Partners (Spring 1997)



By Daniel R. Horvath

Community Equity Investments, Inc. (CEII) serves Escambia County and Northwest Florida with small business loan programs and affordable housing. The author is president of the CDC.

CEII is a Community Development Corporation ("CDC") which was first incorporated in 1974 as a federally-funded CDC. It is a community-controlled nonprofit corporation with a board of directors comprised of 21 members, 11 of whom are directly elected by residents of Escambia County, Florida. CEII has a 12-member staff.

Funding for CEII program administration is derived primarily from earnings generated by its small business lending programs, affordable housing rentals and management fees, and its sale of single family units. A small annual grant is received from the Florida Department of Community Affairs for general administration. A substantial annual grant is received from the SBA for the provision of training and technical assistance services to SBA microloan borrowers.

CEII'S Revolving Loan Fund ("RLF")

In 1982 CEII initiated its first small business loan program—the "RLF"—which was funded with a loan from the Florida Department of Community Affairs ("DCA"). With the active participation of its bank partners, CEII developed the RLF structure still in use today. CEII extensively promotes the RLF, and other small business loan programs and handles all intake of program inquiries. CEII provides potential applicants with a package that describes the program, contains a loan application, credit release form, and other program specific materials. CEII provides technical assistance to applicants in completing their application and in assembling all accompanying documentation. Once a final application is in hand, CEII staff presents its loan recommendations to its Loan Committee, comprised of CEII board members who include both community and bank representatives. All loans must be approved by both the loan committee and by the full CEII board of directors. The Committee generally sets loan terms and conditions—particularly with regard to collateral requirements. Following approval the loan is processed for closing and CEII staff prepares a complete loan closing documentation package.

DeVilliers Gardens
The photo above was taken at DeVilliers Gardens by Joan Harris, Vice President of Housing, CEII; hand coloring by Elizabeth Black, Community Affairs Staff, Federal Reserve Bank of Atlanta.

CEII makes the RLF loan directly to the borrower and the loan is immediately sold to one of CEII's bank partners for servicing just like any other loan. CEII uses a simultaneous closing procedure coordinated by the bank's closing attorney. The attorney is free to use either CEII's standard loan documents or to substitute the bank's forms.

The participating bank brings a check for the full amount of the loan to the closing. CEII then endorses all loan documents over to the bank which provides CEII with payment in full for the loan. CEII then purchases a certificate of deposit from the bank for 90% of the full loan amount, providing an additional source of loan collateral available to the bank as a first recourse. Additional bank losses may be recovered from borrower-provided collateral for the loan. Any remaining collateral after the bank has recovered its loss is transferred back to CEII where the CDC initiates its own loan collection activity on any defaulted loans.

This entire process is structured to best meet the needs of the bank and the nonprofit. The bank is purchasing a small business loan typically located in an economically distressed community and, in most cases, made to either a minority or woman-owned business enterprise. Thus, it is an excellent commercial CRA-type loan and is virtually risk free in light of the 90% guarantee CD feature.

From CEII's standpoint there are a number of advantages. Ten percent of each loan (not required to go into the guarantee CD) is leveraged back into its loan pool to make additional loans. A rate of 7% is paid to CEII on the 90% guaranty CDs thereby providing CEII with a source of administrative funds. All of the RLF loans are set at a 10% interest rate which yields the bank a 3% return for its loan servicing activity.

The relationship between CEII and the participating banks is governed by a Bank Participation Agreement which is entered into with all participating banks. Generally, the bank that refers the client to CEII is given the first right of refusal to purchase that particular loan. In a nonbank referral situation, CEII generally uses the client's existing bank relationship or provides a list of participating banks and gives the client the option of selecting the bank he or she prefers.

Since inception of the RLF in 1982, CEII has closed 120 small business loans totaling $4.6 million, for an average loan size of $38,000. Loans can not exceed $75,000, have a maximum term of 15 years and have an interest rate of 10%. Applicant businesses must be located in Escambia County, Florida.

The program was established to promote job creation in addition to providing business ownership opportunities to minority and women owned businesses. Therefore, CEII carefully tracks job creation in order to make sure it complies with the Florida statutory mandate that at least one new job be created for every $10,000 loaned. CEII's 120 loans have created 575 new jobs, for an average cost per job of only $8,000. All funding for this program was derived from the Florida Department of Community Affairs' CDC Support and Assistance Program with 0% interest loans having a maximum 15 year term.

CEII's cumulative loss rate after 14 years of lending is still only 3% of its total $4.6 million portfolio.

SBA Microenterprise Loan Program

Based upon its successful operation of the RLF program, CEII became one of the first 35 intermediaries selected to participate in a new SBA pilot program to provide loans of under $25,000. CEII's first loans were made in 1992 and the program has grown to its present loan portfolio level of 88 loans totaling $1,430,000. The average loan size is $16,000 and the program has created or maintained a total of 210 jobs, at an average cost of $6,800/job.

Applicant businesses may be located anywhere in the 15 county microloan service area, which ranges from Pensacola to Tallahassee. The SBA now has provided CEII with three separate loans totaling $2 million with an interest rate averaging 5%. All of CEII's microloans are set at 11% and carry a maximum 5 year term.

The program is run in much the same manner as the RLF program—with one major difference. The SBA does not permit the sale of microloans and requires the lender to handle all loan servicing in-house. Thus, CEII does not sell its loans to participating banks as is done with the RLF program. This requirement forced CEII to develop in-house loan servicing capacity.

In addition to providing loan funds, the SBA provides CEII with a substantial grant to provide extensive training and technical assistance services to its borrowers. CEII has one staff member dedicated solely to this function—providing periodic training classes and ongoing one-on-one technical assistance. The SBA microloan program was structured to have less restrictive collateral requirements than those established for the RLF program.

CEII anticipated a higher loan loss rate, but one that would be ameliorated by the provision of its technical assistance and training services. The end result has been a cumulative loss rate of 10% of its total microloan portfolio, less than its projected loss rate of up to 15%. Staff is continually seeking to reduce this rate through a combination of increased loan servicing and additional training and technical assistance services.

CEII's Small Business Loan Programs
Revolving Loan Fund (RLF)
  • Loans may not exceed $75,000.
  • Loans bear an interest rate of 10%.
  • The maximum loan maturity is 15 years.
  • Applicants must be located in Escambia County, Florida.
Microenterprise Loan Program
  • Loans may not exceed $25,000.
  • Loans bear an interest rate of 11%.
  • The maximum loan maturity is 5 years.
  • Applicants must be located in the 15 county microloan service area.
USDA Intermediary Relending Program ("IRP")
  • Loans may not exceed $150,000.
  • Loans bear an interest rate of 10%.
  • The maximum loan maturity is 15 years.
  • Applicants must be located in the 15 county microloan service area.

The SBA permits its microloan intermediary lenders to borrow a maximum of $2.5 million and CEII expects to reach that limit within the next 18 months. SBA requires repayment via ten year amortization and, as CEII pays down its loans, it expects to continue borrowing in order to maintain a capitalization level of $2.5 million for its SBA microenterprise loan program.

USDA Intermediary Relending Program ("IRP")

Building upon its previous successful loan program operations, CEII applied for designation as an Intermediary Relender under the USDA (formerly the Farmers Home Administration) IRP. CEII became the first IRP recipient in the State of Florida in late 1995 and closed its first loan in early 1996. Since then CEII has approved two additional loans for a cumulative total of $255,000, or an average loan size of $85,000.

IRP loans are available in the same 15 county lending area established for CEII's SBA micro program. However, applicant businesses must be located in "rural" areas, defined as either unincorporated areas or incorporated areas with populations of 25,000 or less. Loans can be as high as $150,000, carry a 15 year maximum term and bear an interest rate of 10%. The USDA provided CEII with an initial $1 million loan (at 1% interest) for 30 years.

Northwest Florida Black Business Investment Corporation ("BBIC")

Utilizing its network of contacts with state-wide and local banks in Northwest Florida, CEII spearheaded the effort to form the Northwest Florida BBIC. The BBIC program was established by the Florida legislature, which allocated $5 million for the formation of local BBICs serving distinct service areas in the state. The BBICs were required to generate at least $500,000 in bank investments which would then be matched 1:1 by the Florida Black Business Investment Board ("BBIB").

Summary of Small Business Program Results as of January 31, 1997
Revolving Loan Fund Program
Total Dollars Loaned Out
$ 4,600,000 Average Size Loan $ 38,000
Total Number of Loans
120 Average Cost Per Job $ 8,000
Number of Jobs Created
575 Start-up Businesses 42.5%
$ 140,000 Percentage of Loss 3%
Microloan Program
Total Dollars Loaned Out
$ 1,360,000 Average Size Loan $ 16,000
Total Number of Loans
85 Average Cost Per Job $ 6,500
Number of Jobs Created
210 Start-up Businesses 41%
$ 135,000 Percentage of Loss 10%
Intermediary Relending Program
Total Dollars Loaned Out
$ 255,000 Average Size Loan $ 85,000
Total Number of Loans
3 Average Cost Per Job $ 17,500
Number of Jobs Created
18 Start-up Businesses 66%
$ 0 Percentage of Loss 0%
Cumulative Small Business Loan Programs
Total Dollars Loaned Out
$6,215,000 Average Size Loan $ 30,000
Total Number of Loans
208 Average Cost Per Job $ 7,853
Number of Jobs Created
803 Start-up Businesses 50%
$ 275,000 Percentage of Loss 4.5%

Six programs were established in the larger urban areas of the state when CEII undertook the capitalization effort for the seventh BBIC, in Northwest Florida. CEII was successful in generating $550,000 in bank investments which were matched with $500,000 from the BBIB. The program provides loan guarantees to African American owned businesses located in the 15 county Northwest Florida region (ranging from Pensacola to Tallahassee). CEII operated the program on a day-to-day basis for about two years when the program was spun off for independent operation by the bank investors. The program is now based in Tallahassee.

Affordable Housing Rental Programs

CEII has also developed and now manages 109 units of rental housing. Some of those are described below. Management fees and other revenues derived from this activity form a major component of CEII's overall administrative budget.

DeVilliers Gardens is a 16 unit multi-family development financed with federal low income housing tax credits (purchased by the Enterprise Social Investment Corporation—affiliated with the Enterprise Foundation), state SAIL funds, a variety of other state funding, and conventional bank financing from Barnett Bank. The project is 100% occupied and is in its sixth year of operation. The total project cost was $750,000.

VBL Apartments is a 90 unit multi-family development consisting of three separate locations: Villa Barcelona, Belmont Gardens and the Lloyd House. The units were acquired from the Resolution Trust Corporation ("RTC") under its affordable housing disposition program. Financing was provided by the Federal Home Loan Bank of Atlanta through an AHP loan to AmSouth Bank and then to CEII; state and local HOME program funds; and a mix of other funding. The 90 units were fully rehabilitated and are predominantly rented to Section 8 tenants. The total project cost was $1.2 million.

Gadsden Street consists of three single family homes. The CDC acquired a single unit through a HUD foreclosure and was fully rehabilitated. Its large double lot permitted the construction of two new single family units on the same property. Site acquisition and construction financing were provided by the Calvert Foundation and the Florida Community Loan Fund. Permanent take-out financing was provided by the Escambia County HOME/SHIP program and conventional financing from Compass Bank. The total project cost was $135,000.

Stoddert Place is a 320 unit multi-family development presently under construction at a 25 acre location in West Pensacola near the Naval Air Station. It is a joint venture partnership between CEII and the Richman Group of Florida. A total of $22 million in project financing was provided via federal low income housing tax credits, state HOME funds, hurricane relief funds and other financing. These units will be rented primarily to eligible low- and moderate- income tenants.

Most rental developments are managed by CEII's wholly owned subsidiary, Gulfside Real Estate Development Corporation. With the completion of the Valcour Villas Development, CEII will have a total of 117 units of housing under direct management.

Affordable Housing Ownership Program

In partnership with Escambia County, CEII has developed a home ownership program for low- income county residents. The county provided a small grant to cover the program's administrative costs for the first year and then uses its HOME and SHIP program to provide substantial subsidies to first time low income home buyers. The subsidy level can be as high as $12,000 on a home costing $60,000 thereby reducing the first mortgage loan to $48,000. CEII's home ownership program director conducts classes on home ownership at least twice a month. These classes are aimed not only at providing information on home ownership and CEII's programs in general, but also to pre-qualify buyers to buy its new and rehabilitated units. At the present time, CEII has completed two new construction units which are both three bedroom/two bath units with a brick exterior. They sell for under $60,000 and with the county subsidy programs, the price is reduced to $48,000 or less. CEII has also completed five rehabs—most of which were HUD foreclosure acquisitions. HUD provides non-profit buyers who will re-sell to low-income families with discounts off the purchase price of up to 30%. This makes the units quite affordable for lower income families.

All required rehab work is completed and CEII then seeks to match these units with participants in its home ownership classes who have been pre-qualified by participating banks. CEII has also acquired vacant sites on which it will build up to twenty new homes for sale to low income families.

Financing for the Home Ownership Program is provided by the Calvert Foundation ($200,000), the Florida Community Loan Fund ($50,000), and Escambia County ($200,000). The Calvert and FCLF funding make up a working capital pool which is used for site acquisition and construction/rehab financing.

Other CEII Programs

The Jones Building is a Civil War vintage Victorian home that was acquired by CEII and restored to serve as its office building. It is listed on the National Register of Historic Places and provides CEII with community identity in the historic Belmont DeVilliers district. The property is valued at $175,000 and was acquired and restored with federal funding under the now-terminated Title VII CDC program administered by the Community Services Administration (formerly the Office of Economic Opportunity—OEO).

Neighborhood Incentive Program provides small matching grants to Neighborhood Councils to complete community self-improvement projects such as park development, purchase and installation of playground equipment, home repairs, youth education classes and a variety of other activities. CEII generates funding from donations from financial institutions and businesses in the Pensacola area.

Additionally, CEII contributes a portion of net earnings to ensure that adequate ongoing grant capital is available to meet the demand for these matching grants. Grants do not exceed $2,500 each and, since 1982, CEII has provided a total in NIP grants of $92,500. These small grants have made possible the completion of community improvement projects valued at $325,500.

For additional information contact CEII at 302 North Barcelona Street, Pensacola, Florida 32501. Telephone 904/444-2234; Fax 904/444-2264.


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