A bipartisan group of senators introduced legislation to create a Community Development Investment tax credit to help unlock more equity and long-term financial capital for community development financial institutions (CDFIs).
CDFIs often serve underserved communities, including small and disadvantaged businesses, which tend to have fewer banking relationships and less access to credit. This bill will create CDFI Tax Credit for private sector investors that make equity, equity-equivalent investments, or long-term patient capital available to CDFIs.
The bill would benefit CDFIs of all types including banks, credit unions, venture capital CDFIs, and loan funds, while providing institutions with the flexibility and financial support to increase wealth in low- and moderate-income communities.
“As someone who worked in the business world long before I ever joined politics, I know well that talent and ambition are not confined by income bracket or zip code. Unfortunately, access to start-up capital often is. CDFIs do the invaluable work of bridging the gap and reaching small businesses in our most vulnerable communities, and we have seen historic investments on this front over the past few years,” Sen. Mark Warner (D-VA), one of the bill’s sponsors, said. “Despite this progress, CDFIs remain in need of additional equity and capital to continue serving their communities.”
Along with Warner, the bill is sponsored by Sens. Roger Wicker (R-MS), Chris Van Hollen (D-MD), Cindy Hyde-Smith (R-MS), Gary Peters (D-MI), and Jerry Moran (R-KS).
“Our country was built by small business, but many in low-income areas have trouble accessing the financing they need to launch and grow their businesses,” Wicker said. “CDFI investments play a pivotal role in bridging these gaps. The proposed tax credit in this legislation would help address the challenges faced by small business owners and provide an alternative to predatory loans.”
The bill has the support of several organizations, including the Independent Community Bankers of America and the American Bankers Association (ABA).
“We thank Senator Warner, Senator Wicker and the other bipartisan co-sponsors of the CDFI Tax Bill, which we strongly support,” Rob Nichols, president and CEO at ABA, said. “ABA is proud to represent a number of CDFIs across the country and this legislation would expand investment in these critically important financial institutions, allowing them to have an even bigger impact in the communities they serve.”
The CDFI Coalition also backs the bill.
“The proposed CDFI Tax Credit will provide a new avenue for CDFIs to raise capital that will be deployed to finance small businesses, construct affordable housing, and support community facilities in disadvantaged communities across the country. CDFIs leverage over $12 in private capital to every $1 in federal support, so the resources authorized by the tax credit will extend far beyond the amount authorized and help CDFIs to fill the widening credit gap encountered by economically disadvantaged communities across the country,” Ceyl Prinster, president and CEO, Colorado Enterprise Fund and chair of the CDFI Coalition, said.