Nearly $290 million that Congress already approved for community lenders is sitting frozen at the Office of Management and Budget, and a group of California-based nonprofits just went to court to pry it loose before the money vanishes for good on September 30, 2026.
On August 14, a coalition led by Inclusive Action for the City, a certified Community Development Financial Institution (CDFI) in Los Angeles, filed a federal lawsuit against the Trump administration. The suit alleges the White House and Treasury Department are illegally withholding grants that were supposed to flow to community banks, credit unions, and nonprofit loan funds across the country.
What are CDFIs and why the money matters
CDFIs are mission-driven lenders, including small banks, credit unions, and loan funds, that serve borrowers traditional banks typically won’t touch. They operate in low-income, rural, and minority communities, extending microloans and small-business financing to entrepreneurs who lack the credit history or collateral for conventional bank products.
Congress has provided roughly $324 million a year for the CDFI Fund in both fiscal 2025 and fiscal 2026, rejecting the administration’s proposals to slash the program. But the OMB has held back about $289 million of the fiscal 2025 appropriation, and those dollars expire at the end of September if they are not committed to grantees.
The administration has also delayed posting application notices for several CDFI Fund programs, meaning lenders cannot even apply for available capital. As Funder Intel reported in May, “if the applications aren’t released and processed before September, the money disappears.”
A ticking clock for small-business borrowers
The practical risk for small-business owners is straightforward. CDFIs use these federal grants as seed capital, often leveraging each public dollar with private investment to make far more lending possible. If that seed money evaporates, lending pipelines shrink, and the borrowers who depend on them have fewer options.
Business owners who work with CDFIs or plan to apply for community-lender financing should stay in close contact with their local CDFI about loan availability. It also makes sense to line up alternative funding sources, whether state programs, credit unions, or other mission-driven lenders, rather than counting on a single federal pipeline that is currently locked up in litigation.
The bipartisan Senate CDFI Caucus, co-chaired by Sen. Mark Warner (D-Va.) and Sen. Mike Crapo (R-Idaho), has pushed the administration to release the funds. The GOP-led House Appropriations Committee has also moved to keep CDFI funding largely intact for fiscal 2027, approving about $277 million and once again sidestepping White House requests for deep cuts.
The lawsuit now puts the question to a federal judge. With barely six weeks until the September 30 deadline, the outcome will determine whether hundreds of community lenders keep a critical source of capital or lose it permanently.
