3c hapter - Index of

The Biggest- Impact Financial Sector You’ve Never Heard Of 91
marketing. Individuals hear about it through word of mouth or
from fi nancial advisors.
The NHCLF recently won a prestigious award, which may
account for some of the surge, but Cantor believes there is more
going on. “People are tired of fi nding out about collateralized
debt obligations and tranches and all this chicanery that was
happening with their supposedly traditionally invested money,”
he says. The idea of investing locally, as well as the security of
knowing that your principal will not be lost, is appealing, he
believes. And with interest rates on savings accounts at rock bottom,
“suddenly our very modest interest rates are very attractive.”
A lot of the investments coming in, he says, are from Baby
Boomers coming into wealth through inheritance and seeking
alternatives.
“Would you rather put your money in this or the stock market?”
asks Laura Kind McKenna, who has invested personally and
through a family foundation in a community loan fund. “Putting
capital to work in our communities is just so important.”
A CD—With Benefits
So, how do community loan funds work? Typically, individuals can
make an investment—usually a minimum of $1,000, but sometimes
lower—for a period of one to several years. The loan fund
lends the money out to targeted borrowers, and pays the investor
a modest, guaranteed fi xed- rate return—typically 2 percent to
3 percent for a short- term loan and up to 5 percent or more for
a 10-year or longer loan. The New Hampshire Community Loan
Fund, for example, currently pays 2 percent interest for 1-year
loans and up to 5 percent for loans of 10 or more years. Principal
is returned at the end of the loan term.
The rates are similar to a certifi cate of deposit (although at
this writing, loan fund rates far surpass those of CDs). Unlike CDs,
the loans are not insured by the FDIC, unless the CDFI is a community
bank. Still, community loan funds have an enviable track
record, and it is rare a fund does not return capital and keep to
its guaranteed rate. Most community loan funds maintain reserve