Iowa Loan and Credit Guarantee Fund launched

Northwestern Financial Review, Jul 1-Jul 14, 2004

The Iowa Loan and Credit Guarantee Fund is open for business. The fund, which grew out of discussion at the 2002 Iowa Independent Bankers' convention in Okoboji, went live May 20 when the board of the Iowa Values Fund approved rules finalized the day before by the Loan and Credit Guarantee Fund's board. Legislators in 2003 set aside $22.5 million to fund loan guarantees for small businesses in targeted industries. Bankers will be able to leverage $2.5 million in guarantees in the first year.

Ty Logan of State Central Bank in Keokuk, Iowa serves on the seven-member Loan and Credit Guarantee Fund board that sought public input and ultimately passed the implementing rules. The program is operating under the direction of the Iowa Department of Economic Development.

The fund is intended to help banks finance businesses that pose a higher level of risk than businesses typically able to obtain conventional financing. Specifically, the business must have 200 or fewer employees, and must do business in a "target industry," such as life sciences, software and information technology, advanced manufacturing and value-added agriculture. Additionally, the business must sell goods and services in markets where national and international competition exists.

The Loan and Credit Guarantee Fund will guarantee up to 50 percent of the loan made by a bank. It will guarantee up to $1 million on a single loan and up to $10 million to a single business that obtains loans from multiple sources.

The process of obtaining the guarantee can be initiated by the bank or by the borrowing company. If the company goes directly to the Department of Economic Development, it must have arranged for a contingent commitment from a bank. The Department of Economic Development says it typically will respond to a guarantee request within 10 days.

The Department of Economic Development charges a one-time application fee - $1,000 if the application comes directly from the company and $500 if it comes from a bank. The department also charges a one-time program fee due at the time the application is approved. That fee is 2.5 percent of the guarantee amount. The department says it expects banks to pass these fees onto the borrower.