On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010 to help increase credit availability for small businesses. The Act created the State Small Business Credit Initiative (SSBCI) and the state of Alabama was approved by the Treasury for $31,301,498.
The Community and Economic Development (CED) Division of ADECA is responsible for implementing and managing the SSBCI program in Alabama. The State Banking Department will advise and assist the ADECA staff in the program implementation. (Click here for more detailed information. PDF.)
Attn: Community Development Programs
401 Adams Avenue, Suite 500
Montgomery, AL 36104
Attn: Community Development Programs
P.O. Box 5690
Montgomery, AL 36103-5690
Capital Access Program (CAP)
The Capital Access Program is based on an insuring concept. The lender participating in Alabama’s CAP will set up a reserve fund to cover future losses from a portfolio of loans that the lender enrolls under the program. The special reserve will be owned and controlled by the State in the name of the lender. Each lender participating in the program will have its own earmarked reserve held at the participating bank. A lender can withdraw funds from its earmarked reserve to cover losses on loans made under the program.
For each new loan enrolled in the program, the lender makes a payment of at least two percent and no more than seven percent in lender/borrower contribution into the reserve fund. This amount is matched and deposited by the State into the reserve account. For loan activities taking place in “underserved areas,” the lender/borrower contribution and the State match can be up to seven percent each, for a total of 14 percent.
The state Loan Guaranty program is designed to enable lenders to make term loans or provide lines of credit to new or existing small businesses in this difficult credit environment. The state guarantee will be for 50 percent of the principal value of the loan, and the state will share equally with the lender in losses resulting from loan defaults. The lender will pay a loan guarantee fee of one percent on the guaranteed portion of the loan.
The State loan participation program will enable small businesses to obtain medium- to long-term financing to grow and expand. In keeping with the state's desire to defer loan underwriting to the lending institutions, the state loan participation program will take the form of a purchase transaction or purchase participation. The state will operate this program under four distinct scenarios - interest subsidy, semi-subordinate, deferred payment, and equity capital.
- Interest Subsidy
Under this program, the state will purchase 25 percent of a loan from a participating lender. The loan interest rate for the state portion will be at four percent and the loan period will be the same as that for the lender’s loan but not to exceed 10 years. The terms of the lender portion of the loan will be determined between the lender and borrower. The lender will perform underwriting and will service the loan for the state portion of the loan. In case of a default and charge-off, the state will be entitled to receive 25 percent of any amounts recovered. For minority and women owned businesses and for loans in underserved communities, the interest rate on the state portion of the loan can be reduced to three percent.
Under this program, the state will purchase 25 percent of the loan from a participating lender at the lender’s rate. The terms of the loan will be determined between the lender and borrower. The lender will perform underwriting and will service the state portion of the loan. In case of a default and charge-off, the state will be entitled to receive 14.28 percent of any amounts recovered.
- Deferred Payment
The state will purchase 25 percent of the loan from a participating lender at the lender’s rate. The terms of the loan will be determined between the lender and borrower. The borrower will make no payment on the state portion of the loan for three years, and the accrued interest will be added to the state principal. In case of a default and charge-off, the state will be entitled to receive 25 percent of any amounts recovered.
- Equity Capital
The state will provide up to 10 percent of the loan for the borrower’s equity. The interest rate will be at the lender’s rate for up to five years. In case of a default, the state will take a subordinate position to lender. For minority and women owned businesses, or businesses located in underserved areas, the state rate will be discounted by two percent.
The financial institutions participating in the Alabama’s SSBCI program shall possess sufficient commercial lending experience, financial and managerial capacity, and operational skills to meet the objectives as set forth in the Act. (Click here for more detailed information. PDF.)
The loan proceeds must be used for a “business purpose.” A business purpose includes, but is not limited to, start up costs, working capital, business procurement, franchise fees, equipment, inventory, as well as the purchase, construction renovation or tenant improvements of an eligible place of business that is not for passive real estate investment purposes. The definition of business purpose excludes activities that relate to acquiring or holding passive investments such as commercial real estate ownership, the purchase of securities; and lobbying activities.
The loan proceeds will not be used to: repay delinquent federal or state income taxes unless the borrower has a payment plan in place with the relevant taxing authority; repay taxes held in trust or escrow, e.g. payroll or sales taxes; reimburse funds owed to any owner, including any equity injection or injection of capital for the business’ continuance; or purchase any portion of the ownership interest of any owner of the business.
The borrower cannot be an executive officer, director, or principal shareholder of the financial institution lender; a member of the immediate family of an executive officer, director, or principal shareholder of the financial institution lenders; a related interest of an such executive officer, director, principal shareholder, or member of the immediate family.
Additionally, the borrower cannot be a business engaged in speculative activities; a business that earns more than half of its annual net revenue from lending activities; unless the business is a non-bank or non-bank holding company certified as a Community Development Financial Institution; a business engaged in pyramid sales; a business engaged in illegal activities; a business engaged in gambling enterprises; or a business where the borrower has been convicted of a sex offense against a minor.
Without the express prior consent of the Treasury, the unguaranteed portions of SBA-guaranteed loans will not qualify to participate in the State SSBCI program. (Click here for more detailed information. PDF)
Phone: (334) 242-0492