Jessica Fleming, Pioneer Press, St. Paul, Minn. –
Burnsville could soon begin offering loan guarantees for businesses – a sign of the times in which banks have become more careful with their borrowing practices.
City council members this week said they would likely establish a fund that will be used to guarantee up to 50 percent of a loan for local businesses, not to exceed $20,000. A guarantee is not a loan, but a promise to a lender that the city would repay the debt if a business were to default.
“We’re going to be the linchpin for the relatively solid business, which four years ago would have gotten a loan and paid it back with no problem, who now, under tighter underwriting criteria, cannot get a loan,” said Burnsville Economic Development Coordinator Skip Nienhaus.
Nienhaus told council members at a work session that a bank wasn’t likely to be swayed to give a loan to a business based solely on a guarantee from the city.
Council members said they would support a fund of $100,000 that would use an existing fund balance from the city’s Economic Development Authority, but not before expressing reservations about using taxpayer funds to back private businesses.
“Is there a time limit on this?” council member Mary Sherry asked. “Right now, we’re doing this because capital is so tight. It has not always been that way, and it won’t always be that way.”
Staff members assured Sherry and other council members that the program would require approval every year during the budgeting process and that it could be discontinued at any time.
According to city staff members, the objectives of the loan guarantees will be to attract new business, expand existing businesses, improve existing business properties or help with the acquisition of business equipment.
Businesses in the disciplines of science, technology, health care, engineering or math will be given priority.
The city will charge a fee of 1 percent of the guarantee amount to investigate the feasibility of the loan.
But banks are likely to bring eligible loans to the city, Nienhaus said.
“We’re using the lending institution as our primary due diligence,” he said. “Banks will say, ‘We’d like to give the loan but there are regulatory issues.’ With this backing (they will be able to) give the loan.”
