If loans are made from a CDFI to an eligible business entity for allowable uses, must funds from said loans be repaid to Treasury if their maturity dates run beyond December 31, 2026? How should CDFI funds remaining past December 31, 2026, be handled?

Recipients must account for loans that mature or are forgiven on or before December 31, 2026, on a cash flow basis. For loans with maturities longer than December 31, 2026, the recipient may use funds only for the projected cost of the loan.

Guidelines for loans funded by CLSFRF funds will vary depending on the loan maturity date. There is a separate set of procedures for loans maturing on or before December 31, 2026, and for loans that mature after December 31, 2026. Additionally, ARPA funds deposited into a revolving loan fund, or a CDFI structured as such, will follow the same approach as loans maturing after December 31, 2026.[1] The Final Rule provides guidance for loans below:

For loans that mature or are forgiven on or before December 31, 2026, the recipient must account for the use of funds on a cash flow basis, consistent with Treasury’s guidance regarding loans made by recipients using payments from the Coronavirus Relief Fund. Recipients may use SLFRF funds to fund the principal of the loan and in that case must track repayment of principal and interest (i.e., “program income,” as defined under 2 CFR 200). When the loan is made, recipients must report the principal of the loan as an expense.

Repayment of principal may be re-used only for eligible uses and is subject to restrictions on the timing of the use of funds. Interest payments received prior to the end of the period of performance will be considered an addition to the total award and may be used for any purpose that is an eligible use of funds under the statute and final rule. Recipients are not subject to restrictions under 2 CFR 200.307(e)(1) with respect to such payments.

For loans with maturities longer than December 31, 2026, the recipient must estimate the cost to the recipient of extending the loan over the life of the loan. In other words, at origination, the recipient must measure the projected cost of the loan and may use SLFRF funds for the projected cost of the loan. Recipients have two options for estimating this amount: they may estimate the subsidy cost (i.e., net present value of estimated cash flows) or the discounted cash flow under current expected credit losses (i.e., CECL method).[2]

How should CDFI funds remaining past December 31, 2026, be handled?

As indicated above from the Final Rule, for loans that mature or are forgiven on or before December 31, 2026, the recipient must account for the use of funds on a cash flow basis. For loans with maturities longer than December 31, 2026, the recipient may use funds only for the projected cost of the loan. Recipients would not be subject to restrictions under 2 CFR 200.307 (e)(1) and need not separately track repayment of principal or interest. Furthermore, timing is still paramount under the Final Rule relative to costs incurred and obligation:

SLFRF funds must be used to cover “costs incurred” by the recipient between March 3, 2021, and December 31, 2024. The interim final rule provided that SLFRF funds must be obligated by December 31, 2024, and expended by December 31, 2026. In using SLFRF funds to make loans, recipients must be able to determine the amount of funds used to make a loan and must comply with restrictions on the timing of the use of funds and with restrictions in the Uniform Guidance.[3]

Municipalities must ensure that loans are obligated by December 31, 2024, and are expended by December 31, 2026. Lastly, remaining CDFI funds or funds from loan repayments past December 31, 2026, no longer adhere to the obligation and expense deadlines.