Black and yellow graphic that reads: Community Development Demystified: A Glossary

Community Development, Demystified: A Glossary

As a mission-driven developer, organization, or business looking into community development projects, you may be coming across language that might sound confusing and be challenging to understand. What is a CDFI? What is NMTC? What is LTV?

At the Momentus Capital branded family of organizations, we leverage the combined expertise of Capital Impact Partners, CDC Small Business Finance, Ventures Lending Technologies, and Momentus Securities to expand capital and opportunities for underestimated communities.

At Capital Impact Partners specifically, we offer flexible and affordable financing to a broad range of community development projects that deliver social impact, including community health centers, public charter schools, small businesses, cooperatives, healthy food retailers, affordable housing developments, and dignified aging facilities.

This glossary aims to demystify terms to help you navigate through our lending and programmatic services and offerings. Below you will find definitions of terms divided into the following thematic sections:

Yellow and black graphic with the text: Community Development, Demystified: A Glossary

General

Community Development Financial Institutions (CDFIs)

Community Development Financial Institutions (CDFIs) are mission-driven private sector financial institutions that focus on serving people living with low incomes and people who have historically been locked out of the financial system. Their work entails providing lending for small businesses and community projects, affordable housing, and essential community services in the United States.

As a CDFI, Capital Impact Partners has delivered community facility financing, capacity-building programs, and impact investing opportunities to champion key issues of equity and social and economic justice since 1982.

Community Development 

Community development activities tackle underestimated populations that do not have equitable access to affordable housing, health care, healthy food, and education, nor connections to capital, entrepreneurship, and quality jobs, to help them become stronger and more resilient.

At Capital Impact Partners, and together with the Momentus Capital branded family of organizations, we offer a continuum of capital products and services to transform how capital and investments flow into underestimated communities and drive community-led solutions that support economic mobility and wealth creation.

Lending Process

Capital Stack

Debt coverage ratio (DCR) is a measurement of a firm’s available cash flow to pay current debt obligations. While a DCR of 1.25 is the minimum requirement for most lenders, a higher number — such as 2 — shows lenders you are financially stable and can repay your debts. A higher DCR can also mean a potentially lower interest rate as lenders see you as less of a risk for defaulting on your loan.

Loan Term

The term of a loan is the period of time a borrower has to repay the loan. This choice affects their monthly principal and interest payment, their interest rate, and how much interest they will pay over the life of the loan.

Loan-to-Value (LTV)

The loan-to-value (LTV) ratio is a measure comparing the amount of one’s mortgage with the appraised value of the property. The more equity put into a loan transaction, the lower the LTV ratio.

Term Sheet

A term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is drawn up.

Underwriting

Underwriting is the process of your lender verifying your income, assets, debt, credit, and property details to issue final approval on your loan application.

Loan Types 

Predevelopment Loan

A predevelopment loan serves as a critical lifeline during the earliest stages of a development project.  It specifically targets the upfront costs associated with project planning and preparation, enabling developers to refine their visions and align them with the needs and aspirations of the communities they aim to serve. This loan bridges the gap between concept and execution, ensuring a solid foundation for success.

Real Estate Acquisition Loan

A real estate acquisition loan is a type of loan that is used to purchase real estate. This type of loan is often used by community developers to acquire existing property or development land that they plan to preserve or redevelop for affordable housing, commercial development, or other community-benefit purposes.

Construction Loan

A construction loan is a short-term loan that propels your development project from the drawing board to a physical structure. It provides the necessary funding to cover the costs associated with building, renovating, or expanding community assets. Construction loans may also cover the costs of buying land, drafting plans, taking out permits and paying for labor and materials. Construction loans typically have higher interest rates than other types of loans because lenders are taking on more risk by financing the construction of a new property.

Business Acquisition Loan

A business acquisition loan is a financial instrument designed to provide funding for individuals or businesses to purchase an existing business. These loans are often sought by entrepreneurs looking to expand their business portfolio, individuals seeking to become business owners, or existing business owners interested in diversifying their operations by acquiring complementary businesses. In the case of community developers, the specific goal would be to further community development initiatives.

Loan Refinancing

A refinance refers to the process of revising and replacing the terms of an existing credit agreement. Borrowers usually choose to refinance a loan seeking to make favorable changes to their interest rate, payment schedules, or other terms outlined in their contract. If approved, the borrower gets a new contract that takes the place of the original agreement.

New Market Tax Credit (NMTC) Qualified Low-Income Community Investment (QLICI) Loan

Community development entities, such as Capital Impact Partners, use New Market Tax Credit (NMTC) allocations to provide subsidized financing for qualifying businesses or real estate projects. Projects must meet the federal definition of a Qualified Active Low-Income Community Business (QALICB) to be eligible for NMTC financing. QALICBs are businesses that are located in, or provide services to communities living with low incomes.

The capital that a community development entity provides to a qualifying project is known as a Qualified Low-Income Community Investment (QLICI) and it is a seven-year, interest-only loan.

Health Care 

Integrated Care

Integrated care is a unique approach to health care that is characterized by close collaboration and communication between multiple doctors and healthcare professionals. In other words, it is a type of healthcare where all of your doctors work together to solve issues with your physical, mental, and behavioral health. At Capital Impact, we support the Integrated Care model because it improves the quality of care, promotes better health and lower costs while creating thousands of jobs, spurring economic development.

PACE (Program of All-inclusive Care for the Elderly)

The Program of All-Inclusive Care for the Elderly (PACE) provides comprehensive medical and social services to certain community-dwelling elderly individuals, most of whom are dually eligible for Medicare and Medicaid benefits.

Affordable Housing

Area Median Income (AMI)

Area Median Income is the income for the median household in a given region. If you were to line up each household from poorest to wealthiest, the household in the very middle would be considered the median.

Tenant Opportunity to Purchase Act (TOPA)

TOPA, or “Tenant Opportunity to Purchase Act”, is a type of anti-displacement housing policy that gives tenants options to have secure housing when the property they rent goes up for sale, while also preserving affordable housing.

Cooperatives

Food Co-ops

A food co-op is a grocery store that is totally independent and owned by the community members who shop there. An illustrative example is ChiFresh Kitchen, a food co-op owned by justice-involved Chicagoans, primarily Black women. ChiFresh won a Co-op Innovation Award and was not only able to continue its expansion, but also pivot to provide freshly cooked and culturally appropriate foods to those impacted by COVID-19.

Housing Co-ops

A housing co-op provides an alternative to the traditional methods of acquiring a primary residence. It is a type of residential housing option that is actually a corporation whereby the owners do not own their units outright. Instead, each resident is a shareholder in the corporation based in part on the relative size of the unit that they live in. Capital Impact Partners has helped ROC USA, a nonprofit that helps residents form cooperative corporations to purchase their manufactured home communities from private owners and manage their neighborhoods in perpetuity. They have gone on to become a powerhouse in this area, helping thousands of residents become homeowners and community stewards.

Worker Co-ops

Worker cooperatives are values-driven businesses that are owned and operated by their employees. Capital Impact has made a $1 million preferred equity investment in Obran Cooperative, a unique company that operates a number of worker-owned healthcare companies.

Worker Co-op Conversions

Worker co-op conversions – or employee ownership conversions –  occur when businesses transition from a traditional ownership structure to employee ownership. Essentially, the business owner sells the business to the employees. These conversions (PDF) can drive company productivity while rewarding the people who are contributing to the company’s success, as well as helping to preserve the company’s mission and values.

In 2021, Capital Impact Partners financed the worker co-op conversion of Ward Lumber. This new cooperative is another example of the power of worker co-op conversion to maintain and increase wealth and stability within communities.

Four developers of color smiling

How We Updated Our Credit Guidelines to Support Developers of Color

By Masouda Omar, Head of Small Business & Community Development Credit – Lending Operation

As a Community Development Financial Institution (CDFI), Capital Impact Partners has played a part in both upholding and dismantling systemic racial bias in the credit system.

Since our inception, we have served sectors, industries, and borrowers not served by the traditional financial system.

Like many CDFIs, Capital Impact provides more flexibility than traditional lenders in some key areas like loan-to-value limits and financial covenants that borrowers must meet.

However, our credit guidelines – the policies that guide our loan structures and lending decisions – are built on the traditional approach to credit that has deep roots in a financial system that intentionally excluded people of color for much of its history. Often, our lending team seeks one or several “exceptions” to our credit guidelines to accommodate the diverse needs of our diverse borrowers.

Creating flexible financing is both a mindset and an approach. To do so, we need input from our clients and communities to rethink and reshape our products and requirements. When done correctly, this approach gears us away from the extractive patterns of traditional financing and closer to confirming that when people are given the opportunity to succeed, their communities, local residents, and our country thrive.

Exterior of Supreme Court showing inscription saying: "Equal Justice Under Law"

Momentus Capital President & CEO Ellis Carr Reflects on Supreme Court Rulings

 

Exterior of Supreme Court showing inscription saying: "Equal Justice Under Law"

By Ellis Carr, President and CEO

At Momentus Capital, we envision a future where everyone has the capital and opportunities they deserve – especially those who have been excluded from both for so long. 

Our President and CEO Ellis Carr reflected on the contrast between Independence Day celebrations and a set of Supreme Court decisions that challenged promises about democracy, opportunity, and the pursuit of happiness. 

His reflections tackle a few areas:

  • How promises about democracy, opportunity, and the pursuit of happiness have been shaken;
  • How these decisions will have negative consequences on fellow citizens who have faced long decades of discrimination; and
  • Momentus’ commitment to continue to speak and work in support of underestimated communities. 

Read Ellis’ reflections on the Momentus Capital website.

Graphic with five colorful blocks each illustrating one of the five building blocks to increase racial equity in CDFI lending

Five Ways CDFIs Can Increase Equity in Lending Practices

Graphic with five colorful blocks each illustrating one of the five building blocks to increase racial equity in CDFI lending

Community Development Financial Institutions (CDFIs) were born out of the civil rights movement to ensure that nonprofits and businesses — particularly those in communities of color and communities with lower incomes — have equitable access to loans. Yet, CDFIs are part of a financial system embedded with discriminatory lending practices which need to collectively be addressed in order to fully achieve the intended goal of equalizing access to financial resources for all people. 

Momentus Capital’s family of organizations, including Capital Impact Partners, CDC Small Business Finance, and Ventures Lending Technologies, is working to help support economic mobility and wealth creation through more equitable access to capital for communities that have been long overlooked by traditional financial organizations. 

In line with this commitment, and in recognition of discriminatory lending practices identified within CDFIs, Capital Impact Partners collaborated with Nonprofit Finance Fund (NFF) to identify and address policies and practices that contribute to it. We conducted research to understand how some local and national CDFIs have successfully taken steps to address inequity within their own lending practices. 

Learn more about the partnership and read the full report here.

Headshot of Black female

Women Leaders of Color in Real Estate: Five Minutes with Our HEAF Fellow Ronette Slamin

This blog originally appeared on the HAND blog. You can read the original post here.

Affordable housing development firms led by people of color – both nonprofit and for-profit – are highly underrepresented in the housing industry, yet are a critical resource for strengthening the housing development ecosystem as a whole and expanding the supply of homes that are affordable. Currently, people of color are estimated to make up less than 5% of the developers in the country. 

To support the growth of and opportunities for developers of color in the Washington metro area, as well as increasing the amount of affordable housing regionally, Capital Impact Partners partnered with Amazon to create our Housing Equity Accelerator Fellowship (HEAF). The fellowship provides training, mentorship, and grant capital to support wealth building for developers and their firms, and community building through increased affordable housing. 

One of our HEAF participants is Ronette “Ronnie” Slamin, founder of Embolden Real Estate. In this blog profile by HAND, she discusses her journey to becoming a real estate developer, how she views real estate development as a tool to address infrastructure issues, and being intentional about creating space for women and people of color.

graphic announcing Ellis Carr's keynote session at Yale's economic development symposium

How Place-based Inclusive Development is Essential to Building Community Resilience

graphic announcing Ellis Carr's keynote session at Yale's economic development symposium

At Momentus Capital, we believe that residents from all walks of life should have equitable access to the things that contribute to their health and wealth. This is especially vital for underestimated communities that often have a harder time accessing resources like good jobs, affordable housing, accessible health care, and more. When these things are present in communities, local and global economies become more prosperous and resilient. 

Our CEO Ellis Carr recently spoke about building community resilience at the Yale School of Management (SOM)’s Economic Development Symposium. This annual student-run conference brings together senior thought leaders, practitioners, and investors from academia, government, NGOs, and the private sector to discuss the latest issues in economic development. 

His speech tackled a few areas:

  1. The history of law and policies that have deliberately excluded communities of color;
  2. Where we stand today in terms of health and wealth disparities, despite signs of progress; and
  3.  A vision for the future including things that the public sector, private sector, and individuals can do together to support the growth of healthy, inclusive, equitable, and resilient communities.

Please read the rest of this blog on the Momentus Capital website.

graphic for black history month

Black History Month: Fostering Thriving Black Communities as Resistance to Inequity

Graphic with the words Black History Month

It’s Black History Month! This month, we will celebrate by illuminating the social and economic experiences that shape the lives of African American communities. We also wanted to take a moment to share the history of Black History Month and the theme for this year.

Did you know that Black History is a tradition that started in the Jim Crow era and was officially recognized in 1976 as part of the nation’s bicentennial celebrations? It aims to honor the contributions that African Americans have made and to acknowledge their sacrifices. Each year, the Association for the Study of African American Life and History (ASALH) chooses a different theme, with this year’s theme focusing on “Black Resistance.”

Please read the rest of this blog on the Momentus Capital website.

Capital Impact Partners 40th Anniversary

Forty Years of Breaking Barriers to Success and Building Communities of Opportunity

By Ellis Carr, President and CEO

2022 is a special year for us at Capital Impact Partners as it marks our 40th anniversary. Four decades of leaning into helping people build communities of opportunity and developing pathways to success.

And while this is an exciting time for us as we embark on a new strategy under Momentus Capital, it is equally important to remember our roots as a champion for the cooperative movement.

(more…)

Marching Toward “Freedom and Jobs”: How Our New Enterprise Fosters Wealth Creation and Builds Inclusive and Equitable Communities

By Ellis Carr, President and CEO

During the 1963 March on Washington for Freedom and Jobs, attendees peacefully and constructively protested for the end of systemic barriers and racial segregation. These barriers kept members of disinvested communities from good-paying jobs or from owning businesses wherever they chose, which would allow them to share in the prosperity that others experienced. 

Ellis Carr and Peter Scher in Catalyze podcast

PODCAST: Catalyze – Access to Capital for Underestimated Communities

In August, our President and CEO Ellis Carr participated in “Catalyze,” a podcast of the Greater Washington Partnership. “Catalyze” brings together leaders from Baltimore to Richmond who are working to make this the most inclusive growth region in the country. It features leaders from across the Capital Region in conversation about how business is taking a stand to catalyze solutions to close the racial equity gap.