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Two of seven local development districts (LDDs) in Pennsylvania offer some insight into the financing needs of businesses in the state’s rural regions. LDDs, which were formed by the Appalachian Regional Commission over 40 years ago, implement economic development initiatives and form responses to regional issues.
The two districts are the Susquehanna Economic Development Association-Council of Governments (SEDA-COG), which serves 11 counties in central Pennsylvania, and the Northwest Pennsylvania Regional Planning and Development Commission, which serves an eight-county region. They operate revolving loan funds capitalized by federal, state, and regional programs for small businesses and economic development.
The Northwest Pennsylvania Regional Planning and Development Commission made a loan to supplement Mary Fyock's funds and enable her to open Bronco's Barbeque in Titusville, Pa. A former business owner, she started the restaurant with a western motif after returning from the western U.S.
Both LDDs say that in 2008 the number of applications and loans was below normal for the small business sector, although the volume was substantial in the agricultural sector. Both districts are seeing an increase in companies looking for working capital loans, refinancing, and smaller projects of $10,000 to $135,000.
James L. McClure, director of finance for SEDA-COG, said that in March 2009 he began to see increased interest from businesses in loans. He said that LDDs have programs devoted to traditional requests for asset financing and limited working capital needs, but “we have little to offer for line of credit financing, debt refinancing, and overnight operating capital needs. This is especially difficult to address when our funds require bank matching funds and the banks are refraining from lending in these areas.”
SEDA-COG closed 26 loans totaling $4,036,051 since January 2008. Its delinquency rate was 4.2 percent in March 2009. McClure said that “credit quality seems to be diminished mostly by the lack of sales and profits in 2008.”
Meanwhile, Daryl Coyne, manager of the Northwest Commission’s loan programs, reports substantial application demand and an increase in referrals from banks. The commission closed 49 loans totaling $5,832,876 since January 2008, and its delinquency rate is 4 percent. Coyne said credit quality in applications and loans has not declined.
Coyne said the commission’s biggest challenge was limited capital for its revolving loan fund and observed: “The banks have a renewed interest in economic development programs in which they assist in financing a project. If a company is taking on the risk of an expansion in this economy, the banks seem more willing to finance a portion of the project and rely on our revolving loan fund to augment the financing as long as we take a subordinate lien position.
“Our typical loan in the past was a manufacturer interested in purchasing equipment or financing real estate. Now we are getting requests for working capital financing. Some are legitimate requests for working capital for an expansion, but some are asking for funds to meet payroll — or just to keep the business afloat.”
Coyne said the commission had five requests for interest-only payments in February and March because the borrowers’ backlogged orders were cancelled and their revenues declined drastically. “We ask our borrowers to make the same request to their bank so that we can mirror the bank’s approach to the situation. If the bank approves the request, we are more likely to approve it.”
For information, contact James L. McClure at email@example.com ; www.seda-cog.org ; and Daryl Coyne at firstname.lastname@example.org ; www.nwcommission.org . For information on LDDs, go to www.paldd.org .