Equalize Community Development Fund Overview
The Equalize Community Development Fund (the “Fund” or “EQCDX”) is a non-diversified, closed-end interval fund that invests primarily in U.S. Small Business Administration (“SBA”) 504 First Lien Loans.
The Fund’s investment portfolio is composed primarily of new production SBA 504 first lien loans. The Fund offers investors a path to claim favorable regulatory consideration of their investment under the Community Reinvestment Act of 1997 (the “CRA”) through either investment or lending test credit. The Fund aims to provide and expand access to bank loans for growing businesses, which could help with job creation, and help provide funding opportunities for companies that may struggle to obtain traditional bank financing.
By participating in the market for SBA 504 Loans the Fund aims to help provide needed capital to underserved markets. Investments with social benefits can be considered ESG (environmental, social and governance factors) investments. Common investor motivations and objectives when considering ESG strategies include integration, values and impact. The Fund serves to integrate small businesses into the banking economy by providing first lien loans that are subordinated by second loans from the Small Business Administration, and borrower capital. Through this lending relationship these small businesses are then able to more fully integrate into the financial system and access funding for the growth and expansion of their business. The SBA 504 program is designed to facilitate lending to minority owned businesses, women-owned businesses, veteran-owned businesses, and those in economic opportunity zones providing socially beneficial value. Over the last five years the SBA 504 loan program has funded almost $24 billion of loans as of September 30, 2019, which have collectively had significant impact on tens of thousands of small businesses in the United States.
504 First Lien Loans are not guaranteed by the SBA, the U.S. government or by its agencies, instrumentalities or sponsored enterprises. The Fund has no limitation on the amount of its assets that may be invested in securities or other financial instruments that are illiquid. Investment in the Fund involves significant risk and is suitable only for persons who can bear the economic risk of the loss of their investment.
Investing in a mutual fund involves risk including the potential loss of principal. There can be no assurance that the Fund will achieve its investment objectives. An investment in the Fund is an appropriate investment only for those investors who can tolerate a high degree of risk and do not require a liquid investment. Investors may lose some or all of their investment in the Fund. The Fund is not designed to be a complete investment program and may not be a suitable investment for all investors.
Capital raised through leverage will be subject to interest and other costs, and these costs could exceed the income earned by the Fund on the proceeds of such leverage. There can be no assurance that the Fund’s income from the proceeds of leverage will exceed these costs. However, the Adviser seeks to use leverage for the purposes of making additional investments only if it believes, at the time of using leverage, that the total return on the assets purchased with such funds will exceed interest payments and other costs of the leverage.
CRA Strategy Risk
The Fund’s goal of holding 504 First Lien Loans so that Fund investors that are subject to regulatory examination for CRA compliance may claim their Fund investment as a community development loan or as a qualified investment under the CRA will cause the Adviser to take this factor into account in determining which loans the Fund will purchase and sell. Accordingly, portfolio decisions will not be exclusively based on the investment characteristics of the 504 First Lien Loans, which may have an adverse effect on the Fund’s investment performance.
504 First Lien Loans are not readily marketable. Illiquid 504 First Lien Loans may impair the Fund’s ability to realize the full value of its assets in the event of a voluntary or involuntary liquidation of such assets and thus may cause a decline in the Fund’s NAV. Shareholders will not have the right to redeem their shares. However, in order to provide some liquidity to shareholders, the Fund will conduct periodic repurchase offers for a portion of its outstanding shares.
The Equalize Community Development Fund is distributed by Foreside Fund Services, LLC which is not affiliated with Equalize Capital or any affiliate. Foreside is not a registered investment advisor and does not provide investment advice.