Dave Castillo faces many challenges in securing funding for tribal members wanting to purchase or rehab housing or start or grow a business. A new connection with Sunflower Bank, N.A., helped along through the External LinkKansas City Fed’s Investment Connection program, makes his job a little easier.
Castillo is CEO of External LinkNative Community Capital (NCC), formed in 2019 when three native-serving organizations merged into one. NCC, a Native Community Development Financial Institution (CDFI), serves New Mexico and Arizona, along with tribes and individual Native Americans primarily in the western U.S. It provides mortgage and construction loans, small business loans, pre-development financing and bridge loans and other project financing, including on tribal trust lands.
NCC is managed by a board and staff consisting of Native American professionals familiar with the unique circumstances and needs of their Native American borrowers, Castillo said. NCC offers financial service capabilities consistent with the needs of tribal communities. They also work to mitigate risks by leveraging education programs and partnerships with tribal authorities.
Dave Castillo, CEO, Native Community Capital
New loan fund connects with investor online
NCC developed its NCC Loan Fund to channel financial resources to underserved communities to assist with physical infrastructure, housing, and small business development. The program will lend funds to tribal governments, tribal government-owned companies, tribally managed organizations, other entities working in Native American communities or benefitting Native American people and individual Native Americans.
NCC posted a proposal for the Loan Fund on the Investment Connection funder portal, where Sunflower Bank happened upon it. Investment Connection brings community and economic development organizations together with the funding community, online and at in-person events. Sunflower provided a $1.1 million loan to NCC.
“The community development opportunity offered by Native Community Capital was very attractive to our community lending and investment efforts at Sunflower Bank, due to the impact NCC has within federally- and state-recognized Native American tribes, tribal entities, or enrolled tribal members in the southwest United States,” said Kyle Stingley, national External Linkcommunity development lender at Sunflower Bank. “These demographics are difficult to serve to a traditional banking perspective, and we are proud to be able to meet their needs through our community development program.”
Most overlook this benefit to funding projects on tribal lands
According to Castillo, the first barrier most borrowers face in securing financing for projects on tribal trust lands is a tremendous lack of precedent. Working on tribal trust lands is the reason Native CDFIs and other Native-led nonprofit organizations and for-profit businesses are emerging. One benefit to funding projects on tribal lands, often overlooked by non-Indian allies, is that owing to a dearth of private investment, tribes have relied on grant funding for so long that loan-to-value ratios are typically very attractive to a lender. All NCC's borrowers typically bring some form of equity, whether that is tribal or other public sector funds, that subsidize infrastructure or related home construction costs or grant and owner's equity contributions for small business transactions.
NCC is active in the External LinkHUD 184 market with home loan caps consistent with HUD guidelines for HUD 184 loan guarantee as, often, that is the product its financial partners use to refinance construction loans. (HUD 184 is a home mortgage product specifically designed for American Indian and Alaska Native families, Alaska villages, tribes, or tribally designated housing entities.) NCC small business loans are typically capped at $250,000 as that is the current threshold for delegated underwriting via the BIA Loan Guarantee and Loan Insurance Programs.
Tribal communities need appraisers and accountants
Castillo said that NCC faces special challenges in developing a stronger network of service providers to facilitate timely loan closings. Rural America shares a similar struggle to find qualified appraisers that will serve rural, remote locations. There are also too few appraisers that understand how to appraise projects on tribal trust lands. In NCC’s small business lending work, access to technical assistance, particularly accounting services, is needed. Small businesses that are growing and need additional debt often struggle to find the back-office support needed to keep their financials current and accurate.
Sunflower provides debt capital at below-market rates
The funding from Sunflower Bank will benefit tribal members in New Mexico that NCC assists. The funds provide debt capital at below-market rates for projects that advance the small business, housing or physical infrastructure needs of tribal economies. Small business borrowers include tribal member artisans requiring materials and equipment for ceramic or textile production, as well as small food-service businesses. Also, tribal member homebuyers will benefit from the funding to mitigate increased construction costs and higher interest rates.
“We believe strongly in supporting economic development throughout all geographies and populations in New Mexico,” said Scott Z. Czarniak, Sunflower Bank’s regional president for Northern New Mexico. The bank operates as First National 1870 in this region in recognition of its heritage as the first bank chartered in the Southwest. “Partnering with Native Community Capital is an exceptional opportunity to be responsive and innovative in the community by providing financing to tribes and tribal members. Sunflower Bank is proud to make this first investment with a Native CDFI,” Czarniak said.
Investment Connection helped get the conversation started
According to Stingley, Investment Connection was helpful in finding the opportunity with NCC and getting the conversation started. Several bank colleagues have attended the Investment Connection place-based events in New Mexico, Colorado and Missouri in addition to using the online resource, so more connections could be coming.
Helpful resources
- Investment Connection External LinkInvestment Connection - Federal Reserve Bank of Kansas City (kansascityfed.org) Funders including CRA Officers, foundation representatives and government officials can find lending, investment and service opportunities throughout the seven states of the Tenth Federal Reserve District.
- Fed Communities video link External LinkCommunity Reinvestment Act (CRA) Archives - Fed Communities
- Find additional CDFIs and Minority Depository Institutions working in the Tenth District on Community Development Investment Resource Guide External LinkCDIRG v. lg adc 2021 4-28-2022.pub (kansascityfed.org)
- CRA OneSource at External LinkCRA OneSource - Federal Reserve Bank of Kansas City (kansascityfed.org)
- A Borrowing Guide for Tribal Members link (HUD 184) External LinkA Borrowing Guide for Tribal Members - Federal Reserve Bank of Kansas City (kansascityfed.org)
- Want to discuss? Let’s connect. Ariel.cisneros@kc.frb.org