Trump’s order to gut community-building program ‘existential threat’ to Minnesota lenders

DULUTH – Machine parts made on the Iron Range, land reclaimed by the Ojibwe and a wildfire prevention start-up: all possible because of a federal main street lending program that President Donald Trump wants to cut.

Trump issued an executive order last month to halt spending on the Community Development Financial Institutions (CDFI) Fund, which for three decades has helped catalyze small businesses and affordable housing in underserved communities across the state.

“Every congressional district in Minnesota has CDFIs located in it and serving people who live there,” said Kate Barr, senior adviser of the Minnesota CDFI Coalition.

Minnesota received $179 million in CDFI funds over the last 5 years. In 2024, the program awarded $789 million across the country. According to its overseer, the U.S. Treasury Department, about 20% of CDFIs are headquartered in “persistent poverty counties” and about 40% in communities of color. And during crises, government at all levels has turned to these lenders — of which there are more than 30 in Minnesota — as first responders to infuse communities with money.

“We saw that during COVID, and we saw that during the 2008-2009 recession,” Barr said.

Sens. Amy Klobuchar and Tina Smith, along with several Republican lawmakers, signed a letter that was sent to the treasury department’s new secretary, Scott Bessent, urging him not to eliminate or reduce the fund.

“This fund has helped Minnesotans buy homes, start and expand small businesses, and build community facilities,” Klobuchar said in a statement. “This is a pragmatic way to make a big impact.”

Bessent said in his confirmation hearing that the competitive program is “very important.” He recently released a statement that said CDFIs are a “key component” of Trump’s commitment to supporting main street America.

Eight of the 10 CDFIs receiving the most money over the past decade are in Republican districts, the Washington D.C.-based nonprofit think tank Urban Institute found.

The CDFI program was created by Congress, so it’s also unclear whether Trump has the power to curb its funding. His order says that its non-statutory functions should be “eliminated to the maximum extent” and statutory functions and personnel should be reduced to the minimum presence required by law. That could mean not enough staff to release funds, lenders say.

With its fate unclear, Minnesota lenders are nervous. For every federal dollar they receive, they’re typically able to leverage $8 in private-sector financing, which is critical for building wealth in struggling urban and rural areas, proponents say. So many of their clients aren’t yet able to secure a loan from a traditional bank or credit union, and this money helps them do that by lowering their risk.

Trump’s order “really clouds what the future of community development looks like,” said Noah Hobbs, policy director for One Roof Community Housing, a Duluth nonprofit that helps low-income buyers finance a house or renovation.

“It creates a high level of uncertainty for folks that don’t have anywhere else to go for financing,” he said, and it targets money that helps ease some of society’s most enduring problems, such as a dearth of child care facilities.

Brian Voerding is president of the Little Falls-based Initiative Foundation, which covers 14 counties in central Minnesota and portions of the Leech Lake and Mille Lacs Bands of Ojibwe. The foundation was one of the first CDFIs in the state and has provided nearly $70 million in economic development lending. Last year, it used CDFI money to train entrepreneurs to reduce investment risk.

“It’s really important capital,” Voerding said, and while the Initiative Foundation is stable enough to survive without it, it’s potential defunding is “an existential threat” to many nonprofits.

You need healthy businesses, schools, child care and recreational areas, he said, “and there are CDFIs behind a lot of those places and spaces in rural communities.”

The once run-down neighborhood that is now marketed as the Lincoln Park Craft District in Duluth has benefited heavily from such loans, with 29 small businesses and startups relying on the Entrepreneur Fund. So many couldn’t get early financing because they were startups, or they were making major real estate improvements in a market that didn’t have comparable valuations, said Shawn Wellnitz, CEO and president of the Duluth-based fund.

“It takes someone to say, ‘I think there’s something going on here and I think over time, those real estate valuations will go up, and this is good for the community,‘” he said. And now, “we’re not really needed there.”

What a relatively small grant can ultimately do is the underpinning of the program. Over the past three years, the Entrepreneur Fund has leveraged the $8 million or so granted by the program into $73 million in loans to more than 3,400 businesses. And their reach is wide, across 29 counties and 12 Native nations in Minnesota and Wisconsin.

For First Alliance Credit Union, it would be a blow to its efforts to not reach underserved communities in southeast Minnesota. The credit union was awarded a $300,000 grant last year that it says is being used to grow its lending capacity.

“In Rochester, I personally see a growing income disparity, and First Alliance is really striving to be the financial institution that fills some of those gaps,” said CEO Brent Rempe.

Little Canada-based Indian Land Capital Company, which helps Native nations reclaim lost land, has received more than $10 million from the Native American CDFI Assistance Program, which is specifically for Native Americans. Company president Cris Stainbrook is worried that part of the program will go away regardless, with Trump’s push to end diversity funding.

The Bois Forte Band of Chippewa in northeast Minnesota was able to reclaim more than 28,000 acres of land in 2022 with the company’s help. Regaining land is not only critical to sovereignty, Stainbrook said, but also for nation building: owning more space for businesses, homes and community buildings.

Clients of the Northwest Minnesota Community Impact Corporation in Bemidji include child care programs and tribes. Spokeswoman Bethany Wesley said their recent CDFI grant was small, but the organization will continue to advocate for the program.

“We absolutely stand on the side of how important the work is statewide and nationwide for both main street small business owners, entrepreneurs, first time home buyers,” she said. “It goes beyond our little corner of the world.”

With reporting from Minnesota Star Tribune staff Jenny Berg in St. Cloud, Sean Baker in Rochester and Kim Hyatt near Bemidji.