Before regulators placed requirements and provided incentives around community lending, banks focused lending on the strongest opportunities. This resulted in highly discriminatory lending because banks were uninterested in making commercial loans in low-income areas as well as to organizations such as nonprofits which are less focused on profit metrics.
As a result, in 1977 the Community Reinvestment Act (CRA) was passed which is a United States federal law designed to encourage commercial banks to help meet the needs of borrowers in all segments of their communities. Now, federal regulatory agencies examine banking institutions for CRA compliance.
Meeting CRA requirements, though, does not require banks to lend to nonprofit organizations. Nonprofit loans have always been more difficult because the financial focus is much different from typical for-profit borrowers. Further, due to heightened regulatory lending oversight since the financial crisis, it has become even more difficult.
It is important to understand the 3 main distinctions that put nonprofits at a disadvantage to for-profit commercial lending…
To read our full post which includes these 3 main distinctions, please click HERE to be redirected to Insightful Accountant who originally sponsored the post.
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