CDA Executive Director Manuel A. Sablan said he met with representatives of local banks to ascertain the level of their interest and participation in the federal lending program.
“We had our first meeting on March 9. It was well attended,” Sablan said.
He told Variety that the representatives of the banking sector appeared supportive of the program although they had yet to review the information.
“Most of them are receptive to the program and they wanted to learn more about the program. Most of the information are new to them,” he said.
Sablan told Variety that the same information was being reviewed by the bank representatives’ counterparts in other territories.
In a statement on Oct. 8, 2010, the Department of Treasury made known the availability of the State Small Business Credit Initiative funding allocations for the 50 states, the District of Columbia and the insular areas including the Northern Mariana Islands. The initiative will support $15 billion in new small business lending through local programs that will help local entrepreneurs grow their businesses and create jobs.
According to Sablan, under the program, the CNMI is eligible to receive $13 million.
He said CDA will have a follow-up meeting with the banks first week of April to gauge their level of participation.
He clarified though that CDA does not need to secure the bank’s participation prior to filing an application with the Treasury Department.
“If the bank wishes to participate, then CDA will enter into a participation agreement with the bank,” he said.
Under the program, Sablan said there’ll be funding to induce banks to make loans. “For example, if we provide a guarantee to the bank on a new loan, and the guarantee is 50 percent, then the bank will obviously be funding the other 50 percent. That’s new private money that would flow into this program.”
The funding will be coursed through CDA.
Sablan said there are two main components of the initiative: the capital access program and other credit support programs.
According to the Treasury Department, the capital access programs or CAP’s — already up and running in over 20 states — are loan insurance programs in which states provide a matching contribution to bank loan loss reserves when lenders make loans to qualified borrowers.
Sablan said under the CAP program, the borrower and the bank will make a contribution to the loan reserve account and CDA will match this contribution under the reserve account.
“If any of the loans that is covered under this program becomes defaulted, then the bank can then submit and file claims for the amount of the defaulted loan,” he added.
Sablan said this reduces the risk of the bank. “Under the CAP program, if the bank enters into an agreement with CDA to participate and the banks make the loan, the borrower qualifies under the terms of the program, the bank can submit a request for inclusion for coverage under CAP program. By doing that, the bank and borrower, will contribute a certain amount of the loan into the reserve account then CDA will disburse an amount that matches that contribution in the reserve account to pay claims on defaulted loans.”
There are also other credit support programs that CDA may participate in. “That is why I wanted to get the banks’ reaction,” Sablan said.
