To access funding through the CDFI Bond Guarantee Program (BGP), applicants must demonstrate financial soundness and the ability to manage long-term capital. A strong credit enhancement strategy is critical—not just for compliance, but for attracting investor confidence and ensuring project sustainability.

What Is Credit Enhancement in the BGP Context?

Credit enhancement refers to the tools and safeguards a CDFI puts in place to reduce default risk and make its bond offering more attractive. In the BGP, this might include:

• Loan loss reserves

• Collateralization of assets

• Cash flow coverage requirements

• **Credit support from third parties

1. Why is credit enhancement required for the BGP?

Credit enhancement helps reduce risk to the federal guarantee and reassures investors that the borrower can manage long-term capital responsibly.

2. What types of credit enhancement are acceptable under the BGP?

Acceptable strategies include loan loss reserves, pledged collateral, cash flow coverage ratios, and external guarantees from financially strong third parties.

3. Does every CDFI need to provide the same level of credit enhancement?

No. The amount and type of enhancement needed vary based on organizational strength, risk profile, and loan portfolio characteristics.

4. How can smaller CDFIs meet credit enhancement requirements?

Smaller CDFIs can partner with Qualified Issuers or use pooled structures to reduce individual credit enhancement burdens while still accessing BGP funds.

5. Where can I find support for building a BGP credit enhancement strategy?

Resources and guidance for developing a sound BGP credit enhancement strategy are available through technical assistance providers and Qualified Issuers.