How does the capital magnet fund work?

by Denzel A.

Published: July 5, 2024

Visitor Question: I am new on the board of a fairly large nonprofit community development and housing organization.

At our recent meeting there was talk of a capital magnet fund that we might be able to tap into. It sounded to me as if this is a federally funded initiative.

Do you know what this is, and if so, how does it work? What would we need to do to take advantage of this, and are there any strings attached that we would not like? I have noticed that our community can be quite anti-Washington at times, and yet here we are in a community development non-profit, so surely that would not be a problem.

Editor Reply: Yes, the Capital Magnet Fund is a federal initiative, though it falls under the Department of the Treasury, not HUD (Housing and Urban Development). The Fund makes grants to nonprofits whose principal mission involves housing, and as well as to CDFIs. (If you don’t know what that is, see our what is a CDFI page.)

The money comes from what I will call the government-sponsored mortgage finance corporations Freddie Mac and Fannie May. The allocations from these two vary from year to year, making this source of funding slightly erratic. In comparison with other federal housing programs, its magnitude is small.

The grant can be used to finance affordable housing, as well as related economic development and community service initiatives. However, at least 70% of any grant must finance housing.

The major fact for you to keep in mind as a board member is that the Capital Magnet Fund awards these grants on a competitive basis, and they try to spread them over a wide geography and over the entire spectrum from urban to rural as well. Importantly, grant funds must leverage investments at least 10 times the amount of the grant. This means that in effect, it is only a small part of the financing package for any given project.
As you will soon know, if you don’t already, the world of nonprofit housing frequently requires several sources of funding; the larger the project, the more complex the financing arrangements are likely to be.

The Capital Magnet Fund tends to open for proposals once a year, and it takes about six months after submission to find out if you have received a grant. For exact information, monitor the Treasury Department’s website.

In sum, the Capital Magnet Fund is unlikely to make an appreciable difference in whether a project is feasible, but the grant can certainly ease the pressure on other sources of financing a bit.

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