not only will CDFI Friendly Bloomington serve as a model for other communities, but it will also benefit many facets of our community and region for many years to come,” said board member Tina Peterson, also the president and CEO of the Community Foundation of Bloomington and Monroe County and CEO of Regional Opportunity Initiatives. Peterson will serve as the initial president of the organization’s board.

How Will it Work?

Mayor Hamilton provided a description of how CDFI Friendly Bloomington will function. He said that:

• Matchmakers will work with local projects or businesses needing financing.
• Matchmakers will also simultaneously be encouraging outside CDFIs to lend locally. At last report, over a dozen CDFIs are already interested in Bloomington projects.
• Next, CDFI Friendly Bloomington will partner with the CDFIs to bring their low-cost, risk-tolerant financing to Bloomington along with technical expertise to secure funding.

He also provided an example scenario to give some clarity. In it, he said that if a developer were seeking $1 million to restore 10 decrepit homes into affordable housing, they may only be able to finance half that amount through banks because of the risks involved and the low values of the properties. Instead, CDFI Friendly Bloomington can work with an outside CDFI firm to each provide a quarter of the necessary funds while the local bank can provide its half to bring the project to fruition.

“With this collaboration, more affordable housing projects, after-school facilities, or community health clinics — any project typically considered too risky to finance — can become reality,” Mayor Hamilton said.

The Banks Sign On

Already, $4 million has been allocated to get CDFI Friendly Bloomington going. The five-year goal of the organization is to finance up to $50 million in investments.

Initial investors for that $4 million figure include banks and community groups. First Financial Bank, Old National Bank, German American Bank, and Woodforest National Bank chipped in a total of $2 million in senior debt financing. The Bloomington Urban Enterprise Association (BUEA) and the Bloomington Redevelopment Commission each have made $1 million capital grant commitments.

Additionally, Mayor Hamilton said that Bank of America has pledged to match any CDFI loans made in Bloomington, dollar-for-dollar, with 10-year loans at 1 percent interest to the participating CDFIs. The hope is that this will generate even more interest in Bloomington investments.

New Chapter, New Opportunity

This new model opens up a lot of possibilities for future investment in Indiana projects. For now, it’s just Bloomington’s concept but the premise could certainly be undergoing consideration from other cities and towns already. As CDFI Friendly Bloomington begins to achieve success, it’s likely we’ll see the organization expand and new similar ones pop up around the state. It’s going to be something worth keeping an eye on.