The Small Business Loan Fund Corporation is getting a lot of attention lately as the credit markets continue to tighten.
A subsidiary of the R.I. Economic Development Corporation, SBLFC is an $11 million revolving fund that lends to small companies in the hopes that it will spur more public- and private-sector financing to help business grow and create more jobs.
SBLFC money can only be used in situations in which private financing alone is not available to finance the entire project, or is not available on terms that will allow the project to go forth. Written documentation in the form of a bank denial letter or a letter from the bank requesting SBLFC’s participation must be provided by the applicant.
Since the fund’s inception, the SBLFC has provided 568 loans to Rhode Island businesses totaling $46 million dollars. This means that the SBLFC has loaned its $11 million dollars out and been repaid 4 times. The SBLFC currently has approximately $9 million outstanding or committed with approximately $2 million currently available to lend.
J. Michael Saul, deputy director of RIEDC, oversees the agency’s lending program. He answered five questions about SBLFC.
PBN: You say the SBLFC is drawing more interest as the credit markets continue to tighten. Can you provide some statistics that illustrate that growing interest – i.e. number of applications compared with previous years?
SAUL: For the fiscal year ended June ’07, 39 SBLFC applications were requested (an average of three per month). For the fiscal year ended June ’08, 67 applications were requested (an average of five per month). Year to date July to September ’09, 22 applications have been requested (an average of seven per month). It should be noted that these figures represent applications requested not applications subsequently received or closed.
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
PBN: Can you give some examples of how the loans are being used?
SAUL: Most of the SBLFC loans are used for general working capital, including inventory purchases, marketing and sales expenses, and hiring new employees associated with growth. SBLFC loans have also been used for machinery and equipment purchases. Recently, the fund has been used to support the expansion of Concordia Medical’s operations in Warwick; the relocation of Inquest from Southboro, Mass., to Providence; and growth capital for North Kingstown-based The Corporate Market Place to expand its operations.
PBN: Has there been any consideration given to expanding the program?
SAUL: Consideration has been given to expanding the program. However, the U.S. Economic Development Administration, which has funded this program, has indicated that no additional funds will be available to expand its SBLF Revolving Loan Fund program. In the meantime, we continue prudently manage the SBLFC to preserve this limited but extremely valuable tool for Rhode Island companies.
PBN: What type of loans does the SBLFC provide and what are the restrictions?
SAUL: SBLFC provides a term-loan product to manufacturing and select service-oriented businesses that are profitable, growing and creating new full-time jobs for the state of Rhode Island. It has provided loans to businesses in nearly every municipality in the state.
Due to its federal funding structure, certain restrictions do apply. Some examples of these restrictions are: no refinancing of existing commercial or personal debt, no mixed residential or residential projects, no speculative commercial building projects, no loans to finance institutions or news media companies, and generally no loans to retailers or restaurants. Additionally, SBLFC loans cannot be used to acquire an equity position in a private business, to subsidize interest payments on an existing loan; provide for borrowers’ required equity contributions under other Federal Agencies’ loan programs. The loans also cannot be used for the purpose of investing in mutual funds, stock, certificates of deposit or interest-bearing accounts.
PBN: How large a loan will the SBLFC consider? What’s the interest rate and repayment term? And do you require security or a personal guaranty?
SAUL: The average loan maximum is $250,000. Manufacturing companies can apply for up to $500,000 provided that no more than $250,000 is for working capital with the remainder being for equipment purchases. On a case-by-case basis, loans greater than $500,000 can be considered if the company meets specific criteria.
SBLFC does have some flexibility over its pricing and repayment terms. The rate is fixed at the time of the loan closing at the Wall Street Prime plus some spread based upon risk. Currently, interest rates are averaging 7 percent to 8 percent.
The repayment term is typically five years straight principal and interest repayment based on a five-year amortization. Under certain circumstances, SBLFC can consider a longer amortization. For example, with purchases of equipment, where the life of the equipment is seven years, SBLFC could consider a seven-year amortization. In circumstances where the projected revenue from the borrower’s expansion is not expected right away, SBLFC can consider a six-month interest-only period.
Business collateral in the form of an all-asset lien on all corporate assets including commercial real estate, if applicable, is required. A personal guaranty of any principal with more than 20-percent ownership is also required. The principal may be required to secure their personal guaranty with a lien on their personal residence if it is determined that there is insufficient business collateral.
