Financial institution of America Corp. on Thursday will commit $10 million in grants to nonprofit organizations that lend to small and rural businesses.
A host of nonprofit lenders, such as Community Development Financial Institutions, or CDFIs, have been struggling to make loans throughout U.S. communities. Those entities typically receive their lending funds from federal agencies, but recession-driven funding restraints have limited the ability of these organizations to lend.
Financial institution of America’s Global Commercial Banking President David Darnell will announce the funding at a National Urban League conference Thursday.
“Even the smallest grant enables a CDFI to leverage as much as ten times that amount to lend to small business, which helps initiate a ripple effect,” Mr. Darnell said in a statement reviewed by Dow Jones Newswires.
According to Financial institution of America, the grants could lead to as a lot as $100 million in low-cost, long-term capital for small company microloans.
Mr. Darnell mentioned that “could translate into substantial investment over the next five years.”
The banking giant’s grant commitment comes following Federal Reserve Chairman Ben Bernanke expressed concern earlier this month that large financial firms aren’t performing enough to help small business.
Other companies are also promising action. Wells Fargo & Co. Executive Vice President Marc Bernstein’s mentioned his financial institution, in addition to providing funds for community lending entities, has undertaken a new “second look” program geared toward finding credible ways to approve small business loan applications that have been rejected.
J.P. Morgan Chase & Co. has also rolled out in-house initiatives for example offering company customers reduced interest rates for hiring workers.
Both Chase and Bank of America have second-look programs as well.
Despite efforts to increase lending, many small business are still considered serious lending risks as indicators for example consumer spending remain subdued.
Treasury’s Assistant Secretary for Financial Institutions Michael Barr, in an interview, applauded the small company lending initiatives but said cooperative efforts between the public and private sectors are likely to be more effective.
According to Mr. Barr, a pending small company bill would “help banks reach deeper into the small company pool to find borrowers that they might not otherwise lend to.”
The legislation provides some “downside protection” for banks, Mr. Barr mentioned, stressing that a mixture of new and existing tools could lead to more readily, available credit.
Mr. Darnell mentioned the financial crisis has left small company in a tougher position than in previous downturns. “We’re seeing something unique in this cycle,” Mr. Darnell said, noting that many entrepreneurs have usually accessed home equity to fund start-ups but declines in personal wealth have limited that as an option.
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