Fundraising for Nonprofits: Securing CRA Funds from Banks

As a nonprofit, you may reach out to banks for funding support as part of your fundraising/ development efforts. Because of this, it’s important that you understand the Community Reinvestment Act and how you might gain additional funding by providing banks with the right information about your programs.

The Community Reinvestment Act (CRA) is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income (LMI) neighborhoods, consistent with safe and sound banking operations.

To be classified as LMI, an individual or family’s household income must be no greater than 80% of the area median income for the county or area where they reside. There are also LMI geographies which the US Census Bureau divides into census tracts. A moderate-income census tract indicates that the tract median family income of the households or residents in the census tract are between 50% and 80% of the HUD area median income for the larger metropolitan statistical area (MSA) where the census tract is located. A low-income census tract indicates that the tract median family income of the households or residents in the census tract are below 50% of the HUD area median income for the larger metropolitan statistical area (MSA) where the census tract is located.

At its core, the CRA encourages banks to distribute their resources more equitably to traditionally underserved segments of the community. These efforts are then evaluated by the Federal Reserve and other regulators, who conduct performance evaluations and assign CRA ratings—ratings that are publicly available—to each bank, detailing their efforts to support the financial needs of those living and working in its geographically defined assessment areas.

Nonprofits are important partners for banks because they understand the local community needs and their programs and services may align with community development activities that are eligible for CRA credit, possibly resulting in program funding.

Community Development is an important concept. To receive CRA credit a bank’s activities must have one of the following as its primary purpose:

• Affordable housing for low- and moderate-income individuals,
• Community services targeted to low- and moderate-income individuals,
• Economic development to small businesses and small farms, and
• Revitalization or stabilization of low- and moderate-income geographies or certain other underserved, distressed, or disaster areas designed by the government.

Examples of community services that benefit low- and moderate-income individuals and area include:

• Providing technical assistance on financial matters to nonprofit, tribal, or government organizations serving low- and moderate-income housing or economic revitalization and development needs.
• Providing credit counseling, homebuyer and home maintenance counseling, financial planning, or other financial services education to promote community development and affordable housing, including credit counseling to assist low- or moderate-income borrowers in avoiding foreclosure on their homes.
• Providing foreclosure prevention programs to low- or moderate-income homeowners who are facing foreclosure on their primary residence with the objective of providing affordable, sustainable, long-term loan modifications.
• Providing homebuyer seminars for low- or moderate-income people.
• Financial education would be considered when:
  • It is delivered in a school where the majority of students are low- and moderate-income.
  • It is delivered under the auspices of an organization and through a program primarily targeted to LMI individuals.
  • It is delivered in a location that serves predominantly an LMI area and is marketed to those with access to that location.

When you are talking to banks about fundraising for nonprofit programs, be sure to include any data you have about programs and how they match the above activities.

• Who the program serves and what services are provided
• The LMI measurements or demographics served
• Number of LMI clients served
• Specifics about economic development and key relationships (local municipalities, Chambers, etc.)

Once nonprofits understand the CRA criteria, they are better positioned to tell their story, outline how their nonprofit’s programs, services, and demographics falls under the CRA criteria, and ultimately, request funding support from the bank.

To learn more about the CRA, visit: https://fedcommunities.org/four-ways-cra-encourages-equitable-community-investment/.