Calling all good business loans

Change takes time. That’s one reason the Virginia Small Business Financing Authority cites when asked why its Loan Guaranty Program, which launched in October, has failed to guarantee a single loan.

The program was initiated at the governor’s request as a way to help turn on the credit spigot, which is crucial to protecting jobs in Virginia. (The volume on Small Business Administration loans in Virginia is down by as much as 50 percent compared with last year.) The Virginia Department of Business Assistance will guarantee loans for a maximum of $500,000 and has set aside up to $3 million for the program.

The loan guarantees are intended to motivate banks to continue lending money even as business is slows, rather than turning off the flow of credit. Ideally, most of the businesses will quickly return to profitability and pay back the banks. And that would mean the state pays nothing because the loans are performing.

But the VDBA, which is administering the program, does not want to get stuck with loans that are already in default. So far, the program received 11 applications, according to spokesman Will Vehrs. Many of the loans had little chance of being repaid, the VDBA concluded, and therefore were not worthy of a guarantee.

In general, the VDBA works with banks and not with companies directly. Participating banks in Richmond include: Consolidated Bank & Trust, EVB, First Capital Bank, First Market Bank and Peoples Bank of Virginia.

“The best candidates as far as we are concerned are businesses we consider to be basic employers – that is, they derive at least 50 percent of their income from outside the state,” Vehrs said.

One possible reason the program has yet to take off is likely a lack of awareness. The department has not advertised the guarantee, relying instead on workshops to spread the word.

Aaron Kremer is the BizSense Editor. Please send story tips to [email protected]

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12 years ago

So if the rating is the same as a bank, what purpose does this program serve? Competition with banks?

It would make more sense to have strategive objectives that form application criteria, such as developing specific industries that are resiliant to downturns and provide X number of desireable job types.

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12 years ago

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