Just when you thought Illinois had no money, it turns out they found some and they are trying to give it away! As part of the Small Business Jobs Act of 2010, the “State Small Business Credit Initiative” was created, and funds were appropriated and divided according to state/territory population and unemployment experience during 2008 and 2009. The core mission of this program is simple: create jobs or retain jobs (in this example, Illinois ). This means that Illinois has been allotted approximately $78 million, deliverable in three tranches of $26 million. The money is disbursed through the Illinois Department of Commerce & Economic Opportunity (DCEO) working in conjunction with a Participating Lender, of which American Chartered Bank is one.

The program works like this: program funds are lent via the DCEO on a subordinated basis to the lender at a “below market rate” (below the lenders’ rate). This structure enhances a prospective transaction in the eyes of the lender since the subordinated debt is quasi-capital; meaning in the worst case scenario of default and subsequent liquidation, the bank is repaid first before any monies are repaid back to the DCEO. This enhancement makes a marginal loan opportunity stronger and more likely to get approved by the lender, resulting in prospective economic opportunity for small businesses.

The above example is not the sole benefit and use of the program. Let’s describe another example. Let’s say a company is looking at expanding and purchasing a new facility (or equipment), but cash flow is tight due to an increase in revenues so coming up with a down payment would be a cash strain on the business. This program in conjunction with the SBA 504 can provide 100% financing. That’s right, the minimal 10% down payment requirement of the SBA 504 program could be financed via DCEO funds, leaving the working capital in the business to remain “working”. American Chartered Bank recently helped facilitate the acquisition of a $700,000 piece of machinery for a manufacturing client utilizing this exact structure.

You may be thinking that “the catch” must be the dollar limits. The program can provide the lesser of: a) 25% of the project b) 50% of the lender’s loan amount or c) up to $2MM. Simple math suggests the program could be involved in a “project” of $8 million, so it’s large enough to cover many opportunities.

If you have any questions or would like to know more about the program, please contact Chris Prestegaard at 847-956-3944, Jennifer Roths at 312-492-1111, or Michael Moran at 847-418-3226  with American Chartered Bank, your Strategic Partner with the Chicago Family Business Council.

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