In the current jobless recovery, people are running out of unemployment benefits before they find job openings. Some may look to starting a small business of their own, but who would loan them money without a track record? Certainly not banks.

For such local entrepreneurs, the answer has been non-profits like Community Capital Development. CCD has provided $26 million to more than 1,000 previously "unbankable" local businesses, including Plum Bistro, Bedrock Industries and Utilikilts.

CCD-backed businesses create and sustain hundreds of local jobs, most of which go to people with low-to-moderate incomes. For entrepreneurs with a solid business plan and 10 percent of the capital, CCD provides a fixed-rate loan over five years plus free business counseling and subsidized accounting and marketing services. It charges 9 percent interest on loans.

CHRIS MUNFORD

Bedrock Industries, which turns recycled glass into art, is one of CCD's success stories.

But CCD ultimately relies on banks for capital to lend. In the current economy, that has dried up, and Chief Executive Jim Thomas worries about the fallout on struggling enterprises.

"They can't go to a bank," he told me over lunch recently. "They'll struggle along but they won't be able to grow. They'll go to the credit cards, which are at least 18 percent. they'll end up paying interest only. At interest only, you can never reduce that debt."

Another blow was losing Washington Mutual, which was one of CCD's top lenders. The new owner, JPMorgan Chase, does not lend to CCD. Washington Mutual was closed by the government a year ago in the largest bank failure in U.S. history. Its assets were sold to JPMorgan for $1.9 billion.

Meanwhile, CCD is down to microloans, funded by the Small Business Administration. The trouble is borrowers can get only one, and it's usually not enough to get a business off the ground in the U.S.

The problem is much bigger than CCD. The entire industry of Community Development Financial Institutions, a category of firms known as CDFIs that provide credit, financial services and training to under served markets, has been hit hard by the credit crunch. The segment that serves the least advantaged is suffering from a problem brought on largely by the mistakes and greed of bigger banks and Wall Street, now the beneficiaries of billions in bailout money.

Janet Ozarchuk, vice president and treasurer of the Local Initiatives Support Corporation (LISC), said her institution received some help recently from Bank of America. But banks in the first two quarters of 2009 didn't lend a single dollar to CDFIs, she said.

"The grant dollars have hung in there, but a good part of funding comes from banks," she said. "That has just been devastated."

"We have one of the strongest balance sheets of any non-profit," Thomas said. "We are not leveraged. But we cannot borrow money because it's not available."

Some efforts have begun to address the problem.

Community development non-profits may be able to raise capital from foundations' Program Related Investing (PRIs). In the current economy, foundations are exploring ways to make more social impact with their assets. PRIs can be used to guarantee loans and bring other investors and banks into the deal, said Ozarchuk.

Last month Senators Jeff Merkley (D-OR) and Barbara Boxer (D-CA) introduced legislation to extend credit to small businesses by allocating existing TARP funds to community banks.

Banks that get such federal help would be required to generate new credit equal or greater to the amount of capitalization received from the federal government. By the end of 2010 the bank would be required to increase overall business loans outstanding by at least 5 percent over the lowest level reached in 2009.

Untested borrowers are a higher risk. Many banks, whether commercial or community or even credit unions, are interested in making low interest loans for community development non-profits "only because they have some legal obligations to fulfill," says CCD's Chief Operating Officer Hongqing Chen.

The bill has the potential to be effective "if and only if it requires a certain percent of new business loans be made to distressed communities and low to medium income borrowers," she said.