Catalyzing Finance for Racial Equity

About This Investment

Community-based nonprofits are often front and center in efforts to address the impacts of neighborhood disinvestment, housing discrimination, and rising costs due to gentrification and could play an even greater role in neighborhood revitalization by acquiring and developing community-serving real estate. But community-based nonprofits are often overlooked by community development financial institutions (CDFIs), philanthropic impact investors, private banks, and other investors because of their small size, hyper-local focus, and limited financial assets.  

A $5 million loan from the Robert Wood Johnson Foundation (RWJF) to Nonprofit Finance Fund (NFF) will support a pilot program in New Jersey to better enable community-based organizations (CBOs) focused on racial equity to acquire, develop, rehabilitate, and operate affordable housing and community facilities in communities that historically have experienced a lack of investment. The investment will expand NFF’s Catalyzing Finance for Racial Equity (CFRE) program—which aims to improve how CDFIs center communities of color in how they lend and invest—to integrate a strong racial equity lens within CDFI lending practices and invest more in community-centered approaches and community-responsive organizations. 

Why It Was Needed

With a deep understanding of needs and strong community connections, local community development corporations, land trusts, faith-based, and other community-based nonprofits can address social and economic disparities and shift power and resources to communities and their residents by spearheading neighborhood revitalization efforts.  

Yet CDFIs have traditionally not extended loans to smaller CBOs, often favoring larger loan sizes to meet lending targets. By making loans to CBOs and thereby centering small, underfunded organizations that have a closer proximity to community, CDFIs and other funders can strengthen and stabilize local community development finance systems, making them more robust, expansive, durable, and equitable. 

NFF aims to better understand and address racial bias in financial underwriting and published research noting that typical approaches to evaluating a nonprofit’s creditworthiness “unwittingly reinforces divides: nonprofits that have money have an easier time getting more, and nonprofits that don’t—and the communities that rely on them—lose out.” A goal of this pilot is to provide evidence that supports modifying credit policies to make it easier for smaller CBOs focused on racial equity to receive grants and loans.  

How It Works

The RWJF investment will support an NFF pilot lending program across the state of New Jersey based on five key principles—community trust-building, a client-serving mindset that focuses on the needs of borrowers, customized technical assistance, flexible funding, and appropriately priced capital that optimizes impact.  

NFF will extend loans to New Jersey community-based nonprofits for financing projects focused on serving their communities through real estate initiatives. Some of these loans will be directed toward nonprofits that have secured capital commitments from government programs for real estate acquisition or development.

About the Borrower

The mission of Nonprofit Finance Fund is to help mission-driven organizations achieve communities’ aspirations through tailored capital, strategic advice, and accessible insights. It is focused on improving the way money flows to community-centered organizations that have historically and systemically been denied capital. 

In the Spotlight:

East Orange, N.J., residents rely on Sierra House for community services, educational programs, supportive housing, and affordable housing options. At a time when institutional investors are usurping residential properties and driving up prices, Sierra House turned to Nonprofit Finance Fund for a real estate loan. Sierra House can now house local families and help build financial stability for itself and the people it serves. 

Organizations like Sierra House need mission-aligned financial institutions to help protect community interests and assets. RWJF’s investment will support Nonprofit Finance Fund’s lending to New Jersey community organizations that are often excluded by traditional banks.

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