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Banking on a change Featured

6:25am EDT July 19, 2002

Low-interest loans could become more accessible to small- and medium-sized businesses under two bills being considered by Ohio's legislature.

Sen. Jeffry Armbruster, R-North Ridgeville, and Rep. Nancy P. Hollister, R-Marietta, both have introduced legislation to create a Capital Access Loan Program for businesses with annual sales of less than $10 million.

Both bills would provide loans through financial institutions for maximum amounts of $250,000 for working capital or $500,000 for fixed assets. Businesses may apply for the maximum amounts of both.

The programs aim to get working capital to businesses that normally wouldn't be able to get loans through other means -- for example, a start-up business that might be turned down because it doesn't yet have assets -- by providing financial backing to institutions making the loans.

To encourage participation by financial institutions, the bills require banks to create interest-gaining reserve accounts from which they would be reimbursed if the business defaults on the loan. The reserve account is created by deposits into the account from the bank, the borrower and the Ohio Department of Development.

The risk of the loan, then, is spread over the portfolio of all Capital Access Loans. By holding and pooling its risk, the bank can make profitable loans that might otherwise be considered too risky.

Armbruster's bill would require a deposit of 1.5 to 3 percent of the loan from both the bank and the borrower and 10 percent from the Department of Development; Hollister's proposal suggests the bank and borrower deposit total 3 to 7 percent of the loan, with a matching amount from the state.

Hollister's legislation, H.B. 6, specifically targets businesses in high distress, high unemployment areas of the state.

"Our bill will incorporate the tax increment financing areas and will change the rules for those in high distressed and high unemployment areas," she says.

She says she intends to forward her proposal to business organizations such as the Ohio Chamber of Commerce and the National Federation of Independent Business/Ohio for feedback. Her bill has been assigned to the Economic Development and Small Business Committee in the House.

Armbruster's proposal, S.B. 10, would affect for-profit and nonprofit organizations that are creating new jobs or retaining existing jobs.

The plan, Armbruster says, will give businesses access to money that they might not have been able to get through a normal lending process.

"In this case, it gives us a shot in the arm to help these businesses continue to grow and prosper where they might not be able to get a loan through the conventional means," he says.

Armbruster has been working with the Ohio Department of Development to hammer out details of his bill, which is under study in the Senate's Economic Development, Technology and Aerospace Committee.

The program, he says, puts public and private money together to help businesses.

"There are 21 other states that are doing it, and it's been active for 14 years," he says. "It's about time that the state of Ohio steps up to the plate to help its small businesses to prosper and grow."

For more details on the bills and to track their status, visit the legislature's Web site, www.legislature.state.oh.us. How to reach: Sen. Jeffry J. Armbruster, (614) 644-7613; Rep. Nancy P. Hollister, (614) 644-8728

Joan Slattery Wall (jwall@sbnnet.com) is an associate editor and statehouse correspondent for SBN Magazine.