The Treasury Department announced a program Wednesday to extend capital on more favorable terms to community development financial institutions to lend to small businesses in the hardest-hit communities.

Under the program, the Treasury would use up to $1 billion of Troubled Asset Relief Program capital to lend to CDFIs. They would owe a 2% dividend, compared with the 5% dividend banks paid under the Capital Purchase Program. The dividend rate would increase to 9% after eight years, compared with the five-year jump term under the CPP. In addition, CDFIs would not be required to issue warrants as part of the assistance.

The Treasury also changed the viability test so that a CDFI that had not qualified for Tarp could access this capital. It would have to raise enough private capital so that when matched with Treasury funds, the CDFI would have at least 5% in risk-weighted assets. CDFIs that have already received Tarp would be allowed to transfer that capital into this program.

There are over 834 CDFIs and 60 CDFI banks and thrifts, with more than $20 billion of assets.

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