U.S. Bank is investing $2.6 million in an $8 million small-business loan fund operated by Justine Petersen, a St. Louis nonprofit business microlender.
Justine Petersen will source, underwrite and service the loans as well as provide ongoing business development support to the borrower-client. The loan fund will target small businesses located in economically distressed urban neighborhoods and rural areas in Missouri and Illinois.
This loan fund is part of an emerging trend of nonprofit and for-profit organizations partnering to leverage the federal New Markets Tax Credit program to deploy more capital to businesses, encourage private investment in low-income communities to create jobs and stimulate the local economy.
Using $2.6 million in tax credit equity, U.S. Bancorp Community Development Corp., a subsidiary of U.S. Bank, and Justine Petersen are collaborating with National Community Fund of Portland, Ore., which provided the $8 million tax credit allocation; Illinois-based Peoples National Bank, which invested $5.7 million as the leveraged lender; and Twain Financial Partners of St. Louis, which organized the partnership and will monitor the fund’s federal compliance requirements.
“One of the lending challenges banks face is how to get capital into the hands of small firms and start-ups in severely distressed areas. This loan fund gives us an opportunity to inject capital into small, scrappy companies that create jobs and are the bedrock of their regional economy,” said Tracey Gunn-Lowell, vice president of U.S. Bancorp Community Development Corp.
As the borrowers repay loans, the funds will be redeployed as loans to other small companies. This revolving loan model is fundamental to the fund’s deployment strategy.
“Our challenge as a community development lender has been the dearth of available loan capital relative to demand. The U.S. Department of Treasury’s New Markets Tax Credit product and the capital that it and our partners have inspired through this fund offers a port of entry to mainstream financing for companies with capacity to influence their local economies,” said Rob Boyle, CEO of Justine Petersen.
In the one month since the transaction closed, Justine Petersen has loaned more than $3 million with the remaining $5 million scheduled to be deployed within the next three quarters.
“We are proud to be part of a qualified team that can provide flexible capital twinned with technical assistance to help low-income entrepreneurs grow and build wealth for themselves and their families. These types of New Markets Tax Credit loan funds generate a myriad of positive impacts – they build capacity for Community Development Financial Institutions like Justine Petersen, support underserved businesses and create jobs,” Cam Turner, managing director of National Community Fund, said.
Justine Petersen and Twain closed a similar, but smaller, loan fund in 2014.
“After witnessing the success and impact that initial fund had on the community, we were seeking opportunities to extend the platform. Fortunately, we found a great team to create a fund, which will provide New Markets Tax Credit loans to small businesses that haven’t traditionally had access to this lending program,” Mark Schoene, vice president of Twain Financial Partners, said.