DIRECT LOAN PROGRAM
The Direct Loan Program is for applicants seeking a loan from the WVEDA in the minimum amount of $50,000 and a maximum amount of $10,000,000.
The WVEDA has a two tiered pricing system. For loans of $50,000 to $800,000, the interest rate is the New York Prime rate minus 4%. Loans above $800,000 are priced at a rate equal to the U.S. Treasury Note rate of equivalent maturity (as quoted daily in the Treasury Bonds, Notes and Bills Section of the Wall Street Journal) plus three-quarters percent. In both instances, the loans are fixed at closing and the interest rate has a floor of 4% and no ceiling. Additionally, the two tiers cannot be used in conjunction with each other.
The following criteria are relative to both tiers of the Direct Lending Program:
Financial assistance is available to participate in the financing of fixed assets for creditworthy manufacturing concerns, distribution centers, technology-based service companies and other business classifications currently targeted by the West Virginia Development Office meeting WVEDA’s job creation criteria. The applicant may be an existing or prospective West Virginia business.
Job creation and retention are important factors under the WVEDA lending guidelines. The borrower must create or retain one job for every $15,000 of WVEDA participation.
WVEDA can participate up to 45% in eligible fixed assets of qualifying projects and share a first lien on such assets with the participating lender, who also may participate up to 45%. The borrower must inject at least 10% equity into the project.
Eligible fixed assets include the purchase of land, site preparation, building acquisition, construction or renovation, machinery and equipment. Rolling stock, such as trucks and forklifts, is not eligible. In addition, WVEDA does not finance working capital or inventory under these programs and does not refinance existing debt.
The loan term is generally 15 years for real estate intensive projects and 5 to 10 years for equipment projects.
A personal guarantee of any owner with 20% or more of the subject business is required. An Irrevocable Letter of Credit, with WVEDA as beneficiary, for the full amount of the WVEDA loan participation may be substituted for a personal guarantee. If the business has no controlling stockholders, alternative surety structure is needed.
Applications are subject to review and approval based upon job creation/retention and economic benefits to the State of West Virginia, as well as credit evaluation by WVEDA.
WVEDA issues a “take out” commitment to provide funding upon the completion of the project, which includes completion of all construction and receipt and installation of all project equipment, as outlined in the commitment letter. Therefore, the applicant must submit evidence that interim financing is available in the event of WVEDA loan approval.
Pre-Application Information Request
The following information is requested to allow WVEDA to determine if the project is eligible and the extent to which we may participate:
- Narrative Descriptions:
- a) Your company history
- b) The proposed project and how it benefits your operation
- A breakdown of project costs as follows:
a) Acquisition of land, excluding existing improvements
b) Acquisition of building or other improvements
c) Site preparation, utilities, roads, etc.
f) Machinery and/or equipment - excluding rolling stock.
- Financial Information:
a) Company financial statements for the past four year-ends(if applicable)
b) An interim company financial statement (most recent month-end)
- Employment Information:
a) Current number of full time equivalent employees, their salary/wage range and benefit package
b) Number of new full time equivalent employees anticipated as a result of the proposed project, their salary/wage range and benefit package
c) If the proposed project is for job retention, please explain
- Other information you consider relevant to the project.
After favorable review of your company’s pre-application information, WVEDA will forward a formal Application For Financial Assistance (Application).
WVEDA’s Board of Directors meet on the third Thursday of each month. In order for an Application to be placed on the Agenda for that Board meeting, WVEDA must be in receipt of the completed Application no later than the first business day of the month.
Upon receipt of the completed Application, WVEDA will review compliance in regard to payments of State Corporate Taxes, Workers’ Compensation Taxes and Employment Security Taxes.
WVEDA may also contact and review the project with the local development authority, which is required to sign the Application.
The borrower will be notified of the Board of Directors decision as soon as possible after the monthly meeting. If a favorable decision is granted, a commitment letter will be forwarded to the borrower for review and signature.
Upon reviewing and signing the commitment letter, the borrower must forward it back to WVEDA for final approval by the Board of Directors at its next regular monthly meeting.
For additional information, please contact: David Warner, Tony Benedetto, Joey Browning or Steven Webb.
SMALL BUSINESS ADMINISTRATION 504 LOAN PROGRAM
The WVEDA operates a public, non-profit corporation known as the West Virginia Certified Development Corporation (WVCDC), to help businesses access federal financing for asset acquisition through the Small Business Administration (SBA) 504 program. The WVCDC will work with an eligible business to package and close its Small Business Administration (SBA) 504 program loan, and is the borrower's service contact throughout the term of the loan. The WVCDC’s area of operation is statewide.
Financial assistance is available to participate in the financing of fixed assets for almost any type of business. The applicant must be an existing or prospective West Virginia business and meet the size standards of a small business as defined by the SBA.
Use of 504 Funds:
Eligible uses: 504 funding can be used for land purchases, site preparation, building acquisition, construction or renovation, and the purchase of machinery and equipment. Freight and installation costs may be financed, within reason.
Not Eligible: 504 funds cannot be used for rolling stock, such as trucks, buses, cars, forklifts, dozers or endloaders. The 504 program does not finance working capital or inventory, or business opportunity costs like licenses or franchise fees. The 504 program is limited to new investment, and is not a vehicle for remortgaging, refinancing or restructuring credit.
Under the 504 program, the SBA can participate up to 40% in the financing of fixed assets for qualified borrowers and take a second lien on project assets; while the participating lender, who participates up to 50%, receives a first lien on the project assets. The borrower must inject at least 10% equity in the project and show the ability to cover any working capital or inventory needs. The minimum equity injection increases to 15% if the project is a start-up or new business in operation for less than two years or involves, or if the project involves a limited or single purpose facility; 20% equity is required if both these conditions apply to a project.
In instances where the equity contribution increases, the SBA level of participation decreases: so the level of project funding from the borrower and SBA generally totals 50%, with the other 50% provided by a financial institution.
Maximum 504 Loan:
SBA’s share of project costs cannot exceed the following program caps: Standard: $1,500,000
Rural area, Labor-surplus and other: $2,000,000
Small Manufacturer: $5,000,000
Job Creation Requirement:
Job creation or retention is required under the 504 program. The 504 Loan program is designed as an economic stimulus vehicle, and the project must create new jobs or retain at-risk jobs to justify SBA’s financial assistance. The amount of 504 financing the project will qualify for is determined in part by the Job Creation Benchmark described as described below. “FTE” refers to a full time job, or a full-time equivalent (2 part-time positions equal 1 full-time).
Standard 504 Request: up to $50,000 per FTE job created.
If the project meets Rural Development,
Labor-Surplus, or other Policy Goals: up to $75,000 per FTE job created.
Small Manufacturers: up to $100,000 per FTE job created.
Clearly, a number of factors will determine the level of financial support the 504 Loan program might provide. Please feel free to contact the WVCC to help you assess how a 504 Loan would benefit your project.
Guaranties: Any owner with 20% or more of the business must personally guarantee the SBA 504 loan, and in some instances may be asked to collateralize such guarantee. In addition, affiliated entities may be asked to guarantee the loan. If the company is structured so that no one party has a 20% interest, the SBA nonetheless might require full or partial guaranties of the 504 loan.
Take out Financing: SBA 504 funds are “take out” financing, which means that the SBA’s share of the project financing must be interim financed until the project is completed and the Debenture sale takes place.
The loan term depends upon the fixed assets being financed. The SBA’s portion of real estate intensive projects are financed for a twenty-year term. The participating lenders loan must be for at least a ten-year term.
Equipment intensive projects are financed for a ten year term. The participating lender’s loan must be for at least seven years.
PRICING, FEES AND PENALTIES
SBA 504 loans are packaged into large groups of loans by the SBA and sold to private investors as Debentures (bonds). The SBA 504 loan interest rate is a fixed rate for the term of the loan, determined at Debenture sale. The participating lender sets the interest rate on its loan according to their lending guidelines.
The ten-year Debenture sale takes place every other month, while the twenty-year Debenture sale takes place monthly. A current and historical interest rate summary for ten and twenty-year Debenture sales are reflected in Appendix A.
A penalty is assessed to the borrower for prepaying the SBA 504 loan within the first half of its loan term. Thereafter, there is no penalty.
A deposit of $500 must be submitted with each 504 application (in the form of a check made payable to the West Virginia Certified Development Corp). This deposit is not refundable, however, WVCDC will credit the deposit to offset a portion of Applicant’s closing costs upon Debenture sale.
There are certain administrative costs imposed on the borrower due to the cost of originating and closing the loan and selling the Debenture. These costs are amortized over the life of the loan. A monthly servicing fee is also required.
For eligibility determination, an overview of costs and fees, and access to an SBA 504 Application package, please contact the West Virginia Certified Development Corporation at (304) 558-3691 or 558-3650.
While the WVCDC evaluates, originates and packages a 504 application, ultimate approval and funding lies with the SBA.