CDA Executive Director Manuel A. Sablan said, “If this program is approved, we may tap the technical assistance of Michigan to run this.”
Michigan, which received $79.157 million in grant, was the first state to receive a grant from the $1.5 billion State Small Business Credit Initiative program of the Department of Treasury.
Sablan said the U.S. Treasury had arranged for CDA to communicate with Michigan with regard to their application to the federal grant that would make available $130 million in private financing in the CNMI in the next five years.
“We are very pleased that we have been communicating with Michigan with respect to having technical assistance,” Sablan said.
Sablan and CDA loan manager Oscar Camacho acknowledged that CDA was told by Treasury to resubmit its application for the grant with Commerce as the applicant.
Camacho said CDA would enter into a contract with Commerce to administer the program as sanctioned by the U.S. Treasury.
The program would induce the banks to provide loans to small businesses.
Sablan said, “The way to assist the bank in making a loan to a deserving small business is to assist them in improving the borrower’s cash collateral position.”
He said if there’s a shortfall in collateral, that shortfall would then be covered by the cash collateral deposits pledged against that loan.
He said, “As the loan is paid down, and the principal declines, obviously the cash collateral portion will be released.”
For Sablan it would be a win-win situation for both borrowers and the banks.
He said it would improve the bank’s position as there would be an increase in bank deposits.
“They will be in a better position to make more loans,” he said.
He further offered an explanation on how the program works. “The situation here is a potential borrower comes to the bank, and asks financial assistance to fund a project. If the bank feels uncomfortable to fully fund the project, the bank would ask CDA to come in and purchase the loan.”
“By CDA purchasing not more than 50 percent of that bank note, automatically the repayment of that total project in terms of principal and interest would be substantially reduced because CDA could defer the payment on its portion of the loan for both interest and principal for up to 36 months,” he added.
With the program, Sablan said it would improve the cash-flow position of the borrower and make his business more viable.
He, however, acknowledged that there is a lot of marketing and information campaign to be done so banks and private lenders will be able to realize the advantages of the program.
Sablan said, “It’s a first for the CNMI.”
He added that it has never been done even on Guam and that there are other states that have yet to receive this grant.
In looking to Michigan for technical assistance, the CDA would be in a better position to run the program as Michigan is running a successful program based on the figures the Michigan Economic Development Corp. presented during an April 2011 webcast with the Council on Finance Development Agencies.
Michigan, awarded $79.157 million in SSBCI money in Jan. 2010, is running CAP, loan participation, collateral support and venture capital programs.
Under the loan participation program alone, as of Dec. 2010, Michigan has closed 21 loans and had 27 pending loan commitments.
It also had a total of $190.7 million in loans committed and closed: $27 million, program dollars; $66.65 million, direct loans; and $97.069 million in indirect loans.
Since the award, as of Dec. 2010, the program had helped create or retained 2,000 jobs.
The states and the insular areas must demonstrate that every $1 in federal funding will generate a minimum of $10 in new private lending.
The $1.5 billion federal program made possible by the Small Business Jobs Act of 2010 was looking at creating up to $15 billion in financing to small businesses across the nation.
