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State initiative to free money for small business

by ERIN WILTGEN Thomasville Times
January 2011

With the county unemployment rate still hovering in the double digits, and numbers across the nation flirting around the 10 percent mark, the cry for jobs has only grown stronger.

Businesses everywhere have taken hits — laying off workers and, as a last resort, cutting services. Small businesses in particular have struggled under the economic burden, reaching to break even and striving to do more with less.

North Carolina’s new Capital Access Program (CAP) hopes to address this issue and free about $800 million in capital for small businesses over the next two years. Operating as a loan loss reserve, CAP will allow banks and other qualified financial institutions to grant loans to businesses that otherwise may fall outside the normal underwriting standards.

“In all my conversations with small business leaders across North Carolina, I’ve heard common concerns,” said Gov. Beverly Perdue. “They can’t grow or put people back to work until they have access to credit. I applaud Congress for addressing this issue, and I’m pleased to report that North Carolina stands ready to get the money moving from the moment it arrives.”

The cogs should begin in motion in early 2011, the first step being to meet with interested banks.

Made possible by the State Small Business Credit Initiative, CAP acts as part of the federal Small Business Jobs Act of 2010, which President Barack Obama signed into law in September. The N.C. Rural Economic Development Center will administer the $46.1 million allocated to North Carolina.

“Capital Access is a loan loss reserve,” said Garnet Bass, director of communications for the Rural Center. “It helps banks put a little aside to protect them in case the loans go bad. For loans that might be just outside what they might be comfortable with, they’ll be willing to take that extra chance.”

Business owners apply for loans through participating institutions, and the individual lenders set a loan loss reserve fee to be shared by the lender and borrower. CAP then matches the loan loss reserve fee.

It’s good to see some federal money come here,” said Davidson County Commission Chair Sam Watford. “It serves as a guarantee that banks won’t lose everything that they’ve got. They’ve got something to fall back on.”

Businesses with 500 or fewer employees are eligible to apply for a maximum of $5 million loan, which can be used to finance the acquisition of land, construction or renovation of buildings as well as the purchase of equipment and working capital.

“It’s the most significant step yet to bring statewide scale to our collective efforts to refuel the engine of job creation – our state’s small businesses,” said Larry Barbour, CEO of North State Bank and chair of the North Carolina Bankers Association.

The Rural Center estimates that North Carolina’s $46.1 million in allocated funds will loosen $800 million in capital for small businesses, a number based on a similar program the center ran from 1994 to 2008. Then, 1,850 loans allowed businesses to create or retain more than 27,000 jobs, and $3.6 million in loan loss reserves translated into $103 million in loans.

So far, nine banking institutions in Davidson County have expressed interest in CAP. Bass says that the program works in banks’ favor just as much as small businesses.

“They want to give loans,” she said. “They’re not in the business of turning people down, but they can now feel a little more comfortable. The requirements they’re facing — in addition to the economy — make them a little leery. They’re having to be very cautious, and this encourages them to take a second look that they may not have been fully comfortable with.”

And CAP intends to foster that natural relationship between businesses and banks. A small businessman himself, Watford says the program should greatly assist small companies, especially as the economy begins to pick up.

If the economy starts growing a little bit, that’s when you’re going to need the capital, is to buy new machinery and hire new people and grow as the economy grows,” said Watford, owner of Watford Construction Company. “I feel like we are entering into a growth period, and this should help. As a politician and as a leader of this county, anything that we can do to help our small businesses has to be good.

A main goal of the initiative is to create jobs and chip away at the high unemployment numbers across the county, the state and the nation.

“We’ve got a lot of people out of work,” Bass said. “By getting money to businesses so they can operate and expand, they’ll be able to create jobs.”

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