Linked-deposit loans unlock low-interest capital

A $38,000 loan for Springfield-based Anderson Engineering Inc. is part of the $60 million that has been borrowed in southwest Missouri since January 2009 through the Missouri Linked Deposit Program. The program, founded in 1986, allows qualified small-business borrowers to access low-interest loans. It is open to farmers and for-profit, small-business owners whose companies have headquarters in Missouri, employ fewer than 100 and are current with their state taxes.

On April 27, the Missouri Senate passed House Bill 109, which would permanently extend the program. The bill now awaits Gov. Jay Nixon’s signature.

Previously, the program was open to companies with fewer than 25 employees, but Missouri State Treasurer Clint Zweifel, whose office manages the program, pushed to expand eligibility in 2009. Since then, more than $570 million in loans have been approved through the program.

“This is an older program that had fallen by the wayside because of the red tape it took for businesses to get the loans,” Zweifel said. “(We) worked together to loosen the requirements and increase usage of the program.”

Borrowers work with participating community banks to apply for standard small-business loans.

Once approved by the bank, the state reviews the application, and if approved, the state deposits the funds with the lenders at below-market interest rates so the bank can issue the loan to the borrower at a rate that’s equal to the reduction on the deposit. Every deposit is tied directly to the loan but remains the state’s money, so the credit risk is assumed by lenders.

“We’re just providing liquidity to the banks,” Zweifel said. “There is no risk to the state, and our constitution doesn’t allow us to take risks with the money.”

Zweifel said there is no minimum or maximum loan amount.

“It can be $15,000 for equipment or $3 million for a major expansion,” he added.
Loans can be used for purchase of land or buildings, rent and utilities, equipment, renovations or professional fees.

Anderson Engineering used its loan – issued in April through Commerce Bank – to buy equipment and software, saving an estimated $3,500 in interest costs by using the linked-deposit program.

“Some of our software has to be upgraded every year,” said Anderson Engineering President Neil Brady. “We looked at another bank, but the interest rate was just terrible.”

Commerce Bank is among roughly 112 lenders with 300 branches statewide participating in the program.

Fred Osborn, president and CEO for Commerce in Joplin, said the bank has participated in the linked-deposit lending for several years and has a goal to hit a $100 million loan benchmark through the program. Since January 2009, he said Commerce has closed 180 Missouri Linked Deposit Program loans worth $65 million, he said.

According to Zweifel’s office, the average approval time once application paperwork is received is 10 days, and Osborn appreciates the quick turnaround.

“It’s not a huge bureaucracy, and we don’t have to wait long for an answer,” he said.

Brady said his loan was approved in a matter of weeks.

“This loan allowed us to stay competitive, and now we can use the money we saved in interest to purchase other equipment we will need,” he said.

Zweifel said $293 million in loans were made in 2010, and he hopes to hit that mark again this year, with between 30 and 40 outstanding linked-deposit loans outstanding on any given day.

“We’ve surpassed our expectations in this difficult credit environment,” he said. “When we look at the loan numbers, we think we’re in a good position to help grow Missouri’s economy.”[[In-content Ad]]