Kentucky's Link Deposit Loan Program:
Linking Small Business to Bank Financing
By investing funds from Kentucky’s Abandoned Property
Cash Account with eligible banks at a set rate, the state, through the State
Investment Commission, is making it even more appealing to make loans to small
businesses at an attractive rate through the Linked Deposit Loan
Program.
“The Linked Deposit Loan Program is a win-win-win
situation for everyone involved,” said Mark L. Johnson, Business
Development Coordinator in the Cabinet for Economic Development’s Small
Business Services Division, contact point for the program.
“By utilizing the program, participating banks can
actually obtain a 4 percent spread between the rate they charge the borrower
and the rate they pay to the state on its investment. That’s pretty
good,” he added. “The borrower gets a small business loan at
prime, a rate typically reserved for only the banks’ best clients. Even
better, that rate is fixed for the life of the loan. Lastly, the state
obtains a return on invested funds without the risk of loss and hopefully helps
a small company start, grow, and hire workers.”
Banks also think the program is beneficial.
“The Linked Deposit Program has been an invaluable tool
for South Central Bank in both retaining existing credit relationships and
attracting new relationships. It has given area farmers and other small
business owners the opportunity to capitalize on a long-term fixed rate of
interest in a rising rate environment. It has also provided a means for South
Central Bank to retain an acceptable net interest spread”, says Sandra T.
Ross, Vice President and Senior Agriculture Lender at South Central Bank of
Barren County
Currently, the maximum loan amount under the program is
$100,000 with a maximum term of seven years. Since the state’s
invested funds do not secure the loan, the lender must still go through its
normal credit analysis process. Collateral requirements are determined by the
lender as they would be normally. Prepayment and early payoff of the loan is
available without a penalty.
Eligible small businesses must meet the following requirements:
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Be headquartered and maintain offices in Kentucky
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Employ fewer than 50 full-time employees, the majority of which are from
Kentucky;
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Have $1 million or less in gross earnings per year; and
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Be a for-profit company
The loan may be used for the following purposes:
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Working Capital
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Interest Costs
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Debt Refinancing
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Capital Expense
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Production Costs
To learn more about the Linked Deposit Loan Program, please
contact Mark L. Johnson, Business Development Coordinator for the
Cabinet’s Small Business Services Division at 877-355-3822 (toll free),
e-mail MarkL.Johnson@ky.gov, or visit
http://www.thinkkentucky.com/kyedc/linkdeposit.asp.
For firms involved in agricultural endeavors, the
Governor’s Office of Agricultural Policy (GOAP) operates a similar
version of the Linked Deposit Loan Program. GOAP may be contacted at
502-564-4627 or via the web at
http://kafc.ky.gov/kafc_programs_linked.shtml.
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