A new program that debuted this week is meant to encourage banks to loan more to South Carolina’s small businesses.
The South Carolina Jobs-Economic Development Authority (JDEA) has received more than $18 million from the U.S. Treasury to help banks put more money in loan reserves under its new Capital Access Program (CAP). The idea is that the banks would be willing to use the extra money to underwrite slightly riskier loans to small companies.
“During the recession, a lot of small businesses around the state have had a tough time,” JDEA Executive Director Harry Huntley said. “If they’ve managed to stay in business, their balance sheet and income statement probably don’t look as good as they used to, which has made it a lot more difficult to meet the underwriting requirements of banks.”
There are only a few special requirements for businesses seeking the loans under the new State Small Business Credit Initiative (SSBCI). They must have fewer than 500 employees and borrow no more than $5 million. No loans are allowed to go towards real estate speculation. The company would also have to meet the individual bank’s qualifications.
If a business qualified, the Business Development Corporation of South Carolina would provide the lending bank with an extra 2 to 4 percent in reserve money to fall back on should a business default on its loan. No government money would actually be loaned to the business.
South Carolina is the fourteenth state to take advantage of the law passed by Democrats in Congress and signed by President Obama last fall. Republicans opposed allowing the U.S. Treasury to control which state entities could administer the loans.
The new initiative covers up to $5 million in loans. Under old rules, the state could not provide any more than $100,000. Huntley said the raise was badly needed, “The $100,000 limit really kept the state program limited really to just your smallest of businesses. The $5 million is really going to allow businesses to invest in new plants and new equipment.”
South Carolina Bankers Association President Lloyd Hendricks said the additional reserve money would allow banks to lend to those companies on the margin, risk-wise. “Now we’ve got federal money that will help set aside (money) for these specific purposes,” he said, “It would encourage the bank (to say), ‘Well, the money’s there. Let’s use it.'”
Huntley said the plan is expected to generate $180 million in additional lending. However, he said that number could be as high as $900 million if all businesses pay the loans back.
Only two banks, South Carolina Bank & Trust and National Bank of South Carolina, have signed up for the CAP program so far. The JDEA says that’s because the program is brand new and it expects more banks to sign up eventually.
The agency says it has already taken $6 million from the fund in preparation for the first round of loans.