Getting expert assistance with the application process was helpful.
Commodore Perry Federal Credit Union CEO Mike Barr says he recognized a significant need in the communities the credit union serves around Oak Harbor, Ohio, for funding educational and skills training opportunities other than college. Local employers were finding a gap between the skills they required for workers and those who were submitting applications for openings.
The $47 million credit union got to work in 2017, putting together a plan with CU Strategic Planning, Tacoma, Washington, to build stronger partnerships with community organizations and identify what role the credit union could play, according to Barr, a CUES member. It also started building the narrative that would form its application for a Community Development Financial Institution Fund grant from the U.S. Treasury Department to support a nontraditional student lending program. (Read more about the application process in the section, “Applying for Grants, below.) The preparation process took several months, but the CU’s CDFI financial assistance grant application was submitted in April 2018 and approved for $875,000 by October of that year.
Making an Impact
Commodore Perry FCU’s new student loan program, Career Connection, is not just a loan but a comprehensive program. It isn’t as simple as the typical loan for college, Barr explained.
“The challenge is holistic,” Barr says. “There are other financial barriers that keep these students from following through to completion.” Very often these students are working full-time jobs and may need some hours off to attend classes, which they can’t afford. Additional gas money and childcare expenses add up, he outlined.
The CU’s program includes:
- Technical skills education loans with a low, fixed rate; no origination fees; deferred payments for 30 days after completion of the program; and a rate discount for direct deposit
- Student relief loans for debt consolidation and/or auto refinancing with no origination fees, deferred payments for 60 days and a rate discount for direct deposit
- Wage replacement loans that are disbursed just like the borrower’s paycheck would be while enrolled in the training. Payments are deferred until training is done and a rate discount for direct deposit.
Barr says the program rolled out in 2019, but educating the community about it takes time, because people aren’t aware that help is available in these types of loans. Commodore Perry FCU launched the program 10 months ago, and four members have taken advantage to the tune of more than $40,000.
Barr relates that a single mother working three jobs was attending school to obtain a certification that would further her career with the data analysis company for which she worked. But she was having trouble staying financially afloat.
Commodore Perry FCU gave her a technical skills education loan of $13,099 to pay for the remainder of her educational program along with the necessary supplies. She will complete the course in the spring, and then earn $55,000 a year with the data analysis company, plus quit her other two jobs so she can spend more time with her young children.“It’s not going to be a money-maker, but it helps alleviate some of the financial burden for low-income people,” Barr says. “Seeing the community rise out of poverty, that’s what we really like to see. It’s a long-term effect.”
Applying for Grants
Three-quarters of credit unions are eligible to become CDFIs, according to research from CU Strategic Planning, and are therefore able to apply for CDFI grants as Commodore Perry FCU has done.
Established in 1994, the CDFI Fund is a government program used to create economic opportunity and transform the lives of moderate- to low-income, working-class people. The fund provides monetary awards to CDFIs, categorized as financial assistance awards and technical assistance awards.
Financial assistance awards, such as the one Commander Perry FCU received, can be used for lending capital, loan loss reserves, capital reserves, financial services and development services to increase volume of products or services, provide new products or services, expand operations into new geographic areas, and/or service new targeted populations.
Technical assistance awards of up to $125,000 are used for capacity development that is integral to CDFIs’ organizational sustainability and success. CDFIs often use these awards to purchase equipment, hire consulting or contracting services, pay salaries and benefits, or train staff or board members.
The application evaluation and award selection process include five steps:
- Eligibility review. The CDFI Fund evaluates each application to determine if it meets the eligibility requirements. Certain eligibility requirements are assessed automatically through the fund’s Awards Management Information System. CDFI Fund staff conduct a follow-up eligibility review on all applications. Applicants deemed eligible proceed to Step 2.
- Financial analysis and compliance evaluation. The CDFI Fund’s application assessment tool will rank credit unions similarly to the National Credit Union Administration’s CAMEL ratings. Additionally, insured credit unions applicants must have a CAMEL rating of at least 3. The CDFI Fund will also evaluate material concerns identified by the federal regulators in determining eligibility. For the compliance evaluation, the application assessment tool will determine whether or not an applicant has major internal management or compliance concerns. Each applicant will then be rated 1-5, with 1 being the highest for a total compliance composite score. While manual reviews are performed on 4s and 5s to determine eligibility, applicants must have a 3 or higher to proceed.
- Business plan review. Two external, non-CDFI Fund experts in community development finance independently review the applicant’s business plan for feasibility and soundness.
- Policy objective review. This step measures the impact of each application within the communities it serves and includes a due diligence review. The application must meet the CDFI Fund’s policy objectives for aiding economic distress, providing economic opportunities and its collaboration and resource commitment to the communities it serves. Once applicants are approved through this step and given a total policy objective review composite acore, the sizes of the grant awards are determined.
- Award amount determination. The CDFI Fund determines an award amount for each application based on a number of variables, including the total policy objective review composite score described in step 4, the applicant’s request amount, the applicant’s deployment track record, minimum award size and funding availability. Lastly, the CDFI Fund may consider the geographic diversity of applicants when making its funding decisions.
Barr says that working with CU Strategic Planning through this process was really fantastic.
“They are a phenomenal group who are committed to what we are: serving low-income people,” he explains. “It alleviated a lot of the burden on the credit union, from their insights to designing the program to implementation.”
Sarah Snell Cooke has 20 years of experience in credit union publishing and is principal at Cooke Consulting Solutions.