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The State of Delaware and Delaware’s financial institutions have joined together in a two-year initiative to assist the state’s small businesses. The program, which became operational on May 1, 2009, is called Small Business LIFT (Limited Investment for Financial Traction).
Gary Smith, director of capital resources for the Delaware Economic Development Office, said that Delaware has 10,776 small businesses that employ approximately 117,000 individuals. “These businesses,” he explained, “are the backbone of Delaware’s economy, and their vitality is critical to turning around Delaware’s economy in this recession. The program provides breathing room for participating businesses to allow them to weather the recession and come out of it in a stronger financial position. It provides working capital support and improves their cash flow.”
The program, which applies to existing small business loans of $250,000 and under, is expected to assist 350 businesses, Smith said. The state will provide them with no-interest loans for a term of seven years, with the first two years requiring no payments. The proceeds of the small business loan will be used to pay the interest portion of the borrower’s bank loan. The State of Delaware loan will require the small business owner to provide a personal guarantee.
The State of Delaware will make the no-interest loans if the bank lenders agree to modify the loan during the two-year period so as to defer principal payments and avoid charging interest of more than prime plus 1.75 percent, Smith said.
Participating businesses must be organized in Delaware, have been in operation for at least three years, and have three to 50 employees. Banks organized in Delaware are eligible to participate.
Eligible loans are primarily lines of credit, but loans for equipment and recently expired lines of credit also qualify, Smith said. “The goal of the program is that participating businesses will maintain employment, but this is not a requirement,” he said.
The state developed the program after discussions with five banks and the Small Business Administration, which is determining if loans it has guaranteed will qualify, Smith said.
The program, which ends on June 30, 2011, has $5 million in funding from the State of Delaware.