Trump executive order may wipe out community financing in Philly and beyond

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A federal fund that’s been helping nonprofits offer low interest small business loans and much more for 31 years is at risk of being swept up in an effort to reduce government bureaucracy.

An executive order signed by President Donald Trump could effectively shutter the U.S. Treasury’s Community Development Financial Institutions Fund, which allocates millions each year to local nonprofits.

On March 14, Trump ordered the heads of several government agencies to identify ways to reduce bureaucracy. That includes eliminating all nonstatutory components and cutting back staff to a minimum of several programs. Both initiatives would affect  the Community Development Financial Institutions Fund.

Advocates worry it would be a blow to projects like grocery stores in food deserts.

Local entrepreneurs used a $4 million loan from Finanta, a local Community Development Financial Institution, to transform an abandoned warehouse in North Philadelphia into a full-service grocery store.

Juniata Supermarket expanded its operations with a new 40,000-square-foot store that opened in 2021.

But without continued federal support, future projects like a grocery store at the intersection of Kensington and Allegheny avenues might never happen.

“The healthy food financing that we use for supermarkets in neighborhoods in Philadelphia, that’s a program that’s been added that’s not necessarily statutory,” said Daniel Betancourt, CEO of Finanta.

Statutory means that the program and funding is protected by statute, which is created by Congress.

The CDFI fund was created by Congress in 1994 as a bipartisan measure that included technical and financial assistance for local CDFIs to offer small business loans, grants, new market tax credits and several other programs.

The Healthy Food Financing Initiative was added as a cross-agency collaboration starting back in 2011. Its funding was reauthorized by Congress in 2023.

So it’s unclear whether healthy food financing would be available in the future because it wasn’t part of the original scope.

Some of Finanta’s funding has already been frozen this year, about $5 million was on hold for its financial assistance and healthy food financial assistance grants under the initial federal grant freeze, Betancourt said. But it was released after a judge’s order.

Access to federal money is a big deal because nonprofits can leverage federal funding and borrow much more for its loan portfolios.

“If we get $1 million, we can actually go out and borrow $9 million to create $10 million in capital for that year,” he said.

The lack of federal oversight could put the entire community financing ecosystem at risk because private banks rely on certification of nonprofits before donating money for grants and uncertainty is spooking investors, executives told WHYY News.

“If they stop certifying organizations, it could affect our private funding,” Betancourt said.

Don Hinkle-Brown, CEO of the Reinvestment Fund in Philadelphia, said it’s a frustrating experience to face extinction while still applying for the next round of potential funding.

“What we all do is try to close a gap and to extend credit into places, populations and to kind of asset classes like supermarkets or early childcare where conventional credit doesn’t reach,” Hinkle-Brown said.

The Reinvestment Fund also handles new market tax credits, which benefit private developers for investing in low-income neighborhoods.

The Reinvestment Fund was awarded $50 million in New Market Tax Credits in 2023. While Finanta got $40 million in those tax credits that same year.

While most of the CDFI fund appears to be protected by Congress, Hinkle-Brown said he’s concerned that the rules won’t apply.

“It’s unclear what overzealous implementation in this regard would look like,” he said. “If they eviscerate and make non-functional the CDFI fund there’s a lot of costs, the Philly region will suffer.”

It could put a dent in regional economic development efforts in low income communities, said Leslie Benoliel, CEO of Entrepreneur Works in Philadelphia.

“[Community Development Financial Institutions] are like the capillaries of the financial distribution system in our country. And if you cut off the blood flow to those extremities, that will cause enormous harm,” Benoliel said.

Small business owners who may not typically trust the banking system or government often will work one-on-one with a community organization, she said.

CDFIs across Pennsylvania were allocated $32 million under financial assistance, healthy foods and persistent poverty county financial assistance awards last year.

If there’s no federal support, local nonprofits will likely have to raise money another way, said Varsovia Fernandez, CEO of the Pennsylvania CDFI Network.

“There is a possibility of moving to a fee for services model where small businesses need to pay to receive technical assistance education and I would imagine [loans would have] a higher rate to be sustainable,” she said. “I am hoping that it’s not a drastic change what the White House ends up doing.”

On March 17, U.S. Treasury Secretary Scott Bessent said in a statement that the Trump administration understands the significance of the federal fund and local community lending organizations.

“CDFIs [Community Development Financial Institutions] are a key component of President Trump’s commitment to supporting Main Street America in the pursuit of job growth, wealth creation and prosperity,” Bessent said.