A consortium of 38 municipalities including the City of Bowman is expected to finalize agreements in August to receive a $9.7 million allocation from the U.S. Department of Treasury for a business loan program.
Posted on August 9, 2012
A consortium of 38 municipalities including the City of Bowman is expected to finalize agreements in August to receive a $9.7 million allocation from the U.S. Department of Treasury for a business loan program. The City of Mandan Business Development and Communications Office and the Lewis and Clark Regional Development Council submitted applications last September on behalf of Mandan, 36 cities and the Standing Rock Sioux Tribe to participate in the State Small Business Credit Initiative, established by the Small Business Jobs Act of 2010.
The consortium received notice in late June of approval by the U.S. Department of the Treasury. The consortium as a whole is eligible to receive $9,710,768 to support a loan participation program for small businesses to help them expand and create jobs. The allocation is based on the population represented by the consortium as a pro-rata share of $13.1 million available for North Dakota in relation to the population represented by another consortium, led by the City of Carrington.
“As banking regulations become tighter and property values rise, traditional finance methods don’t always work for the average entrepreneuer,” said Ashley Alderson, Bowman County Development Corporation executive director. “Thankfully, we have tools like this to bring projects to completion.”
While the City of Bowman is named in the consortium, according to Alderson, the business loan dollars will be available to all business within the county.
The other municipalities approved to participate in the State Small Business Credit Initiative as part of the Mandan consortium are the cities of Almont, Beach, Beulah, Bismarck, Bowman, Carson, Casselton, Crosby, Dickinson, Dodge, Dunn Center, Fargo, Garrison, Glen Ullin, Halliday, Hazelton, Hazen, Hebron, Hettinger, Killdeer, Lincoln, Linton, McClusky, Minot, Mott, New England, New Salem, Regent, Sentinel Butte, Steele, Turtle Lake, Underwood, Watford City, West Fargo, Williston and Wilton.
Loan Program Overview
The Mandan-led consortium has 90 days from closing, expected to be Aug. 31, to establish its loan participation program. The LCRDC, which has offices in Mandan, will administer the loan program in which a lender originates a senior loan and the SSBCI funds provide for a second, subordinate loan to the same borrower.
The program must ultimately leverage the federal dollars to generate at least $10 in new small business investment for every $1 of SSBCI support. It targets loans with an average principal of $5 million or less and cannot extend loans that exceed a principal of $20 million. The consortium’s application stipulates a maximum direct loan size of $1 million supporting loans up to $10 million. The loan participation program can fund up to 50 percent of an eligible business project, but will generally be at level of 20 percent.
Eligible use of loan proceeds includes business start-up costs, working capital, business procurement, franchise fees, equipment, inventory, and the purchase, construction, renovation or improvements of an eligible place of business. It is not limited to manufacturing, processing or other businesses that generate new wealth. Lending is allowed to retail and service businesses, too. Loans are allowed on real estate if primarily owner-occupied, but not if generally for sale, lease or investment.
The program targets an average borrower size of 500 employees or less and cannot be extended to borrowers with more than 750 employees.
The loan participation program will offer rates ranging from 4 percent to market rate. Projects perceived as having a high development impact or providing assistance to minority or under-served persons, or businesses impacted by natural disasters, are eligible for the most attractive rates. The length of a loan varies by asset type: 10 to 20 years for real estate, 3 to 10 years for machinery and equipment, 1 to 5 years for inventory and working capital, and about 18 to 24 months for construction loans.
The program will allow for loans of up to 100 percent of the value of collateral. The origination fee is up to 2 percent with payment required for all hard costs including mortgage filing fees, lien fees, title searches and credit reporting fees.
As dollars are loaned to businesses, repayments from recipients will replenish the program fund, allowing it to revolve and continue to provide assistance for years to come. The program should be up and running by December.