Facility Refinancing Guide to Community Development Financial Institutions

Community Development Financial Institutions are private intermediaries that provide financing and technical assistance to low-income individuals and communities underserved by conventional lending institutions. CDFIs take a number of forms and supply a variety of financial services and capital. Community development loan funds provide financing and technical assistance across a range of economic and community development projects, including charter school facilities.

Because they are unregulated financial institutions, CDFI loan funds can provide more flexible financing terms to borrowers perceived to be higher risk. CDFIs played an important role in financing the earliest stages of the charter school sector, initially providing short-term to mini-permanent financing to charters for their construction and enrollment stabilization periods. Loan terms typically vary between three to seven years, with interest-only periods during construction converting to amortizing payments on a 15- to 25-year amortization period, depending on the CDFI. Interest rates are generally fixed, priced at a spread to an index or the CDFI’s cost of capital. Interest rates for charter school loans have generally varied between 5% and 8%, depending on the term of the loan.

Like the other financing sources, CDFIs secure their loans with a lien on the real estate collateral and revenues of the school. But unlike the other sources, they are willing to take a second or subordinate position behind a senior lender that has priority. Loan-to-value ratios will typically be up to 90%, though some CDFIs may have the flexibility to offer loan-to-value ratios of 100% or above. As discussed elsewhere, several of these CDFIs now also provide long-term loans because they participate in the CDFI Fund’s Bond Guarantee Program.

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Nothing in this material should be construed as investment, financial, brokerage, or legal advice. Moreover, the facts and circumstances relating to your particular project may result in material changes in the processes, outcomes, and expenses described herein. Consult with your own professional advisors, including your financial advisors, accountants, and attorneys, before attempting to consummate any transaction described in this material.