In Delaware, religious leaders are trying their hand at community banking.

They've started a lending fund - not a bank - but many of their target borrowers are entrepreneurs whose only other source of financing would be a bank.

The fund is intended to nurture their businesses, many operating in underserved areas, to the point where they could qualify for traditional banking relationships.

The First State Community Loan Fund, after three years of study, planning, and fund-raising by investors and volunteers, began taking applications in September.

Fund |Fills a Void'

"The financial institutions in Delaware welcome the fund," said Barbara W. Gallagher of Delaware Trust Co. and chairman of the fund's loan review committee, "because it fills a void in handling small-business loans [banks] have found aren't feasible because of high maintenance costs and credit risk. The fund is directed at businesses that are not bankable."

She said small-business loans at her bank have accelerated and Delaware Trust is a Small Business Administration preferred lender, but there are some loans her bank still can't make.

"There are some people who are not bankable for some reason, which might be due to bad credit, and we want to help them become bankable - build up their credit history so they can go to other financial institutions for loans," said the Rev. Kevin Bean, vice president of the fund and one of its founders.

Interfaith Effort

The fund is the brainchild of a group of religious leaders, led by Mr. Bean, from a variety of denominations in Delaware. The religious leaders are investors in the fund, with Mr. Bean and the Rev. Robert Schiesler serving as Officers.

Among the many investors in the fund, besides churches and corporations, are American Express, Centurion Bank, Bank of Delaware, BT Foundation of Bankers Trust (Delaware), Chase Manhattan Bank (USA), Colonial National Bank USA, Delaware Trust Co., FCC National Bank, and First USA Bank.

The banks that invested will receive Community Reinvestment Act credit, Mr. Bean said, adding that some contributed to the fund with outright grants of money while others made direct equity investments or loans, with the possibility of a 3% annual return should the fund make enough money.

Bank Officers on Board

The banks in Delaware have invested $300,000 of the $750,000 in initial capital for the fund. In addition, some 15 banks have officers serving on the board of directors or participating on various committees of the fund.

Dorothy J. White of the Bank of Delaware is serving as chairman of the marketing and community relations committee.

"Bank of Delaware had done its own assessment of the small-business community in Delaware and found there was a gap in small-business loans where they couldn't get help financially," said Ms. White. "And we couldn't serve that market as organized.

The organizers "documented the need very well," Ms. White said. "It clearly demonstrates how the community can be part of addressing the issues of the community."

One Paid Staff Member

The fund has four officers and one paid staff member, Sharon W. Young, who is executive director and loan officer. The board is made up of 21 Delaware business and community leaders.

The fund's goal is to provide loans and technical help to preserve, expand, or develop affordable housing or business enterprise for the benefit of low-income individuals and communities in Delaware.

It also opens the door for groups and individuals who could not get conventional financing for a particular projects.

"Our approach to community economic development centers on the FSCLF being a social entrepreneur and it disciplined lender," said Mr. Bean, who also serves in the Trinity Episcopal parrish.

The fund has $110,000 in operating money for the rest of this year. Capital commitments for 1993 total $474,500, of which $171,000 came from loans. The rest, $303,500, is permanent equity.

For 1994, the fund obtained an extra $72,000 in operating funds and new capital fund commitments of $299,00, with $200,000 from loans and $99,000 as permanent equity.

"In the coming year, we plan to broaden the investor and contributor base, lend approximately $500,000, and build the capital fund to $1 million," said Mr. Bean. "We will also further our collaborative efforts with other lenders, and work to increase FSCLF's presence in Kent and Sussex counties."

The fund will offer small-business start-up and expansion loans, construction loans, bridge loans, and predevelopment loans for housing and business.

Repayment terms are negotiated with the fund and the loan applicant on a case-by-case basis. Interest rates will generally be below market rates.

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