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Update on

Update on. Economic Development Council Winter Conference – February 2006. Overview of Program. Program makes funds available at reduced interest rates to lenders who agree to make reduced interest rate loans to small business borrowers. State invests in a CD with participating bank.

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Update on

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  1. Update on Economic Development Council Winter Conference – February 2006

  2. Overview of Program • Program makes funds available at reduced interest rates to lenders who agree to make reduced interest rate loans to small business borrowers. • State invests in a CD with participating bank. • State agrees to accept a below-market rate for the CD. • The amount of the reduced rate is passed through to borrower • Program has existed since the late 1980’s under several different names: • MO BUCKS • Missouri First • BIG Missouri • SB 270, passed in 2005, made several major changes to program • New “BIG Missouri” program was launched on Sept. 30, 2005

  3. Linked Deposit Process • Borrower applies to participating bank for a loan. • Participating bank must have a depository contract with State • The Bank assesses the creditworthiness of Borrower. • If a loan is approved, Borrower completes Linked Deposit application. • State Treasurer’s Office determines eligibility for Linked Deposit program, and if approved, notifies Bank. • Bank sends collateral and State transmits deposit to Bank. • Bank processes new reduced-rate loan to Borrower. • Borrower uses funds to purchase inventory, expand business, hire new workers, etc.

  4. Linked Deposit Rate Process • The interest rate on the deposit with the Bank is set at a below-market rate. The difference is passed through via the loan rate paid by the Borrower. • For example, for loans over $100,000: Loan Rate to Borrower • Loan rate is set at 70% of Bank’s normal loan rate Bank’s Loan Rate (8.00%) x 70% = 5.60% (New Loan Rate to Borrower) Deposit Rate Received by State • Deposit Rate with Bank is set based on comparable Treasury rate to equate to 2.40% reduction on the loan rate. • Current 1 year Treasury Rate = 4.60% - 2.40% = 2.20% on State’s CD with Bank • Most linked deposits are renewed for a maximum 5-year term, with interest rates reset annually

  5. Savings to Linked Deposit Borrowers • Electronics Manufacturing Plant – southeast Missouri • Amount of Linked Deposit = $450,000 • Normal Borrowing Rate = 6.90% Linked Deposit Rate = 4.83% Interest Rate Reduction = 2.07% • Annual Debt Service Savings = $9,300/yr., or more than $46,000 over 5 yrs. • Nursing Home – southern Missouri • Amount of Linked Deposit = $465,000 • Normal Borrowing Rate = 6.50% Linked Deposit Rate = 4.55% Interest Rate Reduction = 1.95% • Annual Debt Service Savings = $9,000/yr., or more than $45,000 over 5 yrs.

  6. Expansion of Program Authorized by SB 270 • SB 270 doubled the allocation for each Linked Deposit program

  7. Other Major Changes Authorized by SB 270 • New Facility Borrower program for: • Renewable Fuel Production Facility, or • Development facility producing a value-added product • Revised Linked Deposit Rate Calculation • New floor of 1% on State deposits • New formula in place when Treasury rates are below 5% • Collateralization Changes • Expansion of securities and asset classes allowed for pledging • New, lower collateralization margins for most asset classes • Staff has expanded the types of bonds and CMO’s that may be pledged

  8. Other Major Changes Authorized by SB 270 Changes to the Structure and Terms of Deposits • Elimination of maximum loan amounts for most programs • Elimination of 5-year cap for previous applicants (but preference for new applicants) • Preference for minority/women-owned businesses • Multi-year loans/deposits authorized • Repayment Provisions for Early Pre-payment of Loans are simplified

  9. Small Business Program • Requirements: • Borrower must be headquartered and operating in Missouri • Must have less than 25 employees • Funds can be used to refinance existing qualifying loan • Eligible Expenses: • Inventory • Rent, utilities, insurance, or taxes • Professional fees • Equipment purchase, rental, or lease • Renovations, repairs, and maintenance of equipment and facilities (i.e. paving, fencing, installation of loading docks, etc.) • Purchase of land and buildings

  10. Small Business Program Scoring Criteria: • Multiplier effect (by industry) • Percentage of Equity • Ratio of amount of deposit to no. of employees (“Bang for the Buck”) • Minority-female owned company • New versus old linked deposit applicant • SBA Loan Guarantee

  11. Small Business Program • Loans Placed Since 10/1/04 • Has ranged from $10,000 to $750,000 • Average Amount of Linked Deposit = $140,000 • Examples of Loans Placed • Transelectric, Inc. – Jackson ($450,000) • Helped preserve jobs in Missouri by helping finance a local buyer for company • Native Stone Winery – central Missouri ($433,000) • Shepherd’s View nursing home – Oregon County ($465,000) • Thompson Sawmill – Oregon County ($180,000) • Northern Missouri Eye Center – Kirksville ($50,000) • Morrison Apparel – Chamois ($80,000)

  12. Small Business Linked Deposits Shepherd’s View Home Native Stone Winery Northern Missouri Eye Care

  13. Job Enhancement Program Job Creation: • Borrower must be headquartered and operating in Missouri • Borrower must have 10 or more employees with benefits • 1 job must be created/retained per $25,000 received • Not renewable* Job Retention • A plant or company will be shut down without assistance in refinancing debt. • A plant or company is being sold, and financial assistance is needed for a prospective buyer who wishes to keep the company in Missouri. • A plant must renovate, modernize or upgrade their facility to comply with regulatory or other requirements, or else the company must shut the facility down.

  14. Farm Operations Program Requirements: • Must have fewer than 10 employees • Equity (total assets less total liabilities, divided by total assets) can not be more than 60% • Borrower must be headquartered and operating in Missouri • For operating expenses, purchase or expansion of buildings, but not land • Projected farm income > non-farm income

  15. Beginning Farmer Program Requirements: • Funds can be used for property purchase • In previous 5 years has not owned acreage in excess of 50% of the average size of a farm in the county they are farming in or own farmland with an appraised value over $450,000 • Projected farm income > non-farm income

  16. Facility Borrower Program Requirements: • Must produce a good derived from an agricultural commodity or be a renewable fuel production facility • Must meet MASBDA qualification criteria • Deposit cannot exceed 70% of total cost of facility. For a refinancing, cannot exceed 90% of fair market value of facility • Loan may be syndicated among third parties • Must be partnership, corp. or LLC organized in Missouri and own or operate facility in Missouri • Entity must hold a majority of the governance or voting rights of entity and control hiring and firing of management

  17. For More Information • Resources • Internet: www.BIGMissouri.com • Application Forms • Overview of Eligibility Requirements • Conflict of Interest Policy • Phone: (573) 751-2372 • State Treasurer’s staff is available for additional training for banks or economic development staff • For copies of presentation, e-mail Mark.Mathers@treasurer.mo.gov

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