In a nutshell, SBA and USDA microloans are made through local nonprofit lenders, which also provide business training and technical assistance to their small business borrowers.

At a time when the nation’s economy needs a serious jump-start, Bank of America has launched a new philanthropic initiative to provide just that. With a commitment of $10 million, the company will support micro lending programs for small businesses across the country that are desperately in need of cash. What’s more, though, is the ripple effect that initial $10 million will have. Instead of simply providing the money in loans directly to small businesses, the company is providing the funding to community development financial institutions and other nonprofit lenders for use as loan loss reserves—a move which opens up potentially ten times as much funding from the federal Small Business Administration and the U.S. Department of Agriculture over the next year.

The logistics may seem complicated for anyone not schooled in the ways of finance. In a nutshell, SBA and USDA microloans are made through local nonprofit lenders, which also provide business training and technical assistance to their small business borrowers. To access the capital, nonprofit lenders participating in these federal programs must set aside loan loss reserves at levels of up to 15 percent of the capital provided by the agencies. However, due to the recession, most of these lenders are unable to meet the reserve requirements, which limits their access to loan capital at a time when small businesses need it most.

Here’s where Bank of America's new microloan grants come in. The program was created specifically to help CDFIs and other nonprofit lenders meet the required reserve levels, and thereby access up to $100 million in new low-cost capital, which they then can lend out to struggling small business owners.

From a best-practices standpoint, the program hits many key goals of effective corporate giving. Some of these include:

• Aligning with the company’s core business. Bank of America, obviously, is in the business of lending money, and its expertise in the world of finance enables it to identify the CDFIs and other nonprofit lenders best suited for the program—meaning that the company is able to provide the funds to the organizations that can and will do the most good with them. Additionally, the grants also open up a new pool of potential customers down the road as the potentially thousands of small businesses helped by the program seek additional products or services that Bank of America provides.
• Aligning with the company’s established philanthropic goals. Bank of America has long focused its philanthropy on the local communities where it does business. In the words of Kerry Sullivan, president of the Bank of America Charitable Foundation, the company’s success is directly linked to the success of the communities where it does business. Its individual branches literally live or die by the vitality and prosperity of their local customers. Keeping a community’s small businesses afloat in times of need helps keep the community vital and livable, which in turn keeps Bank of America’s balance sheet in the black.
• Leveraging resources. It is not too often one finds such an easy and direct way to leverage a philanthropic commitment. While many corporate grantmakers seek opportunities to put their funding to work in ways that will bring additional resources from either private or public sources, it is often difficult and complicated by various issues that make timely action near impossible. In this instance, it is simple and fairly quick: Bank of America deposits a chunk of funding in a CDFI’s coffers, and the CDFI is now eligible to access many times that amount from the federal government.
• Putting resources to use in the most effective and efficient way. Simply put, prosperous communities are employed communities. And making cash available to small business is one of the most direct ways to keep people in their jobs, and add more jobs in the future. According to the SBA, the country’s 30 million or so small businesses create two out of every three new jobs across the country, making the small business sector by far the chief generator of employment. By targeting its funding on helping this specific group, Bank of America is addressing a key social problem—unemployment—in one of the most direct and efficient ways possible.

For more information on Bank of America’s community investment initiatives, go to www.bankofamerica.com/community.