GDB-CBI incentive loan program - Government Development Bank, Caribbean Basin Initiative

Business America, Nov 25, 1985 by John Mudie

GDB-CBI Incentive Loan Program

The Government Development Bank for Puerto Rico (GDB) has launched an important new CBI loan program to help promote establishment or expansion of complementary plants in Puerto Rico and CBI-designated countries.

Very favorable interest rates and other terms offer a major incentive for complementary plant development by Puerto Rican-based firms expanding into the Caribbean and for Caribbean firms establishing operations in Puerto Rico.

Funding will come in part from the large and growing investment pool of Section 936 funds accumulated in Puerto Rico and channeled to the Government Development Bank. These are tax-free earnings of U.S. corporations operating in Puerto Rico under U.S. Internal Revenue Code Section 936.

Projects will also be financed and cofinanced to the maximum extent feasible by the commercial banks in Puerto Rico.

Under the CBI loan program, the Bank will assist in financing existing or new operations in Puerto Rico. The firms in turn will invest their own resources in Caribbean Basin complementary operations. Loans will be disbursed to the Puerto Rican operations for purposes approved by this Bank.

Financing is available also for complementary operations in Puerto Rico, and where main offices are located in any designated CBI country. Loans, however, would be structured specifically for the Puerto Rican project segments, and the GDB may require guarantees by parent firms abroad.

Moreover, contracts have been initiated concerning coordinated project lending by Central American and Caribbean regional financial institutions.

Eligible Purposes

The Bank, while giving certain preference to manufacturing, will also consider financing for commercial, service and other activities deemed essential to regional development.

GDB may consider loan applications for the following:

1. Purchase, construction, expansion and/or improvement of industrial, commercial and service facilities.

2. Purchase of machinery and equipment.

3. Medium and long-term working capital when not available elsewhere.

4. Other purposes according to the merits and importance of each case.

Repayment Terms

The following repayment terms apply to loans where federal guarantees may not be necessary or cannot be obtained:

1. Loans for the construction, expansion and purchase of real estate properties (not to exceed 15 years).

2. Loans for the purchase of machinery and equipment (not to exceed ten years or the estimated useful life of the asset, whichever is less).

3. Loans for working capital purposes and/or refinancing of eligible debts when such financing cannot be obtained from commercial banks or other credit sources (not to exceed ten years).

For loans approved with federal guarantees, repayment terms will normally be longer.

Interest Rates

Interest rates will be determined and adjusted periodically by the Bank. The specific rates to be charged will take into consideration, among other things, prevailing money market conditions which determine the cost and availability of funds to the Bank.

Two interest rate options may be considered:

1. Fixed Rate: This rate can be established for the first five years of the loan, after which a readjustment may apply.

2. Variable Rate: This rate will normally be adjusted every three months.

Lending Limits

Under this special CBI program, the principal amount of a loan may exceed the normal 70 percent of appraised value of real estate properties offered as collateral, and may exceed the normal 50 percent of the appraised value of machinery and equipment. Specific loan limits will be set according to the merits of each particular project. On loans guaranteed by federal agencies the maximum amount is determined by their requirements.

Contact: Government Development Bank for Puerto Rico, Box 42001, San Juan, Puerto Rico 00940; tel. (809) 722-2525.