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 DIVISION OF FINANCIAL SERVICES

 

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|  ARK-LA-TEX Investment & Development Corp./SBA 504 Loan Program  |

 |  How it Works  |   Financing Structure  |   A Typical AIDC Project  |

|   Qualifications  |    Application Requirements  |

|   USDA Intermediary Revolving Loan (IRP) Program  |

|  Loan Amounts  |  Applicants Eligible for IRP Loans  |  Types of Projects That Are Eligible  |

|   Red River Valley BIDCO, Inc.  |

Approved Lender for USDA Business & Industry Loan Program  |

|   Tri District Development Corp. Loan Program  |

| Staff Contacts | CDC Divisions Home | CDCOnline Home |

CDCís Division of Financial Services provides a number of loan programs to help qualified existing, expanding, and new businesses meet their financial needs.   The purpose of this CDC Division is to help businesses create new and retain existing jobs and help diversify the economy of the Ark-La-Tex. 

ARK-LA-TEX Investment & Development Corp./SBA 504 Loan Program

CDCís affiliate, the ARK-LA-TEX Investment & Development Corporation (AIDC), is recognized by the U.S. Small Business Administration (SBA) as a Certified Development Company and administers our SBA 504 loan program.  AIDCís primary purpose is to provide qualified small businesses with financial assistance through the SBA 504 Loan Program.  The 504 Program offers qualified borrowers low-rate, long-term financing for the purchase of fixed assets and capital goods. Types of capital assets which may be financed through  the 504 Loan Program include: land acquisition and preparation; building acquisition or construction; building recycling or renovation; purchase of machinery for production and services; purchase of equipment, either for the building or for the company's business; and other qualifying fixed assets. 

How it Works

Specifically, Section 504 of the Act authorizes a Certified Development Company to issue up to $1,500,000 in federally guaranteed, low interest debentures (or a maximum of 40% of the total financing requirements for the business venture, whichever is less) on behalf of a prospective business client.  The Certified Development Company sells the debentures through SBA's central fiscal agent to the public, and funds from the proceeds of the sale are then forwarded to the Certified Development Company and loaned to the local business entity.  

The 504 program is available to businesses with a net worth of less than $8.5 million, and an average income of less than $3 million over past two years.  Long-term fixed asset loans up to 20 years.  Projects are financed by a first mortgage loan from a private lender (bank), and a second mortgage 504 loan made by a Certified Development Corporations and funds provided by the small business concern.  Interest rates are based on current Treasury issues plus a small spread for administration.  CDC's loan portion cannot exceed 40% of a project.  The funds must be used for fixed assets and, generally, must create one job for every $50,000 of SBA funds.  Start-ups must contribute 10-20% equity to total start-up. 

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Financing Structure

The SBA "504" program allows AIDC to generate a loan package consisting of financing from three sources.  The private lender (banks, savings & loan associations, insurance companies, etc.) generally provides 50% of the total project cost at a conventional rate and term.  AIDC provides 40% of the project cost, at the Treasury Bond rate.  This rate is set at the time the debentures are sold and is fixed for the life of the loan.  The term is 10 or 20 years, and is tied to the expected life of the assets being financed.  Funds for the AIDC loan are provided from the proceeds of the sale of the debentures.  AIDC's loan will be secured with a second mortgage on all collateral offered to the private lender.  The remaining 10% of the project is designated as the equity injection and is generally provided by the borrower.

A Typical AIDC Project:  

$    250,000 

Equity Injection (10%)

$ 1,000,000  

AIDC Debenture (40%)

$ 1,250,000  

Private Lender (50%)

$ 2,500,000

Total (100%)

As a general rule, a new or expanding project should be for a minimum of $250,000.  There is no maximum total project size.

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Qualifications

A business may qualify to participate in the SBA "504" Program through AIDC if its net worth does not exceed $8.5 million and its net income after taxes is not more than $3 million.  The financial assistance must be used for fixed asset financing only, which includes the acquisition of land, buildings, new construction and leasehold improvements.  Capital equipment and renovation can be financed in conjunction with the purchase of a building.  Ineligible concerns include non-profit businesses, media firms, lending institutions and real estate companies.  Since the purpose of the program is to provide economic stimulus to the area, the proposed project must create new jobs or retain jobs that would otherwise have been eliminated.   

Application Requirements

The prospective client must furnish AIDC with various financial and narrative documents which are necessary for a proper evaluation of the proposed project.  The following documents should be presented to AIDC before a formal application is submitted: (1) a written description of the project; (2) itemized statement of project costs; (3) descriptions and number of new or retained jobs; (4) current financial statements of the company or a pro forma on a new venture; (5) personal financial statements of all principals; (6) history of the company or projections on a new venture; and, (7) resumes on all principals and key personnel.  The AIDC staff will analyze each loan application from a credit and job creation standpoint.  The loan application must then be approved by the AIDC Board of Directors, as well as the private lender and the Small Business Administration. 

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USDA Intermediary Revolving Loan (IRP) Program 

CDCís Division of Financial Services also administers CDC's USDA Rural Development's Intermediary Relending Program to make available funding for qualified new and expanding businesses located in the rural areas of the ten-parishes served by CDC in Northwest Louisiana.  The focus of this program is to create or retain jobs in the rural areas CDC serves by making funding available for qualified new and expanding businesses located in the rural areas of the ten-parishes served by CDC in Northwest Louisiana.  Loans amounts range from $10,000 up $150,000 (75% of project costs).  The program supplements private lenders' efforts by either participating with them on special financing projects or by direct loans to borrowers who cannot qualify under the private lenders' rules.   

Loan Amounts  

Loans amounts range from $10,000 up $150,000 (75% of project costs). The program supplements private lenders' efforts by either participating with them on special financing projects or by direct loans to borrowers who cannot qualify under the private lenders' rules.  

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Applicants Eligible for IRP Loans 

The following entities are generally eligible to apply for loans from CDCís Division of Financial Services provided they owe no delinquent debt to the Federal Government:  

Individual citizens or individuals who have been legally admitted to the U.S.

Those located in a rural area defined as an area with a population of 25,000 or less.

An entity that is able to incur debt, give security, and repay the loan.

A corporation, partnership, LLC, individual, non-profit corporation, public body.

Types of Projects That Are Eligible 

IRP funding may be used for a number of purposes but to be eligible, ultimate recipients must be located in a rural area. Under the IRP, a rural area is any area that is not inside a city with a population of 25,000 or more according to the latest decennial census. Some examples of eligible projects are:  

The acquisition, construction, conversion, enlargement, or repair of a business or business facility, particularly when jobs will be created or retained.

The purchase or development of land (easements, rights of way, buildings, facilities, leases, materials)

To purchase equipment, leasehold improvements, machinery, supplies

Start up costs and working capital

Pollution control and abatement

Hotels, motels, B&Bs, convention centers

Transportation Services

Feasibility studies

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Red River Valley BIDCO, Inc. 

Red River Valley BIDCO, Inc., a for-profit corporation incorporated in Louisiana, and licensed by the State of Louisiana, Office of Financial Institutions, as both a Certified Louisiana Capital Company and a Business and Industrial Development Corporation and also is recognized as a Louisiana Community Development Financial Institution.   The Red River Valley BIDCO, Inc., a for-profit business and industry development corporation, is a financial assistance corporation providing loan funds for business, industry and job creation. The RRV BIDCO supplements private lenders' efforts by either participating with them on special financing projects or by direct loans to borrower who cannot qualify under a private lender's rule. Maximum loan amount is $3 million. 

Financing through the BIDCO is available to assist qualified Louisiana entrepreneurial businesses located in low income communities that are in need of capital for survival, expansion, new product development, or similar business purposes.  A low income community may be defined as any census tract which has a poverty rate of at least twenty percent or in which the median income of that census tract is eighty percent of less of the statewide median income as determined by the United States Census Bureau.

 The BIDCO can generate several types of loan packages, depending on the borrowerís need, consisting of financing from a number of sources.

(1)   A start-up business may require $1 million total financing.  The borrower may put together a loan package which consists of a federal or state guaranteed loan, along with a commercial loan, but requires equity injection which the borrower currently does not have available.  This scenario might look like this: 

$    100,000* 

BIDCO Equity Injection (10%)

$    400,000  

Federal or State Guaranteed Loan (40%)

$    500,000  

Commercial Loan (50%)

$ 1,000,000

Total (100%)

*Where the BIDCO provides the equity injection.

(2)  Another financing scenario may be where the borrower is an existing business and needs to raise capital and is willing to use equity in the business as the collateral. Equity investments will be based on invested earnings and value growth and will contain buy-out or public offering clauses.  Because of the inherent risk of equity financing, only targeted companies with high return/yields will be considered.  A typical equity investment scenario might be a borrower needs $1 million in capitalization, and a commercial lender is willing to make a loan to partially fund the project if existing fixed asset collateral is assigned to the lender.  To raise an additional $500,000 for the project, the BIDCO, rather than taking a hard asset as collateral, takes an equity position in the company based on future value and expected growth.  The structure may look like this: 

$    500,000* 

Commercial Loan (50%)

$    500,000  

Equity Loan (BIDC) (50%)

$ 1,000,000

Total (100%)

(3) The third type of financial arrangement possible through the BIDCO process for companies located in the rural areas of Northwest Louisiana is the USDA guaranteed loan.  When a borrower cannot get a guaranteed loan through a commercial lender, the BIDCO may be able to provide a loan that is guaranteed by USDAís Business &Industry loan program.  The guaranteed portion of these loans may be sold in the secondary market.  The BIDCO would keep or directly finance the portion of the loan not guaranteed, and would service the entire loan.  As an example, a guaranteed loan scenario could be the borrower needs $1 million and does not qualify for a regular commercial loan.  

$    750,000 

USDA B&I Guaranteed Loan (75%)

$    250,000  

Direct (BIDCO) Loan (25%)

$ 1,000,000

Total (100%)

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Approved Lender for USDA Business & Industry Loan Program

Red River Valley BIDCO, Inc. is approved as a U.S. Department of Agriculture (USDA) Business & Industry direct lender.  This means that BIDCO can work with customers in rural areas of the State of Louisiana to make loans that are guaranteed by the USDA under their Business and Industry Loan Program. These loan guarantees make the loans more attractive to lending institutions because of the increased security provided to the lender's funds, thereby allowing the borrower to very probably receive a more attractive loan rate and better terms than regular conventional loans could provide. 

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Tri District Development Corp. Loan Program

TDDC provides long-term rate financing, both fixed and flexible, to qualified businesses in the twenty-nine parishes of North Louisiana. Staffed through CDCís offices in Shreveport and sister organizations in Monroe and Alexandria, TDDC provides business development financing for companies creating long-term permanent employment, primarily in the rural regions of North Louisiana. (Loans made under this program are similar to those offered by CDCís affiliate, the Ark-La-Tex Investment and Development Corporation.)   

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Staff Contacts:

Jackie Kelly

Vice President

Phone: (318) 632-2022

E-mail: jkelly@cdconline.org

 

Staff Contact for the RRV BIDCO:

Layne Weeks

Executive Vice President and CEO

Phone: (318) 632-2022

E-mail: lweeks@cdconline.org

The Coordinating and Development Corp.
5210 Hollywood Avenue, P. O. Box 37005
Shreveport, LA 71133-7005
Phone/TDD: (318) 632-2022
Fax/TDD: (318) 632-2099
E-mail:
info@cdconline.org

 

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Copyright 2009, The Coordinating and Development Corporation. Redistribution to all others interested in economic development is strongly encouraged. Please site the Coordinating and Development Corporation whenever portions are reproduced or redirected.


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