How do community development organizations pay for pre-development?

What are the main sources of pre-development capital?

Community development organizations fund pre-development from four primary sources, each with different terms, timelines, and strings attached.

1. Federal grants — CDBG and HOME funds passed through states and cities
2. CDFI pre-development loans — from intermediaries such as LISC, Enterprise, and regional community loan funds
3. Foundation program-related investments (PRIs) — low-interest loans from foundations
4. Philanthropic grants — outright grants from foundations and corporate sponsors

The mix matters. The organizations that succeed layer multiple sources rather than relying on one — and the layering is not a preference, it is a necessity, because no single source covers the full pre-development cost of a community facility.

Recent research on organizations developing institutional and faith-owned property identifies lack of pre-development capital as one of four primary barriers, alongside limited organizational capacity, complex ownership systems, and the absence of proven models (RootedGood, Fieldworks Initial Research Report, September 2025). The Urban Institute's work on smaller and younger development organizations reaches a compatible conclusion: cost- and time-prohibitive requirements are what block them, and subsidized low-interest pre-development loans and grants are the recommended remedy (Theodos et al., Housing Developers in Chicago, Urban Institute, August 2024).

How do CDBG and HOME funds work for pre-development?

The Community Development Block Grant (CDBG) program provides federal funds to states and cities, which then award them to activities that benefit low- and moderate-income communities. Allocations are published annually by HUD and split between entitlement communities and the State CDBG program for non-entitlement areas, so the right question is not what your state received but which pot your jurisdiction draws from and what its published priorities are.

HOME Investment Partnerships Program funds can also support pre-development. HOME carries a match requirement: participating jurisdictions must contribute at least 25 cents for every dollar of HOME funds spent on affordable housing — one dollar of non-federal match for every four dollars of HOME money (24 CFR 92.218; HUD Exchange). Note that the match obligation sits with the participating jurisdiction, not with the project sponsor, though jurisdictions often look to sponsors to help satisfy it. CDBG has no match requirement but is more competitive.

Where do pre-development loans actually come from?

This is the most common misconception in community development finance. Most state housing finance agencies do not run a pre-development loan program at all. The pre-development lending market is served primarily by CDFIs.

LISC, for example, publishes the following terms for its pre-development lending (LISC Loan Products):

Enterprise Community Partners and regional community loan funds offer comparable products on their own terms. Before assuming a program exists, call the lender — and check your own state, because a handful do offer gap or early-stage products under names that vary considerably.

These loans are at-risk capital. If the project doesn't proceed, the loan generally still has to be repaid. If it does proceed, the balance is typically absorbed into the construction or permanent financing at closing.

How do foundation PRIs and grants fit in?

Program-related investments are below-market loans from foundations, and their key feature is structural: a PRI counts toward a private foundation's 5% minimum annual distribution requirement, which is why a foundation can make one without it competing against its grant budget in the way a market-rate investment would (IRS, Program-Related Investments).

That makes PRIs patient money, and it makes them well suited to pre-development, where a conventional lender would decline outright. They are underused mostly because organizations don't know to ask.

Philanthropic grants are outright gifts — no repayment, no equity. They're the most flexible pre-development capital but also the most competitive. Local and regional community foundations often have the most flexibility for early-stage work, though many decline feasibility studies on principle, treating them as the lead organization's own responsibility.

What does nSCALE recommend?

nSCALE recommends a layered approach:

1. Start with a Level 1 scope ($5,000–$15,000) funded by a small grant or organizational reserves
2. Use the Level 1 deliverable to apply for a CDFI pre-development loan or a foundation PRI
3. Use that capital to fund Level 2 and Level 3 underwriting
4. Use the Level 3 underwriting package to apply for tax credits and permanent financing

The key is to never spend your own money on a full study before you've tested the site with a Level 1 scope. The Level 1 deliverable is the document that unlocks the pre-development loan — it shows the lender that the site has been screened by a professional.