THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, February 7, 1996 TAG: 9602070398
SECTION: BUSINESS PAGE: D3 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Medium: 53 lines
In a drive to make credit more available to small companies in the state, the Virginia Small Business Financing Authority launched an experimental lending program Tuesday with Central Fidelity Banks Inc.
By creating a reserve to cover losses on loans to marginal borrowers, the authority hopes banks will look more closely at applications from small businesses, said Rob Blackmore, acting director of small business and financial services at the Virginia Department of Economic Development.
Credit for smaller companies has become more available since the early 1990s when many Virginia banks were wrestling with large portfolios of sour loans, said Blackmore, who oversees the Virginia Small Business Financing Authority.
However, ``a lot of small business owners told us they couldn't get quite enough collateral to qualify for a bank loan,'' he said.
The program's initial loan-loss reserve of $75,000 will be built up with fees collected from borrowers and from Central Fidelity, Blackmore said. The financing authority will assist by matching the payments that the bank and its borrowers make to the reserve fund.
The authority modeled its lending program on similar programs in 19 other states, including one started in Michigan in 1986. In some states, these programs have made loans as large as $1.5 million.
``When we started out a couple of years ago, we had a hard time getting any interest from banks'' in Virginia, Blackmore recalled.
However, the financing authority received three responses last fall when it solicited applications from banks for a pilot lending program, he said.
It chose Central Fidelity, which operates in Hampton Roads, because of the resources that the Richmond-based bank was willing to commit to the program.
``Most of the loans in the pilot program are going to be in the $50,000 to $100,000 range,'' Blackmore said.
The maximum interest rate that Central Fidelity can charge on these loans will be the prime lending rate plus two percentage points. At today's prime rate of 8.25 percent, the maximum rate will be 10.25 percent. However, the lending standards will be determined by Central Fidelity, Blackmore said.
After studying Central Fidelity's experience with the program, the financing authority expects to open it up to other banks later this year. The authority's goal is to have banks make $10 million to $15 million of these loans a year, said Blackmore.
The Virginia Small Business Financing Authority provides low-interest development bonds in communities that have no industrial development authorities. It also operates two direct lending programs for small businesses in Virginia. by CNB