Two organizations representing community lenders and small businesses have filed a lawsuit against the Trump administration, demanding the release of hundreds of millions of dollars in funds that Congress appropriated for the Community Development Financial Institutions (CDFI) Fund. The legal action, announced Tuesday, argues that the executive branch is unlawfully withholding money that was approved with bipartisan support and is essential for small business lending across the country.
The CDFI Fund, a Treasury Department program, provides capital to community-based lenders that serve entrepreneurs often overlooked by mainstream banks. According to the plaintiffs, the program leverages $8 in private investment for every $1 of federal funding, making it a rare example of a successful public-private partnership. Since its creation in 1994, the fund has directed billions of dollars to small businesses in rural, urban, and Native communities, with institutions operating in all 50 states and nearly every congressional district.
Congress appropriated $324 million for the CDFI Fund in fiscal 2025 and again in fiscal 2026—the largest core funding levels in the program's history. The appropriations passed with strong support from both parties, reflecting the program's widespread appeal. However, the Trump administration has taken what the plaintiffs describe as "hostile actions" against the fund, culminating in the current withholding of funds that are required by law to be disbursed to certified CDFIs by September 30, 2026. If the fiscal 2025 funds are not released by that deadline, they will expire permanently.
"This isn't a policy disagreement we can resolve by waiting it out," said Carolina Martinez, CEO of CAMEO Network, one of the two groups filing the lawsuit. "When the executive branch declines to spend money Congress has lawfully appropriated for its intended purpose, the administration is not exercising discretion—it is overriding the constitutional authority of the legislature." Martinez's organization, along with Inclusive Action, led by President and CEO Rudy Espinoza, represents hundreds of community lenders and small business support providers nationwide.
The lawsuit highlights the real-world consequences of the funding freeze. Lenders are shelving loan pipelines and turning away small business borrowers because they cannot plan around money that was approved but never delivered. The plaintiffs point to specific examples: a bakery in rural Idaho that secured its first line of credit, a childcare provider in Detroit that used capital to become licensed and expand, and a manufacturer in North Carolina that added a second shift after purchasing new equipment.
"Members of Congress from both parties understand this," the plaintiffs wrote in a statement. "Hundreds of members have gone on record in support of the CDFI Fund because they have seen its impact in their districts." The program's bipartisan backing is notable in an era of deep political division, and the lawsuit argues that the administration's actions violate the separation of powers by effectively overriding Congress's spending decisions.
Legal experts say the case could set a precedent for how much discretion the executive branch has over congressionally appropriated funds. The plaintiffs are seeking a court order to compel the Treasury Department to disburse the funds immediately, arguing that every month of delay means loans not made, jobs not created, and small businesses left to fend for themselves.
The lawsuit is the latest in a series of legal challenges to the Trump administration's handling of federal spending. In a related matter, Senate Democrats have demanded answers about $1 billion in student loan funds that they say are being withheld. Additionally, lawmakers have pressed the Department of Homeland Security to release election security funds.
For now, the CDFI Fund lawsuit represents a high-stakes battle over the fate of small business support programs that have long enjoyed bipartisan backing. As Espinoza put it, "Small businesses in every congressional district in America can't afford to be kept waiting."
