Bank of America (BOA), one of the world’s largest financial institutions, has announced it will provide $10 million in grants to nonprofit lenders, such as Community Development Financial Institutions (CDFIs), to leverage funds from the U.S. Small Business Administration (SBA) and the U.S. Department of Agriculture (USDA) for lending to small and rural businesses.
The grants to nonprofits will help up to 8,000 businesses obtain new loans over the next 12 Months.
The CDFI’s will use the grant money as loan loss reserves, which BOA hopes will unlock millions in low-cost capital for small business microloans program nationwide.
SBA and USDA microloans are made through local nonprofit lenders, which also provide business training and technical assistance. To access the capital, nonprofit lenders participating in these federal loan programs must set aside loan loss reserves at levels of up to 15 percent of the capital provided by the agencies. However, due to the economic recession, most of these lenders have been unable to meet the reserve requirements, limiting their access to loan capital at a time when small businesses most need this support.
Bank of America’s new microloan reserve grants were created specifically to help CDFIs and other nonprofit lenders meet the required reserve levels, and thereby access millions of dollars in new low-cost capital.
While these grants are sorely needed, it’s important to note that these funds are completely tax deductible to BOA.
The average SBA microloan size is $13,000 per business. Through these programs, CDFIs can borrow for 10 to 20 years at rates less than two percent – twice as long and half the cost of other CDFI lending programs currently available. There are currently more than 175 nonprofit lenders participating in these programs.
Bank of America serves approximately 57 million consumer and small business customers with 5,900 retail banking offices, more than 18,000 ATMs and 29 million active users in online banking.
“Helping strengthen small businesses and new start-up companies stimulates job creation and is critical to our nation’s economic recovery. Bank of America is empowering these entrepreneurs by directing private sector capital to unlock exponentially greater amounts of federal dollars for their businesses,” said David Darnell, president of Global Commercial Banking, Bank of America. “Even the smallest grant enables a CDFI to leverage as much as ten times that amount to lend to small businesses, which helps initiate a ripple effect impacting job growth, spending and overall economic expansion.”
Darnell made the announcement at the National Urban League’s centennial conference in Washington D.C. August 1, 2010. According to the SBA, the country’s 30 million small and micro-businesses are the chief generator of new jobs, creating two out of every three new jobs across the country.
Bank of America is the nation’s largest investor into CDFIs, with more than $1 billion in loans and investments to 120 CDFIs in 37 states. This work with CDFIs is part of the company’s broad support for small businesses, which includes a pledge to increase lending to small and medium-sized businesses by $5 billion in 2010. In the first half of 2010, Bank of America has provided $45.4 billion to small and medium-sized companies.
Bank of America also made a $10 billion pledge to increase its spending with small, medium-sized and diverse suppliers over the next five years. Other efforts to help small businesses include recent improvements to the bank’s 2 million small business credit card accounts, such as no rate increases on existing balances, and enhancements to the Advisor AllianceTM retirement plan platform, which serves more than 900,000 people from more than 40,000 businesses.
About The Guest Author: Melinda Emerson, known to many as “SmallBizLady,” is a Veteran Entrepreneur, Small Business Coach and Social Media Strategist who hosts #SmallBizChat weekly on Twitter for emerging entrepreneurs. She also publishes a resource blog, Succeed As Your Own Boss. Her bestselling book Become Your Own Boss in 12 Months was released in March 2010.
Thanks, Melinda, for this very useful update. Getting money is so important to small businesses.