Industrial Development Bonds (IDBs)
VSBFA issues tax-exempt and taxable bonds to provide qualifying businesses and 501(c)(3) entities with access to long-term, fixed-asset financing at favorable interest rates and terms. IDBs can fund land acquisition, building construction, and capital asset (equipment) purchases.
Eligible borrowers include new or expanding manufacturing companies, “exempt” facilities such as solid waste disposal facilities, and 501(c)(3) entities. Through IDBs, creditworthy manufacturers and 501(c)(3) entities can borrow up to 100% of the cost of acquiring, constructing, and equipping a facility, including site preparation. IDBs may also facilitate tax-exempt funding for leased manufacturing facilities and equipment. All projects financed with IDBs must meet the federal tax code’s eligibility requirements. The maximum manufacturing project size is $20 million; 501(c)(3) entities and exempt facility projects are not subject to this dollar limitation. At current interest rates, unless a bank will be directly providing the financing, projects under $3 million are generally not cost-effective due to the transaction costs of bond financing.
Economic Development Loan Fund (EDLF)
The EDLF offers permanent working capital, owner-occupied commercial real estate, and equipment loans to fill the financing gap between private debt financing and private equity. Project eligibility is determined by guidelines set by the federal Economic Development Administration (EDA) and the VSBFA.
Eligible borrowers include local industrial or economic development authorities and businesses engaged in technology, biotechnology, tourism, manufacturing, renewable energy, government contracting, and those businesses or entities that provide an enhanced “quality of life” in a locality or region. Businesses that derive 15% or more of their revenues from defense-dependent activities and can demonstrate economic hardship related to defense downsizing may also be eligible.
Eligible projects must provide economic benefit to the community through job creation/retention (minimum $10.00 hourly wage) or by enhancing a locality’s ability to attract private capital investment. The maximum loan amount is generally the lesser of 40% of the total project cost or $500,000 unless the project is located in a city/county defined by the EDA as “economically distressed.” Loans in distressed areas can be higher, potentially in excess of $1 million depending on risk factors, the number of jobs created, and the region in which the project is located. Generally, loans have 10-year maturities with amortizations based on the life of the asset and the borrower’s ability to repay. Rates are risk-based but can be below market. Loans are secured by assets and require personal guaranties.
Loan Guarantee Program (LGP)
The LGP helps Virginia’s businesses obtain funds to start or expand operations in Virginia. The program reduces a bank’s commercial loan risk in order to increase the availability of commercial loans to Virginia’s businesses. The maximum guaranty is the lesser of 70% of the credit amount or $750,000. The guaranty term cannot exceed seven years for term loans. Guaranties for lines of credit are available on an annual basis with a maximum of four subsequent renewals. Eligible borrowers must be a VSBFA-defined small business and meet VSBFA credit standards. Loan purposes include lines of credit for accounts receivable and inventory, term loans for permanent working capital, and fixed asset purchases.
Cash Collateral Program (CCP)
The CCP helps Virginia's businesses obtain the funds to start or expand their operations in Virginia. VSBFA's participation helps reduce a lender's credit risk by providing cash collateral on deposit at the lender bank as support for a business purpose loan. Most typically, the CCP is used in those instances when the applicant company has demonstrated the ability to cash flow the debt, but the collateral coverage is insufficient for the lender's normal underwriting standards. It is also used for SBA 504 loans when the lending bank is funding the certified development company's loan pending the sale of a debenture. VSBFA can provide cash collateral up to 40% of a loan or $500,000, whichever is less, with a maximum relationship participation between the borrower and the VSBFA of $500,000. The lender sets the interest rates and terms. VSBFA's participation is for a maximum of five years on term loans. Annual lines of credit not matured may be renewed up to two times with a maximum term of three years.