Under threat in Washington, an obscure fund has a big Va. impact

By Dave Ress

In Richmond Times Dispatch

A federal program that steers private funds into projects in overlooked communities — like the $20,000 line of credit that a Richmond restaurant used to launch a frozen foods line — is on President Donald Trump’s chopping block.

The program, the Treasury Department‘s Community Development Financial Institutions Fund, has helped lenders venture into places like Petersburg, South Richmond, Amherst County and Cape Charles on the Eastern Shore in order to develop housing or offer small businesses the kind of credit, and advice, that can be hard to find through traditional private sector channels.

A March 14 Trump executive order, titled “Continuing the Reduction of the Federal Bureaucracy,” called on Treasury to justify the fund’s cost. The fund had hoped to generate billions of dollars of private sector investment this year in communities that often miss out by leveraging $348 million in grants.

The program works by backing lenders that specialize in going to lower-income communities.

These Community Development Financial Institutions operate at a different scale and at different stages in a business’s life than traditional lenders do. They can tap resources that most lenders can’t, such as grants and tax credits available for underserved communities and businesses.

In Virginia, between 2010 and 2021, CDFIs made 10,767 loans for a total of $1.8 billion, according to the Virginia CDFI Coalition’s last survey.

Those loans created 13,837 permanent jobs and 1,766 education and child care slots. Virginia CDFIs financed 1,545 microenterprises and small businesses and 14,783 affordable housing units.

Leah Fremouw, president of the Virginia CDFI Coalition, said: “We might have someone come in who’s not quite ready, won’t be for another six months — they need to file taxes or do their financial numbers — and we can help, where a lender would say ‘you’re not ready, got to move on to the next borrower.”

The $20,000 line of credit that the family operating that Richmond restaurant tapped, for instance, would be small for many banks, Fremouw said.

And a bank loan officer might not have used some of the same tests of business acumen that Fremouw did.

“I tasted their food, and I loved their cooking,” she said.

Trump’s executive order called on Treasury to cut back CDFI Fund operations, but provided no details.

Sen. Mark Warner, D-Va., says cuts to the program do not make sense. He has long believed in government and private sector partnerships as a way to bring capital to underserved communities. During his term as governor from 2002 to 2006, he set up Virginia Community Capital, a CDFI that has grown into a network of community funders, led by Locus Bank.

“What’s not to like?” Warner said in a phone interview as he finished lining up a bipartisan, 23-senator letter urging the Trump administration not to cut the program. With 10 Republicans joining 13 Democrats, Warner said he thinks it might be the biggest, most bipartisan request to slow down a potential Trump administration spending cut.

“This is really a quintessentially Republican idea: getting entrepreneurs to make things better,” he said. He recalled one typical example of a Petersburg family that secured small, short-term financing to expand their neighborhood child care center.

That family was not alone.

Petersburg-based Peoples Advantage Federal Credit Union tapped the fund to get into a kind of lending — credits for small businesses — that has not been typical for member-owned credit unions.

“It’s about preserving businesses, protecting jobs, and ensuring vital community services thrive,” said Amanda Habansky, president and CEO of Peoples Advantage.

Over the past three years, Peoples Advantage has issued more than $50 million in loans to people earning less than 80% of the area’s median income, including loans to launch small businesses or to help borrowers become first-generation homeowners.

Habansky said CDFI backing helped the credit union step in to aid an adult day care center, set up by a nurse who invested her savings in the venture. The nurse became convinced there was a big need after she searched for care for her aging mother while she was at work.

Two years of hard work turned her idea into a safe, supportive space for several families.

Then the pandemic hit, and the financial strain of getting back to normal was too much — “without immediate funding, the center faced closure, jeopardizing five full-time jobs and a crucial community resource,” Habansky said.

“Peoples Advantage stepped in, providing a loan for operating capital along with hands-on business coaching,” she said. “The results were immediate, within two months, enrollment surged by 300%, surpassing projections and securing the organization’s future.”

The Locus network that Warner’s initiative launched, meanwhile, pulled together $24 million from 27 different sources, including the Virginia Department of Housing and Community Development, the city of Richmond, Henrico County and grants from individuals, companies and foundations for the 86-unit Cool Lane Commons supportive housing community.

Technical assistance, along with a $50,000 grant from the Virginia Fresh Food Loan Fund, which is supported by grants from the CDFI Fund and is managed by Locus, as well as a loan from Locus Bank, paid for improvements at the only grocery serving Surry and Sussex counties.

The result has been 47 jobs and a store that offers a 50% discount on fresh produce for customers who have a debit card for their food stamp purchases.

Transforming neglected places

CDFI-supported financing can spark long-term transformations in long neglected places, said Dave McCormack, a Petersburg-based developer. He specializes in projects that bring derelict or blighted buildings back to life.

“There’s a lot of sweat equity that goes into these projects, all the more in small communities which haven’t seen development in years or decades and there isn’t a proven quote market unquote for what we’re doing,” he said.

“This creates a very challenging atmosphere for banks, for appraisers and for the local constituency, who are deeply skeptical of any type of development. This in turn makes lending extraordinarily difficult — which is where CDFIs come in,” McCormack said.

They come in by seeing possibilities in a project that traditional lenders miss, he said.

“It’s really the view about risk that’s critical, not the technical advice,” McCormack said. “We are seasoned developers, trying to fill a housing need that market studies have a hard time encapsulating in areas where there is no hard data. Oftentimes, a market study will confidently state that there is no market for what we want to do, which creates a bad cycle and lack of critical investment.”

McCormack worked with CDFIs to finance a $2.5 million project to turn the old Cape Charles High School in Northampton County on the Eastern Shore into a 17-unit apartment building, easing a financial burden the aging building was imposing on the town.

But the impact was bigger than easing a budget strain, or housing 17 families.

“In Cape Charles, that area took off after the blighted building was renovated,” he said. “In Amherst, our Phelps Road development created the market that allowed new construction to happen in Madison Heights,” across the James River from Lynchburg, where a $7 million project converted the century-old Phelps School, empty since it closed in 1991, into a 41-unit apartment complex.

Studio Two Three

Locus Impact, one of the CDFI lenders that grew out of Warner’s Virginia Community Capital group, pulled together the package of resources that got Studio Two Three, a Manchester community arts space and print shop, into its home on West 15th Street in Richmond.

Studio Two Three Winter Market

Last December, Studio Two Three’s Winter Market enabled customers to shop for artwork, clothing, housewares and jewelry from hundreds of local artists, brands and crafters all in one spot.

That package included a $1.4 million mortgage from Locus, a tax credit-based construction loan from the Virginia Community Development Fund (VCDF), and bridge funding for operational expenses during renovations and relocation from Bridging Virginia, a CDFI loan fund.

“Despite being a 13-plus-year-old organization with broad, demonstrated community impact, traditional banks were not willing to provide us a mortgage due to our size and nonprofit status,” said Ashley Hawkins, Studio Two Three’s executive director.

Since opening its doors at West 15th Street in November 2023, Studio Two Three has hosted more than 20,000 Richmonders at public events ranging from its twice-monthly square dances to film screenings, civic meetings, union organizing efforts, clothing swaps, mutual aid drives and food distribution as well as local business alliance meetings, she said.

“In 2023 and 2024, we hosted our annual monthlong Winter Market in our events space, which generated $750,000 in direct revenue for 200 local artists,” she said. “We were able to hire a fourth full-time staff person in 2024 as a result of increased programming and community impact in our new building.”

Nationwide, CDFIs provide affordable loans and investments to more than 100,000 small businesses and finance more than $100 billion of new residential housing and affordable home mortgages, the senators signing on to Warner’s letter told U.S. Treasury Secretary Scott Bessent.

They said that for every dollar lenders tap from the Treasury’s CDFI fund, they deploy $8 of private sector funds.