Looking to aid the expected vanguard of economic recovery, the state of New York is creating a $50 million revolving loan fund for small businesses blocked from access to traditional sources of credit.
Half of the funding, $25 million, will come from private lending institutions that will match the state”™s contribution to businesses. Those alternative lenders will submit competing proposals to the Empire State Development agency to participate in the program.
“Our goal is to get the money out on the street in 18 to 24 months,” said Steven Cohen, ESD deputy commissioner for economic empowerment. Cohen said the state”™s $25 million share will be drawn from its general fund and from the New York Power Authority budget.
Counties in which businesses receive power from NYPA will be guaranteed a share of the funding, Cohen said. The program, though, will not target only economically depressed upstate areas. “The goal of this program is to have complete geographical coverage in New York state,” Cohen said.
Gov. David A. Paterson recently announced the creation of the revolving-loan fund, which he first proposed in his 2010 State of the State address and included in his 2010-2011 executive budget. Establishing the fund was a key recommendation of the governor”™s appointed Small Business Task Force in 2009.
Paterson in a statement called the public-private fund a culmination of his efforts “to expand opportunities for small businesses, to double alternative lending resources for entrepreneurs and increase the participation of minority and women-owned business in government contracting ”¦ A more diverse and competitive business climate will mean more jobs and more money in the pockets of hardworking New Yorkers.”
“This fund is essential,” Cohen said. “This is critically important because small businesses are typically the job creators coming out of a recession.” Spurring recovery, small businesses sometimes resume hiring even while larger companies continue to downsize after a recession, he said.
Empire State development officials said the funding, which will range from microloans to larger long-term loans, will be targeted to mom-and-pop businesses, retail, service and manufacturing companies. Startups also may be eligible if they meet certain conditions, such as having a credible business plan, collateral and a track record of other business success.
A qualifying small business is defined as resident in New York, independently owned and operated, not dominant in its field and having 100 or fewer employees.
The loans may be used for working capital, to acquire or improve real property and to acquire machinery and equipment. Unusual for government lending programs, the loans also may be used to refinance debt obligations, a key benefit for struggling businesses, Cohen said.
Cohen said the state”™s lending contribution will not exceed $125,000. Participating private lenders, though, can exceed the program”™s 1-to-1 match and offer loans greater than $250,000.
The state”™s selected funding partners could include community development credit unions and financial institutions, microlenders and regional community lenders such as the five-county Mid-Hudson Regional Revolving Loan Trust Fund administered by the Orange County Chamber of Commerce, Cohen said. The program likely will have loan-loss provisions for lenders, he said.
“This addresses a real crisis for businesses,” many of which have incurred high-interest credit card debt as banks have tightened their standards for small-business lending and are making fewer loans, Cohen said.
In New York state, bank lending through the U.S. Small Business Administration 7(a) guaranteed-loan program plummeted from $700 million in fiscal year 2007 to $413 million in fiscal year 2009, Cohen said.
Banks”™ SBA loan volume this year is on pace to exceed last year”™s level, “so they”™re trending more in the right direction,” he said. “We”™re encouraged, but there”™s still great need out there.”
