Guarantees that Help Banks Write More Small Business Loans
Guarantees that Help Banks write More Small Business Loans
With the new Rhode Island Capital Access Program, Rhode Island becomes the 27th state to adopt this valuable credit enhancement program. CAP is designed as a tool for banks and credit unions to attract new small business customers by lending to small businesses that may not meet conventional underwriting standards. It does so by establishing a unique Cash Collateral Account in your financial institution. This account allows lenders to recover losses on defaulted loans that are enrolled in the Capital Access Program.
Loans guaranteed through this program may be used to start or expand businesses, or to provide permanent working capital to ensure continued profitable operations. Typical uses are equipment purchases, start-up costs and real estate acquisitions. The CAP program can also be used for working capital lines of credit.
Borrowers Gain Ready Access to Capital
Because the Capital Access Program is for loans that are not bankable on their own, borrowing companies gain access to financing where none existed – up to $750,000 – with no minimum amount required. These loans are readily available at participating financial throughout Rhode Island. With few exceptions, virtually any type of commercial loan qualifies under the program if it is legal in Rhode Island.
Banks Improve their Loan Flexibility
It costs nothing to involve the Capital Access Program in a small business loan. On the contrary, participating institutions generally experience significant growth in their small business portfolios and gain Community Reinvestment Act credit for these loans. There are no unnecessary delays or red tape, since lenders use their own forms, underwriting standards and closing procedures.
Everything Stays Between the Borrower and the Lender
When a borrower applies to a participating lender for a commercial loan, the lender will determine if the loan requires credit enhancement. The lender negotiates all loan terms with the borrower directly, including pricing and the level of guaranty premiums required. It is the lender that commits and funds the loan, following its own procedures with its own time-frame. After closing, the lender notifies Rhode Island Capital, which provides the lender with matching premiums.
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