In an email to the CDA executive director Manuel Sablan, State Small Business Credit Initiative reviewer Vincent Dabney acknowledged the steps that the CNMI is taking to reapply for the $13 million grant.
Dabney wrote, “The CNMI Department of Commerce would be the applicant in lieu of CDA. If it wishes, DOC could contract with CDA for marketing and outreach services.
Dabney also said CDA could also collect and provide data to DOC in order to comply with periodic reporting and monitoring requirements to Treasury.
“DOC could contract with a third party for underwriting services,” Dabney said.
The SSBCI is guiding the CNMI as it files its revised application to the $13 million federal grant that would make $130 million in loans available in the CNMI.
The SSBCI has scheduled conference calls with CDA on Dec. 16 and Dec. 23.
As early as Dec. 6, Dabney requested for the CNMI to revise the leverage table and furnish the U.S. Treasury Department with a copy last Dec. 13.
Dabney also asked if the CNMI could propose which entity would do the underwriting.
He told CDA Executive Director Manuel Sablan that Michigan Economic Development Corporation’s Paul Brown had offered to help explain to the CNMI how the Michigan collateral support and loan participation program work.
He also said the Michigan agency may be able to provide the underwriting assistance.
Dabney also outlined some concerns with the CNMI application.
Dabney asked for the CNMI to provide additional information on annual commercial loan volume in the last three years and portfolio performance of Independence Bank if the CNMI chose to contract with this bank.
If the CNMI Department of Commerce would be the applicant, Dabney said the SSBCI application would need any audits available for DOC.
In their discussion with CDA, Dabney said the standby letter of credit with MPLT would not provide CDA with long term financial stability because it requires repayment of any advances in 160 days.
CDA executive director Manuel Sablan suggested that CDA would try to modify the terms to allow longer period for repayment that would extend beyond the SSBCI allocation ending in 2017.
Dabney also raised question with the CNMI’s criteria for permitting non-Federal Deposit Insurance Corp.-insured institutions to participate in its SSBCI program.
He suggested that the CNMI to refer to the SSBCI policy guidelines for selecting financial institutions participating in the Capital Access Program.
Based on the SSCBCI guidelines, under the CAP program requirements, each state should exercise due care to determine that financial institutions participating in the SSBCI possess sufficient commercial lending experience, financial and managerial capacity, and operational skills to meet the objectives as set forth in the Act.
In a separate email to CDA, the SSBCI director Cliff Kellogg offered more guidance.
Kellogg acknowledged that the data on per capita income and description of partner organizations were both “satisfactory.”
He, however, requested if the CNMI could consider “adding measurable outreach commitments” — number of outreach seminars per year that CNMI is participating in where SSBCI program is to presented, promotional materials to be distributed and specific bank loan data that CNMI will collect and monitor.
In an interview with Variety, CDA loan manager Oscar Camacho said, “Our concern is the volume of loans that could be given out under the new proposal limiting ourselves to loan purchase and collateral support program between 10 and 20 percent of loan amount.”
For Camacho, they think that 10 to 20 percent is not sufficient inducement and program may not prove successful.
Under the $13 million SSBCI program, for every dollar of SSBCI money, should be able to induce $10 of private lending money.
Camacho said in the next five years, the CNMI must show that the $13 million could be leveraged out to $130 million.
“If we decide to scale back the program to say $6 million then we target an aggregate of $60 million worth of loans. This we believe may be possible, but is it worth all the work and compliance reporting to the Treasury?” Camacho said.
He said all these should be acceptable to Commerce, U.S. Treasury, and the participating banks.
“If we did a Loan Guaranty Program we strongly believe that we can have a successful program and can see the leverage of 10 to 1 with greater ease. Unfortunately, Treasury does not agree with CDA’s proposal,” added Camacho.
President Obama signed into law the Small Business Jobs Act of 2010 that created the State Small Business Credit Initiative.
The program was funded with $1.5 billion to help strengthen state programs that support lending to small businesses.
The said program is expected to spur $15 billion in lending to small businesses across the nation.
