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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

Debt Coverage Ratio (DCR)

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.

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…)
The newly minted worker owners of Ward Lumber

Employee Ownership: The Power of the Cooperative Model to Build Opportunity and Wealth for Worker-Owners and Their Communities

By Alison Powers, Cooperative & Community Initiatives Manager

Co-ops are having a moment. That is to say that cooperatives, which have existed for generations, are currently being recognized for their ability to build economic power for the workers who own them. This point has become more underscored as communities have  been touched by the instability that the COVID-19 pandemic has caused within our health and economic systems, as well as decades of racial injustice. 

Podcast: Everything Co-op Interview about Capital Impact’s 2020 Co-op Innovation Award

By Alison Powers, Cooperative & Community Initiatives Manager

In early 2020, Capital Impact Partners, in partnership with the National Cooperative Bank, awarded a total of $100,000 to three awardees, – ChiFresh Kitchen, The Guild, and the Bronx Cooperative Development Initiative – through its Co-op Innovative Award. Capital Impact’s Co-op Innovative Award aims to increase co-op development in communities with low incomes and/or communities of color. This year, the Co-op Innovation Award focused on organizations educating new audiences on the impact and potential of the cooperative model to disrupt income inequality, steward community ownership, and create strong vibrant places of opportunity.

Independent Drivers Guild

Co-ops Have the Power to Transform the Future of Work and Racial Equity for Communities of Color

This blog originally appeared on the SOCAP19 blog. Click here to visit the original post.

By Alison Powers, Manager, Cooperative and Community Initiatives

Communities of color have experienced historical and structural disinvestment, which has led to an unprecedented racial wealth gap, historically low home ownership, and exploitative work environments that keep individuals and families of color from achieving shared prosperity.

​Rosemary Mahoney and Paul Bradley, Cooperative Hall of Fame Inductees

Capital Impact Honors Rosemary Mahoney and Paul Bradley, New Inductees into the Cooperative Hall of Fame

By Alison Powers, Program Officer, Strategy, Innovation & Impact

So many qualities define the life of a Cooperative Hall of Fame hero. Conviction and focus. Vision and persistence. Innovation and leadership. All contributing to a life dedicated to cooperative development and shared prosperity.

These characteristics are a perfect way to describe Rosemary Mahoney and Paul Bradley, lifelong champions of cooperative development. This week, Rosemary and Paul join other cooperative heroes as they are inducted into the Cooperative Hall of Fame, commemorating decades as cooperative developers. Rosemary and Paul’s contributions to the cooperative industry are undeniable; both have shaped our cooperative framework through their work and insights. It is great to have two long-term innovators in the co-op space so closely connected with Capital Impact, and we are proud to see them join this illustrious group of cooperative visionaries. A brief look at each of their histories shows why they are truly Co-op Heroes.

Opening Up Possibilities in Co-op Innovation

By Clair A. McDevitt, writer

Prospera_blog

Since Benjamin Franklin launched the first mutual fire insurance company in 1752, the cooperative sector has seen waves of success in the United States. Dairy and cheese coops were first organized in the early 1800s, and other agricultural cooperatives followed. By the Great Depression, cooperative businesses were developing in urban and rural areas, bolstered by President Roosevelt’s New Deal legislation. In the late 1960s and 1970s, a new wave of consumer food co-ops grew out of the counterculture movement.  In 1981 Capital Impact was born out of federal legislation to keep up that momentum.  And for the last four decades, Capital Impact has sought to do this through a mix of financing, capacity building and technical support.

Putting Down Roots For A Better Future

By Alison Powers, Program Officer

More than 10,000 low-and-moderate income homeowners are sleeping better at night thanks to our partner ROC USA. Instead of worrying about rent increases or land sales that might force them to move, residents of manufactured-home communities (what many commonly refer to as mobile home parks) across the country have purchased their land and put down roots through ROC USA’s cooperative ownership program.

Since 2008, the nonprofit social venture’s innovative model has spun off 182 resident-owned communities in 14 states, ranging in size from eight to 300 dwellings. The 10,000th home was recently secured at Turnpike Park Cooperative in Westborough, Mass.

Collaboration for Co-operative Improvement

By Clair A. McDevitt, writer

Picture it: the freezer breaks and you’re scrambling to save all your frozen food. In a home, a big cooler or the generosity of a neighbor may solve your problem – but for a grocery store, the goods in a broken freezer cannot be housed at a neighbor’s house until the freezer is fixed.

Customer_BulkHoney_blogThe freezer, top of the line when it was purchased in the 1970s, was just one challenge faced by First Alternative Cooperative, a community co-op market in Corvallis, Oregon. Along with replacing equipment, including its critical point-of-sale system, which was past its prime, the grocery store needed to make some building improvements and consolidate debt to improve its cash flow.