Finding Solutions for Growing Businesses

GOVERNMENT LOAN PROGRAMS

As a small business owner, a variety of government loan programs are available to you. Participation in these programs often makes the difference between a loan being declined or approved. Government loan programs offer other advantages. In many cases they offer a longer period of repayment or amortization, making payments more manageable for the borrower. A government guarantee can often make a lender comfortable with a higher degree of risk than a lender would normally accept.

Many of these programs are designed to assist certain types of businesses, or businesses in certain areas. Knowing about these programs often helps you plan your borrowing more efficiently and realistically.

The following is a listing of the major government loan programs available in Michigan.

Note: the following text often refers to "private-sector lenders". This term included commerical banks, thrift institutions, credit unions or other financial institutions participating in the specified program, as appropriate.

|Federal Programs|State Programs|Local Programs|

FEDERAL PROGRAMS: Small Business Administration (SBA)

7(a) GUARANTY LOAN PROGRAM
Purpose of loan: any
Maximum loan guarantee: $750,000 (actual loan may be greater)
Requirement: requires SBA guarantee approval, personal guarantees of principals always required
Restrictions: certain types of business activities are excluded from SBA financing; check with a private-sector lender for details.
Special features: SBA guarantees up to 90% of loans less than $155,000, 75-85% for amounts greater than $155,000, depending on term of loan.
Interest rate: set by private-sector lender (maximum loan rates set by SBA policy).
Special structure: none
Where to apply: private-sector lender (your lender deals with the SBA; you will have to complete special forms)

DIRECT LOAN PROGRAM
Purpose of loan: any
Maximum loan: $150,000 (subject to change based upon availability of funds).
Restrictions: requires formal declinations from two lenders before application to the SBA.
Special features: certain types of applicants may be specially targeted in the program, such as businesses in high unemployment areas, or business owners who are handicapped (these special focuses vary over time); availability of program subject to funding availability.
Interest rates: set by SBA
Term: set by SBA
Special structure: personal guarantees of principals always required.
Where to apply: SBA, after being declined by two lenders.

504 LOAN PROGRAM
Purpose of loan: real estate construction, purchase of renovation; purchase of machinery or heavy equipment.
Loan partners: loan is extended by a private-sector lender and a local development corporation (LDC) with a "guarantee" by the SBA (in the form of bonds sold on the open market).
Maximum loan: $750,000 for LDC protion.
Restrictions: requires LDC and SBA approval.
Special features: borrower covers 10% of toal needed, private-sector lender lends 50% and SBA lends 40% (through the bond sale)
Interest rate: private-sector portion of loan set by lender; SBA portion is approximately equal to Treasury bill average rate plus one percent (set at time of bond sale)
Term: seven-year minimum term on machinery and equipment for private-sector portion; 10-year minimum for private-sector portion on real estate, 10- or 20-year term for SBA portion.
Special structure: private-sector lender has first lien on all collateral, personal guarantees of principals always required.
Where to apply: private-sector lender and LDC (LDC deals with SBA directly; you do not have to)

MICRO LOAN PROGRAM
Purpose working capital, inventory, supplies, furniture, fixtures, machinery, or equipment.
Maximum loan: $25,000
Restricted to: women, low income an dminority entrepreneurs, as wll as business owners and other individuals posessing the capability to operate successful business concerns
Special features: first lien required on assets acquired from loan, personal guarantees of owners required, complete and thorough business plan required.
Interest rates: maximum of prime plus 4%.
Term: maximum of 6 years.
Who to contact: Detroit Economics Growth Corporation, (313)963-2940 (City of Detroit); Ann Arbor Community Development Group, (313)677-1400 (Washtenaw County); Flint Community Development Group, (313)239-5847 (Genesee County); Northern Economic Initiatives Corporation, (906)228-5571 (Upper Peninsula)

COMMUNITY DEVELOPMENT BLOCK GRANTS (CDBG)
Purpose of loan: working capital, fixed assets, workouts and buyouts
Maximum loan: $1,000,000 for up to 20% of project costs.
Restrictions: only availalbe in communities of less than 50,000 population.
Special features: elgible communities apply for and receive grants from the federal government; community then lends funds to qualifying businesses within its boundaries; grants may also be made directly to the community for infastructure (public works) projects
Interest rates market interest rate; set by community making loan.
Term: three to seven years, as set by the community.
Special structure: none
Who to contact: Call the Michigan Department of Commerce. (517)373-7550, to determine if your community partcipates

STATE PROGRAMS

MICHIGAN JOBS COMMISSION
Michigan Training Incentive Fund
Purpose of loan: training of personnel
Maximum loan: none; maximum interst subsidy of $100,000 over five-year period
Restrictions: made only to existing Michigan companies and only for the training of current full-time emplyees
Special features: program provides a fixed-interest rate subsidy to a loan from a private-sector lender.
Interest rate: reate on loan set by private-sector lender; rate subsidy is equal to the prime rate stated in the Wall Street Journal.
Term: set by private-sector lender: rate subsidey expires after five years.
Special structure none, other than interst rate subsidy.
Where to apply: private-sector lender (your lender works directly with the state agency; you do not have to).

BUSINESS RESOUCES GROUP (BRC)
Capital Access Programs (CAP)
Purpose of loan: any
Maximum loan: loan
Restrictions: certain types of real estate investment, construction or purchase of permanent residential housing, debt refinancing excluded.
Special features: private-sector lender makes a loan directly to the borrower. Private-sector lender and borrower pay the same premium charge into a loss reserve fund. Premium charge ranges from 1.5% to 3.5% of the loan amount (each). Borrower's premium may be financed as part of the total loan amount. Cost of the private-sector lender's premium may be passed on to the borrower.
Interest rates: set by private-sector lender.
Term: Set by private-sector lender
Special structure: none, other than the initial premium payment
Where to apply: participating private-sector lender; your lender makes the loan decision, Business Resource Group does not participate in the loan decision.

INDUSTRIAL DEVELOPMENT REVENUE BOND PROGRAM (IDRB)
Purpose of loan: purchase of land, building, machinery and equipment
Maximum loan: $10,000,000 per municipality
Restrictions: working capital and inventory loans not elgible.
Special features: financing is in form of tax-exempt industrial revenue bonds issued by the BRG, and purchasing by the private investment community. State does not back the bonds so company must be credit-worthy enough to attract a buyer.
Interest rate: negotiated between bondholder and borrower, generally less than market rates.
Term: negotiable, generally determined by life of asset.
Special structure: not a loan in the traditional sense; financing is received through the bond sale.
Who to contact: Michigan Department of Commerce (517)335-4417

LOCAL PROGRAMS

DETROIT ECONOMIC GROWTH CORPORATION AND THE COMMUNITY AND ECOMONIC DEVELOPMENT DEPARTMENT: Detroit Industrial Stabilization Revolving Loan Fund (DISRLF)
Purpose of loan: machinery, heavy equipment or real estate loan financing.
Loan partners: loan is extended by a private-sector lender and the DISRLF
Maximum loan $100,000 for DISRLF portion
Restrictions: business must be located within the City of Detroit; project evaluated in part pased upon the potential impace of project on Detroit's eceomony.
Special structure: liens by the public-sector lenders are subordinated to the lien of the private-sector lender. Collateral required by private-sector lenders is not limited to assets purchased as part of the project. Private-sector lender may require personal guarantees.
Interest rate: 4% less than prime, minimun interest rate of 4%.
Term: generally 3 - 5 years
Where to apply: directly to private-sector lender, who deals with the public-sector participants (you do not have to)

COMMERCIAL AREA STABLILIZATION LOAN PROGRAM (CAS)
Purpose of loan: construction, expansion, resoration or maintenance of buildings; acquistion of machinery, equipment, and building fixtures.
Loan partners: loan is extended by private-sector lender and the CAS Loan-Fund
Maximun loan: $30,000 or 40% of total project cost for CAS portion.
Restrictions: loans are available to any minority-owned business in Wayne County or any small business in Detroit, Ecorse, Hamtramck, Highland Park, Inkster, River Rogue, or other designated destressed community
Special features: maximun of 30% of project is funded by private-sector lender and 10% is funded by MGDC, 60% is funded by private-sector lender and 10% is funded by business owner.
Interest rate: private-sector lender portion as negotiated with lender; MGDC portion at a fixed rate, generally below market rate.
Term: MGDC portion is 15-year maximum for real estate, 7-year maximum for equipment and 5-year maximum for working capital; terms for private-sector portion of loan as negotiated with lender.
Special structure: liens by MGDC are subordinated to the lien(s) of the private-sector lender.
Where to apply: MGDC at (313)224-0754

MICHIGAN MINORITY BUSINESS DEVELOPMENT COUNCIL (MMBDC)
The Business Consortium Fund, Inc (BCF)
Purpose of loan: working capital in conjunction with a specific in conjunction with a specific contract or purchasing order.
Loan partners: MMBDC and banks certified by BCF as participants in the program
Maximum loan: $500,000 total, $350,000 for BCF portion
Restrictions: compnay must be ethnic minority-owned and affiliate member of MMBDC; contrat or purchase order to be financed must be with a corporate member of the MMBDC and/or the National Minority Supplier Deveoplement Council.
Special features: credit decision is made by certified bank lender not MMBDC
Interest rate: bank portion will be 130% of prevailing prime rate, BCF portion will charge 100% of prevailing prime rate on its share. Net effect to borrower will be approximately one point over prime.
Term: 2 to 4 years, but in any cse must be consistenct with the term of the contract or purchase order
Special structure: BDF funds a maximum of 75% of loan, certified bank lender funds 25%; assignment of proceeds of contract or purchase orders being financed must be taken as security for the loan, other collateral may be required at the discretion of the certified bank lender.
Contact: MMBDC at (313)873-3200

This completes Financing Your Business

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