Combining CDFIs and Federal Grants

1. CDFIs: Capital Facilitators

Community Development Financial Institutions (CDFIs) bridge the “missing middle” financing gap situated between senior debt and Qualified Opportunity Fund (QOF) equity:

Rates below market — willing to accept restricted collateral
Long-term capital — maturities ranging from 7 to 15 years
Insight into local markets — connections within workforce, supplier, and vendor ecosystems
Capital stack stability — reduces risk for QOF equity positioned below them

2. USDA Initiatives Supporting Rural Opportunity Zone Projects

Program	What It Provides	Best Use
B&I Loan Guarantee	Offers guarantees for up to 80% of a loan	Manufacturing, processing of food
Rural Community Facilities	Provides direct grants	Healthcare services, educational facilities, public safety initiatives
REAP	Supplies grants and loans for energy projects	Solar power, wind energy, biogas production in rural OZs
Water & Environmental	Offers loans and grants	Infrastructure for rural water and wastewater

3. Combining Low-Income Housing Tax Credits (LIHTC) with Opportunity Zone (OZ) Equity

Credit Type	Subsidy	Best OZ Pairing
9% Credit (Competitive)	Approximately 70% of the cost	Restricted; OZ serves as a minor gap filler
4% Credit (Non-Competitive)	Roughly 30% of the cost	Optimal OZ combination — presents a bigger gap for QOF equity

Ox Fibre Apartments — Frederick, MD ($27M)

Layer	Amount
FHA Senior Debt	$10.5M
Subordinate State/County Debt	$3.4M
4% LIHTC + Historic Tax Credit	$11.5M
OZ Equity (fills financing gap)	$830k

4. Layering New Markets Tax Credits (NMTC) with Opportunity Zone (OZ) Investments (Side-by-Side)


Capital Gains Investor          NMTC Investor
        ↓                             ↓
    [QOF Entity]              QEI into CDE
        ↓                             ↓
   QOF Equity                Below-market NMTC loan
        ↓                             ↓
              [QOZB Entity]
       (receives both QOF equity + NMTC loan)

MLK Gateway I — Washington, D.C. ($34.4M)

Layer	Amount
Senior Construction Loan	$13.5M
NMTC Allocation Equity	$15.0M
LISC Pre-Development Loan	$1.7M
OZ Equity	$2.78M

5. Additional Concrete Examples of Capital Stacking

Hope Manor Village — Chicago, IL ($14.5M) — Housing for Veterans

Layer	Amount
Senior Bank Loan	$3.6M
City of Chicago HOME Funds	$2.6M
LIHTC Equity	$4.1M
OZ Equity (NEF Fifth Third Fund)	$3.3M

The Phoenix Community — Columbus, OH ($5.8M) — Housing for Re-entry Individuals

Layer	Amount
CDFI Loans (IFF + Finance Fund)	$2.8M
OZ Equity	$3.0M

6. OZ 2.0 Improvements for Capital Layering

Enhancement	Impact
Enduring Program	CDFI loan cycles are consistent with the rolling 5-year deferral
30% Rural Basis Step-Up	Multiplies the value of rural OZ equity by three at year 5
50% Improvement Threshold	Renovation costs in rural areas are reduced by half
Alignment with Priority Sectors	Is consistent with USDA priorities for broadband, water, and energy

CDFI and Grant Capital Stacking Compliance Checklist

CDFI debt arranged as an arm’s-length transaction with a defined maturity
CDFI funds are linked to a 31-month WCSH plan
NMTC framework employs a side-by-side approach — QOF equity and Qualified Equity Investment (QEI) are legally distinct
Grant revenue is assessed against the 50% gross income test
Rural Opportunity Zone designation is verified for 30% step-up eligibility