State low-interest program expands 50% to $1.2B

Jackson Hataway: MOBUCKS is more popular now amid higher interest rate environment.

Austin Mooneyham: Loan program’s help for businesses includes operating expenses.

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A popular Missouri low-interest loan program that primarily benefits small businesses and farmers is expected to reopen for applications later this summer after sitting dormant for most of the year.

The state’s MOBUCKS program, which originated in 1985, had its annual capacity expanded to $1.2 billion after Gov. Mike Parson signed House Bill 1803 into law in May. Its previous cap was $800 million, with the approved legislation marking a 50% increase.

The need to expand the program’s capacity became evident in early January when its portal began accepting applications for the latest round. The state treasurer’s office said the large number of applications – over 140 on Jan. 2, the first day for the round – led to the portal closing within around six hours. The applications were for roughly $120 million worth of state-subsidized loans, which are funds the state deposits in banks at below-market interest rates. Under the program, the banks can then make loans to qualifying borrowers with an approximately 30% reduction in the borrower’s interest rate.

Popularity for MOBUCKS soared in 2023, as program use jumped 84% from the prior year. During the 2023 fiscal year, Missouri distributed 1,000 linked deposit loans totaling nearly $539 million, then accepted 450 new loans totaling $342 million, according to the program’s annual report. Small business loans comprised 61% of the total, followed by agricultural at 30% and multi-family housing at 8%. Governmental entities and job enhancement made up the remainder.

Jackson Hataway, president and CEO of the Missouri Bankers Association, said he wasn’t surprised to see usage of MOBUCKS increase last year.

“As rates were moved dramatically by the Fed and deposits were needed by banks, the program suddenly became very attractive,” he said, in reference to the Federal Reserve raising interest rates 11 times from March 2022 to July 2023. “The program is built in such a way that it is interest rate sensitive, so when rates are higher, it becomes more beneficial to the treasurer to deploy the capital out to banks so they can take the deposits in and then lend them out at a lower rate.”

Being supportive
Hataway was among MBA officials who attended the May 9 bill signing in Springfield at the Ozark Empire Fairgrounds. He said the MBA has long supported the low-interest loan program as it keeps dollars local.

“If you have the state treasurer sitting on reserves, we’d much rather see those funds deposited into Missouri institutions who can deploy it out into Missouri communities rather than seeing it in a Vanguard or a BlackRock or some large multinational investment corporation,” he said. “It’s a great program structure to keep funds local, and we’re always working with the treasurer’s office to try to make it find ways to improve it, optimize it, get more funds deployed.”

One local project that received help from MOBUCKS was the purchase of a three-story, roughly 25,000-square-foot office building in Chesterfield Village. Jacob Sanders, managing partner at Sanders, Myers & Blackwell CPAs LLP, said his firm and Kinetic Design and Development LLC partnered in a real estate holding company, Tenedor Pesado LLC, to purchase the 2215 W. Chesterfield Blvd. property widely recognized for its signature giant fork.

Although financial terms of the May 2023 deal were undisclosed, Sanders said financing for the transaction was contributed in part through MOBUCKS, according to past Springfield Business Journal reporting. OakStar Bank, which Sanders said helped with the MOBUCKS application process, is among nearly 140 participating lenders in the state program. Other Springfield area participants include Branson Bank, First Community Bank of the Ozarks, Guaranty Bank, LimeBank, Mid Missouri Bank, O’Bannon Banking Co., OMB Bank, Ozark Bank and Systematic Savings Bank, according to the state treasurer’s website.

Austin Mooneyham, community bank president in Buffalo for OMB Bank, said he completed his first loan through MOBUCKS for a client last year, declining to disclose the business or loan amount. He said the program has become much more well known in the past year as small businesses and ag-related ventures look for ways to capitalize on low-interest opportunities.

Mooneyham said the loan he helped the client with was part of a $1 million investment in expanding inventory. However, he noted the program can help in multiple areas, such as real estate building purchases or land for farming purposes.

“You can roll in some of your operating expenses, too, like your rent, your utilities,” he said, adding that participating businesses must have fewer than 100 full-time employees, be headquartered and operate out of Missouri, be organized for profit and owe no unpaid state taxes.

Ready and waiting
Hataway said the program’s capacity expansion is significant at a time when businesses are seeking loans for purposes like production, operations and real estate, in a higher interest rate environment.

“They’ll finally get some relief at a time when rates just stay elevated thanks to the Fed’s policies,” he said, noting the Fed earlier this month voted again to keep its key interest rate unchanged. “Even if we start to see the Fed lower rates, it will only be by a quarter point or perhaps 50 basis points. So, you’re still going to be in a really high-rate environment, and that makes the importance of that additional $400 million in funding that much more critical.”

At the time of the bill signing, Missouri Treasurer Vivek Malek said the new law is set to take effect in late August. According to the treasurer’s office, the next round of loan applications should reopen around the same time.

Hataway said he expects the participating lenders list will increase this year.

“Most likely, we’ll have banks that have been on the sideline or haven’t been through the process that now certainly have an appetite to become involved, whether that’s for deposit purposes or because they’ve got qualified borrowers out there who are facing higher rates and they know they can get them a lower rate if they can be a part of the program,” he said.

Mooneyham said much like when the portal last opened in January, there will be a flood of applications.

“We have several customers that are wanting to take advantage of it, once we get more of a hard line of, ‘This is exactly when it’s going to open up,’” he said.

While pleased with the program’s capacity expansion to $1.2 billion, Hataway said demand will still likely exceed supply.

“The MBA’s position is we would welcome more dollars into the program because we don’t see the rate environment changing anytime in the next six months to a year,” he said. “You might have some relief out of the Fed, but it will not be the same rapid decline that we saw in the rapid incline in rates over the past year. We think $1.2 billion is a very important and beneficial step, but we’d love to entertain more conversations to see that funding grow.”