New Partnership Makes $401 Million in Loans Available to Rural Areas

The Community Facilities loan program at the U.S. Department of Agriculture makes very low-cost loans to build things like clinics, child-care centers, schools, and food pantries in distressed rural communities. The terms are terrific: Forty-year loans at a 2.75 percent interest rate. Yet last year, nearly $500 million of available funds went unused.

So the agency teamed up with the Mary Reynolds Babcock Foundation to figure out how to get more capital into the communities that need it by channeling the funds to community-development finance institutions, which can then re-lend the money. Thanks in large part to that partnership, the Department of Agriculture today announced $401 million in loans to nonprofit lenders.

“What I love about this is the combination of ambitious vision of trying to think about new ways of partnering across the government, philanthropies, and the private sector with this super-concrete first partnership around the Community Facilities program,” says Justin Maxson, executive director of the Mary Reynolds Babcock Foundation.

Bolstering Nonprofit Lenders

The foundation created the Uplift America Fund as a combination of grant money and loan guarantees from financial institutions to make the nonprofit lenders better candidates for the USDA loans.

One of the challenges they face is having enough money in reserve to borrow the large amounts of money available through the Community Facilities loan program. The institutions are required to hold $1 in reserve for every $5 they borrow.

To help community-development finance institutions access more loan money, the Uplift America Fund has made $22 million available in grant money — Babcock’s own funds combined with contributions from six other foundations: Bank of America, Ford, Heron, JPMorgan Chase, Northwest Area, and Winthrop Rockefeller. Grant recipients can use the charitable dollars either as reserves or to increase their capacity to support the Community Facilities project.

In addition to the support from its philanthropic arm, Bank of America agreed to provide up to $100 million in loan guarantees for the first five years of loans the federal department makes to community-development finance institutions.

The Department of Agriculture had to quickly pass a rule change — something that’s not easy to do in the federal government — that would allow the program to lend money to the community-development nonprofits that would then re-lend the money to other groups.

Mr. Maxson hopes this is the first of many projects in which the Uplift America Fund brings together philanthropic and private-sector resources to help rural communities unlock federal funds. But he’s glad that the first effort was one that builds much-needed brick-and-mortar facilities in struggling areas.

“There’s a durability to those that I think is important,” he says. “It helps communities see hope.”