housesAt an economic roundtable hosted by Senator Diane Capehart and IBCVI & Co. in August, an investment advisor proposed using federal grants and loans to guarantee commercial bank loans, noting it would allow U.S. Virgin Islands banks to increase lending to startups and capital projects. Many commercial banks have been reluctant to lend in the territory, even when the investment opportunities seem consistent with institutional policies and missions.

Because there is a shortage of funds available for direct investment, Darnell Carpenter of Synergy Group said that being able to guarantee loans by backing them with federal grant money would reduce some of the risk to lenders. He suggested working with the Community Development Financial Institutions Fund, a U.S. Treasury program dedicated to working on behalf of underserved and distressed communities through local economic empowerment. The CDFI Fund is able to promote access to capital, which is the major problem facing the USVI business community. Part of the problem locally is that many banks don’t have personnel whose dedicated role is to focus on community development lending, and some don’t even have staff members with any experience at all in this area.

The CDFI Fund, as its focus is solely on economically distressed areas, could be beneficial to the U.S. Virgin Islands. The Fund uses U.S. census data to classify areas — specifically, census tracts — as qualified, severely distressed or not qualified. Vast areas of St. Croix and most of St. Thomas are considered eligible for CDFI funding.

According to Carpenter, Synergy Group has put together a request for a $60 million loan to build a new nursing home. With a federal loan guarantee, he believes local banks will be more likely to provide loans for the project, which would offer a much-needed economic boost to the area.

Another serious drawback to the U.S. Virgin Islands economy is the lack of a certified community development entity. A CDE functions as a facilitator of relations between lenders and investors and local businesses. Carpenter said that the establishment of a CDE could help to connect organizations and businesses with funding opportunities they might not otherwise be able to access.

Commercial lending, particularly to small businesses, is a critical component of economic growth. The inability of a small business to obtain credit — a major problem right now in the territory — prevents it from growing. This has an effect on job creation, as businesses without sufficient growth have no need to hire additional employees. An economy that struggles to create jobs is an economy that will have a difficult time sustaining itself.

Fortunately, the mood at the roundtable seemed to indicate some willingness to explore the possibilities provided by the CDFI Fund and the potential establishment of a CDE to help increase commercial lending and foster economic growth in the U.S. Virgin Islands.

BoltNagi is an established and respected government relations law firm serving businesses and organizations throughout the U.S. Virgin Islands.