The Structure
A rate buy-down is not a grant. It is a quarterly interest subsidy paid to CDFI partners, reducing the borrower's effective rate. Here is exactly how the mechanics work.
Each party has a clear role. The borrower sees only their CDFI lender. ARC Fund operates in the background.
Foundations and impact investors contribute to the ARC pool. Capital is deployed as quarterly subsidies across the active loan portfolio.
Provides CapitalARC certifies eligibility, administers the subsidy pool, and pays CDFI partners quarterly. ARC holds no credit risk and no lien.
Pays SubsidyCDFI partners underwrite, originate, and service the loan under their existing standards. They retain full relationship with the borrower.
Lends and ServicesThe borrower receives a loan at 300 bps below the standard CDFI rate. One loan, one payment, one lender. The pool is invisible.
Accesses CapitalThe subsidy method is the flat monthly payment difference, not a declining balance. ARC pays a fixed quarterly amount per active loan regardless of outstanding balance.
CDFI submits a portfolio report within 15 calendar days of quarter end listing all active qualifying loans.
Complete portfolio report due from CDFI. Late or incomplete reports delay the payment cycle.
ARC pays within 15 days of receiving a complete report. Maximum 30 days from quarter end to payment receipt. Net of service fee.
Adjust loan size, term, and standard rate to see the exact subsidy, borrower savings, and net pool cost.
Three fee streams cover operating costs and align incentives across all parties.
| Fee | Rate | Who Pays | Who Receives | Timing | On $150K Deal |
|---|---|---|---|---|---|
| Origination Fee | 1% of principal | Borrower (via CDFI at close) | CDFI collects, remits to ARC | At loan closing | $1,500 |
| Service Fee | 3% of total subsidy | CDFI | ARC Fund | Netted from quarterly payment | $230 |
| Management Fee | 1% of pool capital/year | Pool (charged annually) | ARC Fund | Year 2 onward | N/A (pool-level) |
The CDFI receives one net payment each quarter: the full subsidy minus the 3% service fee. No separate invoice. No wire transfers back and forth. Origination fee is 1% of loan principal, collected at closing.
| Item | Amount |
|---|---|
| Origination fee retained | $1,500 |
| Interest income at 9% over 60 months | $36,808 |
| Gross revenue | $39,058 |
| Service fee remitted to ARC | ($230) |
| Loan loss provision (3%) | ($4,500) |
| Estimated servicing costs | ($2,500) |
| Net CDFI income | $31,828 |
| Net annual yield on capital | ~4.2% |
A direct grant achieves the same borrower benefit at higher cost, with less leverage and no lasting credit history for the borrower.
Leverage is calculated as full loan principal divided by philanthropic cost per deal ($150K / $6,428 for ARC Fund, $150K / $7,698 for a direct grant). This reflects the loan amount unlocked per dollar deployed, not capital directly transferred. The more conservative and auditable comparison is cost per deal: ARC Fund costs $1,270 less than a direct grant to produce the same monthly payment reduction for the same borrower.
The grant model wins when speed matters more than efficiency (post-disaster context), when deal volume is below 5 per year, or when funder appetite for structured vehicles is low.
Explore the full CDFI partner network, review funder commitment options, or reach out to request the replication playbook.