If you’re a banker serving small businesses, you seek innovative strategies that align your bank’s goals with opportunities to better serve your customers—and helping your bank earn Community Reinvestment Act (CRA) credit is one way to achieve this.
CRA is an important piece of banking legislation that dates back to 1977. However, it has evolved into a catalyst for community development and a powerful relationship building tool.
In this guide, we walk you through the basics of CRA and how understanding and embracing its principles can transform compliance requirements into impactful business development opportunities.
CRA explained beyond regulatory compliance
The Community Reinvestment Act (CRA) is a federal law that was created to ensure fair access to banking services for everyone. Federal regulators regularly evaluate banks to see how well they’re serving all parts of their communities, including lower-income areas. Banks receive ratings based on these evaluations, which show whether they’re meeting local needs, especially in underserved neighborhoods.
While following CRA is required, it’s more than just a box to check. It’s an opportunity for banks to be active, positive forces in all the neighborhoods they serve. By complying with CRA, banks also:
- Help build stronger communities, particularly in the markets where your bank does business
- Gain competitive advantages by serving markets where other lenders aren’t focused
- Develop better relationships with all their customers
Understanding CRA credit
At your bank, you may hear colleagues talking about “earning CRA credit.” CRA credit forms the foundation of your bank’s CRA rating and represents documented activities that demonstrate its commitment to serving people and businesses throughout its markets. Banks earn CRA credit through three primary activities:
- Lending: Supporting underserved communities by providing small business loans under $1 million, mortgages in low- to moderate income areas or to people living with low- to moderate incomes, and creating innovative lending programs that demonstrate commitment to local economic development. Lending activities make up 50% of a bank’s overall CRA rating.
- Investment: Providing critical capital to the community through equity investments, grants to nonprofit organizations, and support for affordable housing to create lasting economic growth in underserved communities.
- Service: Empowering communities through financial education, technical assistance to small businesses, leadership on community boards, and having branch presence in underserved areas.
CRA performance ratings are based on the number of credits a bank earns and the rating can impact everything from branch expansions and merger approvals to community goodwill.
The ratings are:
- “Outstanding,” which demonstrates exceptional performance and comprehensive and innovative community investment.
- “Satisfactory,” meaning a bank consistently meets the primary objectives of the CRA.
- “Needs to improve,” which indicates significant gaps in community lending and investment that require strategic intervention.
- “Substantial noncompliance,” which signals serious deficiencies in meeting CRA obligations.
The small business banker’s role in earning CRA credit
Small business lending plays a crucial role in CRA evaluations, making frontline bankers essential partners in your bank’s compliance efforts. Your day-to-day work building relationships with economic development organizations, participating in community initiatives and events, and finding financing solutions for your clients are all CRA credit-generating activities.
And as we touched on earlier, CRA is about more than compliance—it creates a win-win-win strategy for your bank, especially when that credit is earned by referring a small business owner to a community lender for financing:
First win: Benefits for your bank
- Client retention: Keep deposit relationships intact and create goodwill among your small business clients, even when you can’t make the loan.
- Reduced acquisition costs: Avoid the expense of lost client relationships by offering alternatives to small business clients who need financing.
- Creation of a lending pipeline: Strengthen long-term lending potential by helping small business clients access financing through Grow America today—and when their businesses become bank-loan ready, they’ll return to you, because you helped them when they needed it most.
Second win: Benefits for your small business owners
- Access to capital: Connect clients with financing options focused on small business success while retaining their trusted banking relationship with you.
- Seamless experience: Offer a professional handoff rather than sending them shopping, demonstrating that you’re an ally in their success.
Third win: Benefits for your markets
- Sustainable local economic development: Strengthen the local economy through small business formation, expansion, and growth, as well as job creation.
- Community reinvestment: Grow capital infusion in areas that need it most through referrals for small business financing in LMI communities.
Partnering with a non-depository community development lender, like Grow America, can help you earn CRA credit, build goodwill, and create lasting positive impact while keeping your deposit relationships strong.
Transform your approach to CRA compliance with Grow America
The difference between merely meeting CRA requirements and truly leveraging them for strategic advantage often comes down to having the right partners. Grow America’s referral program offers that advantage—bridging the gap between regulatory compliance and relationship banking.
Through our intuitive online portal, every client referral is seamlessly documented for potential CRA credit while providing your clients with the capital they need to thrive. When you can’t say “yes” to the loan, you can still say “yes” to the relationship. Learn more about becoming a Grow America partner today.