Loan Application

Fund Recapitalization

The MCCF will be a self-sustaining development resource, with the continual recapitalization of the Fund through the sale of pre-approved loans to the secondary market. MCCF loans will be structured to best meet the needs of our members, the borrowers, other participating lenders, and the community. One of the primary considerations for our members as loan terms and conditions are being negotiated is how the secondary market will price the loan for purchase. Most institutional investors active in buying economic development loans are seeking a market rate of return. Accordingly, loans that are priced at market rates receive par value, those priced above market earn a premium, and those priced below prevailing market rates are discounted.

Below are examples of actual economic development loan sale transactions conducted within the past year:

• A loan made to a local business to expand a processing facility carried an 8% interest rate with a five-year term and ballooned at maturity. This loan had a remaining principle balance of $198,689, and was sold for $191,895 (96.5% of par).
• A 10% loan made to support the expansion of a dry- cleaning plant was sold at a premium when the loan balance of $27,155 was purchased for $27,969.
• A nonprofit housing organization provided a loan as part of a financing package for the development of an 80- unit affordable housing development. The interest rate was at the prevailing market level, so the lender received par value for the $302,000 remaining balance of the loan, which was secured by a first mortgage.
• An existing loan made to a local printing company for the purchase of additional equipment was sold to recapitalize a local loan fund. At sale, this 10-year term loan had a principle balance of $84,520, with an interest rate of 7%. The seller received $81,162 or 96.03% of par for this loan. The discounted purchase price included a 2.5% transaction fee charged by the loan broker.
• A local economic development lender issued a loan at 8.5% for 20 years to fund a business expansion, and negotiated an advance commitment for the purchase of the loan at par value. Examples provided by Community Reinvestment Fund solely for the purpose of demonstrating how the secondary market for economic development loans responds to interest rate variables.

Loans originated from the MCCF pool will be subject to an advanced commitment from a secondary market buyer, such as the Community Reinvestment Fund (CRF). As such, the actual price to be paid for MCCF loans will be known to the participating member before a formal loan commitment is made to the borrower or other participating lenders. If the price offered by the market is discounted from par value, the MCCF member originating the loan will be responsible for funding the difference between par value and the loan’s sale price. On the other hand, if the loan is sold at a premium, the member will receive the premium payment (that amount in excess of the loan’s par value).

Through this approach, the MCCF loan pool will be continually recapitalized and members will be able to originate more development loans in their communities.