B of A Takes Initiative to Spur Small Business Lending in U.S.-

Bank of America recently announced that it will supply $10 million in grant money to Community Development Financial Institutions and other nonprofit microlenders to propel around $100 million in small business lending. This is an extremely momentous occasion, and quite possibly a move that could strengthen America’s weakened economy, as it is the first time the financial institution will be giving (not loaning) cash. The grant must be used toward sustaining loan loss reserves which are needed to access funds from the U.S. Small Business Administration (SBA) and the U.S. Agriculture Department. Both bureaus require CDFIs — organizations that are certified by the Treasury Department — to set aside roughly 10 percent of the capital they provide in reserves (eg. for each $10 a microlender offers, it must save a dollar to cover losses). “We started hearing that the availability of money was tied up because of the lack of reserves and thought this [initiative] was the best way to address it,” said David Darnell, president of global commercial banking at Bank of America.


As large commercial banks have taken an indefinite break from small-business lending, smaller community institutions have had to stir the pot despite a significant decline in funding options. “For a lot of CDFIs, the ability to lend is dependent upon having that slice of grant support to fund the loan loss reserves,” said Shari Berenbach, president and chief executive of Bethesda-based Calvert Foundation, a financial intermediary that funds such reserves. “This kind of a grant is incredibly catalytic.” According to Bank of America, these grants will help around 8,000 businesses secure new loans. The company will be initiating the program in mid-August to assist organizations that can draw down reserves in the current fiscal year ending September 30th. The remaining funds will mark CDFIs that are eligible the following fiscal year. “We want the grants to be out in 12 months, so the [institutions] are able to draw down the funds from the SBA so that we are looking at $100 million in the hands of small businesses in 12 months, “said Dan Letendre, director of community lending and investing at Bank of America. Some other large financial institutions invest in CDFIs, including TD Bank and Wells Fargo. In May, Citigroup allocated $200 million to the Calvert Foundation for microloans. “The answer to the challenges and opportunities before us as a nation is an intelligent pairing of public and private resources to meet the needs of small businesses,” said Berenbach. “If we want to create jobs, we have to be providing financing to small business.”