Your state may have money to lend you
When small businesses go looking for government help with loans and expansion financing, they often turn to the U.S. Small Business Administration.
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While the SBA can be a good source for loan assistance, there's another government source that often gets overlooked: state and local governments.
Yes, we said state and local governments. Even with all the pressures state budgets are under due to the recent economic slump and the federal government cutting back on payments to the states, there are still many state-run and state-subsidized loan programs that can help small businesses.
Just a few examples
Here are just three examples of state-run or state-subsidized loan programs currently operating:
| • | The Rhode Island Small Business Loan Fund Corporation, part of that state's Economic Development Corporation (www.riedc.com), has more than $8 million in small-business loans outstanding and has another $4 million in loan money available. Qualifying small businesses can borrow up to $250,000 on a loan that they can take up to seven years to repay. |
| • | Small manufacturing businesses in Ohio can borrow up to $350,000 from the state's "Regional 166 Program" for purchasing fixed assets such as machinery and equipment. "Typically, a banker might lend you 50% of the purchase price of the assets. We will lend 40%, and you'll put in 10% of your own money," says Cincinnati-based David Main, president of the Hamilton County Development Corp. (www.hcdc.com), which administers the program in eight southwest Ohio counties. |
| • | Virginia small businesses can get seven-year loans of up to $500,000 from the Virginia Small Business Financing Authority (www.dba.state.va.us). The loans are restricted to businesses with net worth of $2 million or less, fewer than 250 employees, or $10 million or less in annual revenues over the last three years. |
Good rates, some restrictions
Perhaps most surprising, the interest rates and terms on loans or loan guarantees can be more than competitive -- they can be better than you could get anywhere else. Ohio's regional program offers an interest rate of about two-thirds the current prime rate (which worked out to about 2.75% in February 2004). Rhode Island charges 1 percentage point above prime, or 5% currently, on its loans. And these rates don't float -- once you have the loan, the interest rate is locked in as long as you stay current with your payments.
"Our purpose and motivation here is job creation," says Earl Queenan, director of accounting and finance for the Rhode Island Economic Development Corporation. "We are not a bank, and we have a little more flexibility in terms of making decisions."
Indeed, adding to the employment base is the goal and the requirement of many of these loan programs. In some cases, creating new jobs is a condition of getting the loan.
"We are looking for companies that are going to expand in Ohio and create jobs," says Main. "Businesses have to create one new job for every $35,000 borrowed."
Virginia's program requires that you create at least two new full-time positions paying at least $8 an hour for every $100,000 of loan money received.
There can be other requirements as well. For example, the Ohio regional loan program is available for new business construction, but you'll have to be sure to pay prevailing wages in construction. Some programs restrict lending to specific industries, or exclude certain types of companies. For example, loan programs aimed at creating manufacturing jobs may not be available to businesses that are primarily retailers.
On the other hand, programs may be even more attractive for businesses moving into areas of a state that have been especially hard hit economically. Some states and municipalities offer loans that are actually below the prime rate for businesses creating jobs in economically distressed areas.
A state-by-state search
There is currently no one public guide or publication to all the state programs. The SBA does not systemically compile information on state and local lending programs.
"I doubt that you'd ever find one Web site for programs in all 50 states," says Rhode Island's Queenan. "The states are competing for clients and for new businesses. They aren't likely to try and help another state with its own program."
Public-library reference departments can be a good place to start looking for information on state and local programs in your own state. A call to your state department of economic development or regional small-business development center can also help get you started. If you're searching on the Internet, enter the name of your state and "small-business loans" or "economic development business loans" in your search engine.
 | Joseph Anthony |