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The CDFI Fund changes that could hurt credit unions

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Recent changes to the Community Development Financial Institutions Fund could make it harder for credit unions to get funding, but sources are split on the degree to which those modifications will hamper credit unions' access to grant monies.

The CDFI Fund is no longer simultaneously processing applications for certification and funding. Previously, credit unions could submit both applications at the same time. That meant institutions that were uncertified were able to apply for grants and then receive certification.

Now that can no longer happen, at least for financial assistance grants.

“I think fewer institutions will become CDFI-certified because what’s the motivation?” asked Jamie Strayer, founder of CU Strategic Planning.

Overall there are more than 1,000 CDFIs, and roughly a quarter of those are credit unions, according to Sept. 19 data from the CDFI Fund. Having this CDFI status is important for credit unions because it gives them access to grants, such as for financial or technical assistance, the agency awards. This money can be vitally important to smaller institutions.

More than 100 credit unions applied for grants with 55 receiving an award in fiscal year 2018. This year 29 credit unions and cooperatives in nine states and Puerto Rico have received $3.6 million in technical assistance awards. Financial assistance grants have not been announced yet.

However, for fiscal year 2020, credit unions will need to be CDFI certified before the funding round opens for financial assistance awards. These grants provide up to $1 million to institutions.

For technical assistance awards, credit unions have three years to get certified after receiving a grant. These grants are up to $125,000 and are generally less competitive with a shorter and simpler application.

The CDFI Fund made this change in an effort to standardize its eligibility requirements across its six programs. Credit unions mostly receive funding through the CDFI Program, which is now in line with the other initiatives.

“Requiring CDFI certification when the funding round opens provides a bright line distinction for determining eligibility, which minimizes applicant confusion and uncertainty regarding their eligibility for financial assistance,” a CDFI spokesperson said.

Becoming CDFI certified happens on a rolling basis but can take up to 90 days to get approval, and institutions need to get re-certified each year. Applications for funding for this year were due last spring.

“[I]f you want to apply for a financial assistance grant in the next round then the time for applying for certification is now,” said Terry Ratigan, a senior development consultant at Inclusiv.

But now that the CDFI Fund has changed the application process, there is a risk that credit unions could miss out, some experts said.

Institutions could face a lag in being eligible for awards — potentially even missing out on a funding round — since certification can take a long time to process, Strayer said. The number of credit unions deciding to become CDFI certified has already slowed in recent years, and this change could exacerbate that trend.

Most credit unions, especially smaller ones, don’t have the expertise on staff, so receiving CDFI funding can be difficult since the application is quite lengthy. For help, they turn to consultants to write the grant applications, though some sources say that the application can be filled out sans outside help. The CDFI process was streamlined last year to further ease the process.

“[M]y concern is still surrounding institutions that hire consultants that ‘ensure’ the submission gets enough to cover their consulting fee, without helping the financial institution understand the burden of proof and performance that they will have to meet to successfully get a grant,” Susie Fair, senior vice president of credit union support at the Louisiana Credit Union League, said in an e-mail. “Just getting ‘certified’ can be a dead end if they are not fully understanding how to use this to leverage help.”

However, others were less concerned about how these changes might affect credit unions utilizing the CDFI Fund. Ratigan did not believe it would impact the number of credit unions that pursue certification and thought it could even be beneficial since the certification process is handled by a separate unit within the CDFI from the one that handles funding.

This is the third year that Finest Federal Credit Union in New York has applied for money through the CDFI Fund. So far it has received $1.3 million over two years and is currently waiting to hear back on its application for fiscal year 2019. Award amounts for financial assistance grants were expected to be announced towards the end of this year, but due to the government shutdown and other delays they are now expected to be announced at the beginning of 2020.

The CDFI Fund looks to provide grants to credit unions that have an impact on their communities, Strayer said. Because of that, applicants should have credible track records of making loans in certain communities.

A high loan-to-share ratio is one indicator of that, said Michael Veksler, chief operating officer at the $10 million-asset Finest Federal, which was chartered in 2015. The institution had roughly $9.1 million in total loans and leases through June 30 of this year, according to call report data from the National Credit Union Administration.

“It’s really not that difficult,” said Veksler, who noted that he didn’t think the process change would impact credit unions. “If you go through the application process, all you need to do is give them the spreadsheet of all of your originated loans. After I got past that stage, I really didn’t have a problem with it.”

“I always wondered about that about how [the CDFI Fund] can give out a grant to an uncertified institution,” Veksler added.

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