Industry sign banking illinois word fast
welcome everybody this is the Reinhardt with Illinois Worknet today we have a guest speaker with us his name is Stanley lube off he is going to be talking to us about advantage Illinois and it's a program that's offered through the illinois department of commerce and economic opportunity stanley is the advantage illinois program manager and with him helping him along the way is Sarah August who is the assistant program manager welcome Stanley to our webinar today thank you for joining us well thank you for inviting me it's a great afternoon I hope we get this undone on time so you can go on with all these amazing plans you have for tonight all right so let's get started we're going to move on to our first slide and we're going to talk a little bit about the origin of advantage Ellen oi if we go back to the previous slide I just wanted to point out that those are the contact that's the contact information for both me and Sarah we're here in Chicago and now we can go to the next slide all right advantage Illinois is the largest most successful small business financing program in the history of our state and is probably the third or fourth most successful of largest program that the US Treasury has fostered under the state small business credit initiative program so let me tell you how we actually got this money this is not state money this is money that cannot be swept by the state it can only be used for this small business financing program the state used to have its own program funded with state funds but during the difficulties of the past recession that program basically was defunded as funds were swept however in 2010 the Congress passed something called the small business Jobs Act of 2010 what they did was they took 30 billion dollars from the funds that were part of the american recovery and reinvestment act of 2009 that's the program that is digging up all the highways between you and the places you want to go anyway they took this 30 billion dollars and they decided they were going to use it as a stimulus to create more small businesses to create more jobs and to help those small businesses in existence to expand out of that 30 billion they took another when they they took one and a half billion dollars as a separate part or a separate title of the small business jobs act and they created the state small business credit initiative it's an effort to allow the states to assist banks in making loans that they're reluctant to make as you know the banking community has been a little hesitant in making loans since the last recession therefore they took a billion and a half dollars of that fund and they put it toward small business loans our portion since our portion is based on our population and experience with unemployment during 2008 and 2009 our portion or allocation is 78 million three hundred sixty-five thousand two hundred and sixty four dollars and we're supposed to use that money to convince banks to make loans that they're reluctant to make without our help what do we mean by small businesses well the rules are very flexible this is a Treasury run program Treasury doesn't have experience in this kind of program so they took some pretty liberal guidelines we are able to assist companies that are considered small or medium-sized businesses with 750 or fewer employees worldwide at the time that they request our support so in other words if company had 740 employees they could still ask for our support even if the result of our support would be to go above the 750 level we're also able to assist loans or investments that are two that are 20 million dollars or less now that doesn't mean that we can't help larger projects we've actually helped projects that have been over 49 million dollars however the portion that we were helping was less than 20 million dollars and therefore we were able to assist that particular project so as you can see we have quite a lot of leeway as to the kind of help we can provide to small businesses how are we doing well this is as of yesterday we have assisted total loans and investments of 504 almost 505 million dollars this is in three years with a very small staff usually two or three people working on this program so far we have utilized 63 million three hundred and eighteen thousand nine hundred and forty seven dollars are actually a million and a half of that are so-called recycled funds funds that have already been paid back to us so in essence in the funds that we received from Treasury we've used about sixty one and a half million dollars do not then say okay let's see now 61 and a half million dollars subtracted from 78 million 365 to 64 oh they're running out of money remember we're making loans and lines of credit and some investments available and those funds get repaid and those funds earn interest and principal getting repaid therefore we probably have a total of about 30 to 35 million dollars left because of the 17 million dollars that is left from our original allocation we still have received oh about 14 or 15 million dollars of repaid funds plus another couple of million dollars of interest in principle so we have plenty of money available for this program we've actually catalyzed over for almost four hundred eighty six million dollars worth of private sector funds in loans and investments and created or retained about 4,200 jobs the key thing is that for every dollar of this federal money that was allocated to us we've managed to bring in seven dollars and eighty six cents worth of private sector support for small businesses it's a record that we're very proud of but we've gotten a lot more to do there are certain things that we can't do so we don't want to fool you into anything we can't do passive real estate that's a very common thing now if you're a developer we can help every company that wants to get established in your strip mall or in your building but we can't help you build the building and we also of course don't do housing so we cannot do passive real estate we can only do companies that are hiring permanent employees in either service business or manufacturing or other businesses we are also not able to finance ownership interest it's a kind of a nebulous term that US Treasury has put into this program so far we have cornered them into admitting that it involves shares or stock so we can do asset sales but not stock or share sales we also can't assist goodwill now as you probably know when there is an acquisition of one company by another very often there is a large category called goodwill where a number of intangibles are thrown in customer lists websites intellectual property patents special techniques or tools we can do we can participate in financing for those kinds of tangibles and intangibles it's just the word goodwill that we're not allowed to provide support for so it's important when you see goodwill in an acquisition that you break down goodwill into its component parts now if there is goodwill that doesn't poison the entire deal all it means is that we will be able to support the project with a companion loan that is a loan that does not involve any goodwill or shares so a project might involve a line of credit and a term loan and equipment loan and a property loan for real estate we can participate in any one of those loans up to fifty percent as long as there is no goodwill or shares or stock involved of course there are also certain industries or purposes that we're unable to support for instance we are not involved in any way in the manufacture sale wholesale or retail of firearms tobacco products sexually explicit materials there are other industries just contact us if you have a question and we'll be glad to help you with it one of our programs is called a capital access program once upon a time this was a very powerful program because it was pretty much the only program around now it's a program that only a very small number of banks use and they use it for a number of reasons number one it's very easy for them to use number two we don't review their their credit analysis or their credit decisions number three it is an easy program for a bank that does a lot of small loans that just wants to get some support without going into the usual longer process of a participation loan what this is is sort of an insurance policy or an insurance reserve in essence a client goes to a bank for a loan the bank makes the loan but also charges a fairly hefty upfront fee of between two and five percent that fee is then placed in an escrow account at the bank that's making alone and then that bank contacts d CEO and says look I am registering or enrolling or this particular loan in the capital access program I have charged a fee of between two and five percent let's say it's three percent now therefore D CEO since we are registering this particular loan in the program we would like you to match the three percent fee that fee is also put into the escrow account so on that particular loan where I mentioned the three percent fee is actually six percent of that loan in this escrow account since the bank makes a lot of these small loans these fees build up if the loans perform then this reserve account or this escrow account builds up and up and acts as a reserve for the bank in the event that alone goes bad I'd like to skip to the next slide so I can illustrate it a little bit more simply that green bucket is the escrow account at the lenders bank on the left hand side you see the lender making a number of loans and taking fees from those particular borrowers they then enroll the loan in our capital access program and then we match the fee if the loans perform the money in the bucket keeps building up but if for some reason one of those loans under the lender banner goes bad the bank would liquidate the company that that has the bad loan and if they are still old principal or interest they can then dip into the bucket to protect themselves in essence the bank is able to establish a reserve against their small loan portfolio without using their own capital again this is a program that is not used very much now but it's generally up to some small banks to use it it is an expensive program for the borrower but sometimes it's the only alternative available for the borrower our main program is our participation loan program well what's a participation loan program client walks into a bank no no I'm not starting a joke hi walks into the bank it says hey you know I'm looking for some money I need a million dollars for this business proposition the bank looks at the business plan of the borrower says you know it's a good business plan and you know we like you you have a good credit score you have a little equity but you know what you're in a service business and we really don't like the collateral or you're not in a service business but you're in a business that has very specialized collateral or maybe you don't have enough collateral on the other hand the bank may say you know we like what you're doing but we want you to put in some more of your own money some more equity we want you to we want to be able to see that you have skin in the game as the expression that they use what we do is we go in with the borrower to the bank and we say to the bank look if you make this loan we're willing to buy a portion of the loan and then fully subordinate our portion to the bank what that means is if that loan goes bad the bank would liquidate the company and apply the proceeds that they get from liquidating the company and any other collateral of security to first to their own expenses in pursuing the liquidation then to their own interest that's owed to the bank including penalty interest and then to the bank's principal so in other words the bank is paid expenses interest in principle before the state gets absolutely anything on its portion of the loan that's why the bank's regard what we do as a good substitute for equity from the borrower and in some cases an enhancement of the collateral available to support the bank's loan we have only derivatives we have a question from the audience the revolving line of credit would that kind of be like a equity line of credit against your home or your business um somebody has gone ahead and if they're reading the revolving line of credit they're going too far well they're on the same slide that you're on right now oh yes the revolving line of credit is for business purposes we do not make revolving lines of credit available under a home equity line of credit that's something that a bank would do and that would be part of the equity investment by the borrower in their business okay okay so if somebody was asked by the bank to put in some equity in a project and the borrower decided okay what I'm going to do is draw down some equity in my home in order to provide the equity in the business and that's something that they would arrange with the bank we're not involved in that okay that's great thank you very much hey so our statement we have a standard program we have a program for minority women disabled and veteran owned businesses which may or may not be the best program for every minority woman disabled or veteran owned business depends on certain circumstances that I'll go into in a bit we have a revolving line of credit facility where we assist banks in making revolving lines of credit available usually for working capital for things like discounting receivables or buying inventory or paying salaries that kind of working capital need and then we also support projects that are already supported by the sba seven a and 504 programs let's talk about our standard program first there's the process that we have to go to right now we have about a hundred and five banks that are in our participation loan program in order for a bank that's not in the program to get into the program it's very simple they have to sign our master agreement which is about Oh 40 pages which has a lot of examples and samples and exhibits forms but it also has the guidelines basically it's almost like a cookbook that we provide to the bank saying okay this is our arrangement this is how we're going to work together this is what you have to do this is what you have to do this is how we get our money to you this is how you get our money back to us so it's simply sort of an instruction manual that that shows the responsibilities of all parties once I lender signs a Master Agreement only once once a bank signs that Master Agreement every officer in every branch of that bank is in our program and all of them are able to bring us deals to be supported with our participation amounts okay once they sign the Master Agreement the documents for each project submitted to us is actually quite short and simple the bank is required to electronically transmitted to us a copy of the internal credit approval that is contingent on our being involved in the deal we're looking for something that's in Microsoft Word or Excel something we can cut and paste because basically we're not going to borrow a bother the borrower with a whole lot of documentary requests we're in essence going to do our research on the research that has already been done by the bank that they put together in their credit approval process within their own bank for their own underwriters so we don't ask the bank to do anything extra in terms of their credit approval memoranda we don't ask the borrower to do anything extra now the borrower does have to the lender does have to complete a one-page lenders application for participation actually that's an exaggeration they do about one quarter of a page telling us who the lender of the actual officer is who to contact what the name of the client is and how we've agreed to split the loan between us and the bank the borrower fills out couple of forms mostly certifications and something called an applicant's project proposal where the borrower or the prospective borrower explains what they're going to do with the money we basically have them on record that they're going to be using it for equipment or real estate or working capital we get those forms we generally take two to three weeks to secure our internal credit approvals because we have our own internal credit approval process well we've shortened
it in recent years and the reason that we're saying two to three weeks is because we've been really really busy usually it took us two weeks but now we're pushing it to three because people are learning about our program and it's become very popular once we get our internal credit approval we send an approval letter to the bank basically saying okay we're in we're buying a piece of this loan we then asked the bank to send us back to document signed and by the way they can scan it back to us so basically it could be a same-day process and once they sign that document their then able to disperse the full amount of the loan that includes our portion the borrower does not have to worry about us settling up with the bank the bank and we will work it out ourselves we will not hold up the bank providing the funding to the borrower so how much can we cover with this program here well what we'll do is the lesser of twenty-five percent of the total project for fifty percent of the specific loan were involved in up to two million dollars with some eye on job creation and job retention boy there's a lot of terms in there we better explain what do we mean by the project well very rarely are we asked to simply participate in one single loan usually there's a request for equipment but also some real estate and those are two kinds of two different kinds of loans and there may be a revolving line of credit involved in there so generally the project it may involve a number of different loans from the same lender however the project also includes loans from other lenders it includes for instance under the SBA 504 program it would include the sba's portion it would include any equity coming from the borrower it would include any subordinated debt from shareholders it would include any capital leases if it's an acquisition it might include some seller financing if the real estate is going to be leased it might be some leasehold improvements being provided by the less or so all of that becomes part of the project and as you can see sometimes 25% of an entire project it can very easily be more than fifty percent of any particular piece of that project very often will have banks that are concerned about an equipment loan who are also willing to give a revolving line of credit which they're not that concerned about because it is supported by receivables and inventory it's short term itself liquidating they may say look we want you to take a look at this project and then after you've decided how much D CEO is willing to put into this particular project we want you to put all of that money against the equipment loan that we're concerned about so the bank tells us what portion of the project they want us to put our money in in terms of job creation and job retention we ask the borrower to make a serious and professional guess as to how many jobs they think they can create within the next two years that's job creation and if it's anywhere as reasonable number we accept that particular number on job retention what we're looking to do is save jobs for the state of Illinois it could be because a company is struggling it needs to modernize it reads to put in new product lines it needs to expand or else it won't be able to compete or it may be deciding that you know my we might want to move to another state where there might be some other opportunities what we want to do is retain those jobs in Illinois therefore if there's any job retention what we do is we count the number of jobs that we are potentially retaining by assisting the loan and then we ask how many jobs do you think you'll create over the next two years and we then add the job creation and job retention together and we multiply that times a maximum of fifty thousand dollars per full-time equivalent to be created within the two years or any jobs at risk being retained okay so it's the lesser of the number of jobs being created and retained times fifty thousand dollars twenty-five percent of the project or fifty percent of the loan our maximum tenor in other words the maximum term that we can put our money out is ten years that does not mean that you can't do a real estate deal where the amortization period is 20 25 even 30 years for the first ten years we will follow that amortization schedule however after ten years we need the loan to balloon so that we can get the rest of our money back you see we're trying to make sure that this program goes on forever and ever and therefore we need to recycle our funds if we lend them out for 25 or 30 years we won't get them back quick enough to lend out to others therefore after ten years we need whoever is going to refinance the balloon at the end of the initial loan period to pay us back or the borrower can pay us back directly our interest rate is below market actually it's a very simple formula you take the interest rate charged by the bank on their portion and you subtract two percent okay if the bank is charging five percent we're charging three percent if on a line of credit the bank is charging prime plus three quarters or four percent in this current market our rate is two percent or prime minus one and a quarter it's it's a way of providing some benefit to the borrower in addition to the risk mitigation that we provide to to the bank again as I mentioned we go up to fifty thousand dollars per job created within two years or a risk job that's being retained one of the great features of our program now advantage Illinois over our old state program is that we are now able to refinance however although we can refinance Bank a's loan with Bank be just at any time that the borrower requires that kind of refinancing there are limitations on our refinancing bank pays loan with the same bank so infinitely yes I I've had a comment from the audience that they can't hear can we do a quick sound check to see if everybody can hear please raise your hand with a little man its top of the screen if you can hear us all right okay people can hear us please continue okay sorry anyway on refinancing we can refinance and unrelated an unrelated well one lenders loan with an unrelated lender or as we put it here Bank A's loan with Bank be so that a borrower can get away from a bank that is unwilling or unable to help them by going to another bank however if Bank a would like us to refinance one of their own loans there are certain hurdles number one the loan has to be maturing or ballooning number two the bank has to write a full credit right up not just a little short thing saying hey we want to refinance number three the bank can't just refinance for the purpose of refinancing only and number four the bank has to provide significant new money now Treasury hasn't quite defined what significant is but we're pretty sure that there's something there to looking at something like twenty percent so if you have a line of credit for a million dollars and bank a would like to refinance that line of credit they would probably have to provide the borrower with a 20-percent increment or 1 million to in the new line in order for us to help them assuming the other three issues are obstacles are met we have a program for minority women disabled and veteran owned businesses instead of two million dollars we only go up to two hundred thousand dollars instead of going ten years we only go seven years hey wait a second this is supposed to be a program to help give special help to minority women disabled and veteran owned businesses well as you can see from the small print we're actually willing to go forty percent of the project or fifty percent of the loan forty percent instead of twenty-five percent under our standard program so how does that work well this program is designed mostly for small retail businesses franchises the kinds of starting businesses that minority women disabled and veteran entrepreneurs use to get into ownership of a this give you an example let's say there's a woman that wants to open a Domino's Pizza franchise she has a good credit score she has some equity in her home she has experience as an assistant manager of a dominos pizza store the bank likes the Domino's Pizza franchise because they provided a lot of support marketing and training and and other kinds of support but it cost 250 thousand dollars for that franchise and our entrepreneur doesn't have that money well we'll do is go into the bank and say look if you provide this $250,000 loan we will buy up to 100 thousand dollars of it and fully subordinate our $100,000 to the bank's hundred and fifty thousand dollar exposure and yet the bank still has first lien on absolutely all the assets and all the other collateral and security including guarantees so you can see how this really helps a minority woman disabled a veteran owned business to get started this is the starting point for real empowerment in business community now there's an effort to improve this program even further it's now being worked on and when we find out further information about that we'll be sure to make sure that the market finds out about it revolving lines of credit through a lot of businesses that don't need to buy more equipment and they don't need more real estate but they need working capital business is going great but their customers are asking for terms so the company is basically invested in iou's from their clients or company buys some new equipment it's producing goods like crazy they need more inventory or they need to hire people and of course you hire people you have to pay them and then they start producing eventually as your other employees do so this is for short-term working capital type needs the reason we have this separated is because the treatment is separated under is separate under our participation loan program or standard program we're typically talking about term loans where the bank provides funding to the borrower all at once under a revolving line of credit program the borrower borrows the money as they need it and so that might not be all at once so the bank actually holds the money until the borrower needs to borrow it we are typically 25% of the project or fifty percent of the loan so again we are taking a portion of this revolving line of credit when the borrower wants to borrow some money from the revolving line of credit let's say it's a million-dollar revolving line of credit and the borrower only wants to borrow two hundred thousand dollars then if we have twenty-five percent of the project then we would provide twenty-five percent of that two-hundred-thousand-dollar request or fifty thousand dollars and the bank would provide two seventy-five percent or 150 thousand dollars so it's it's a it's a prorated sharing of each of these drawdowns that are made by the borrower because the bank is going to be holding the money and the borrower may not be using it we're going to charge the bank a very small interest rate one quarter of one percent of the entire amount of our participation just simply because it's against state law for them to hold the money and not pay any interest when it's really the borrower that we're trying to get the money to okey doke but yes our maximum tender by the way is two years now if you if a bank does a line of credit with us in support of their borrower and then after two years they still need our help we just ask them to reapply and we're willing to consider extending our support for another two years now we used to have some really terrific programs to support the SBA I won't go into them because they were so good that the US Treasury decided that they were too good and they've asked us to terminate the program so some of those programs were actually iterations that we had during our state finance program days before advantage Illinois where we would do the equity portion under SBA 504 deals however according to the latest legislation the US Treasury is telling us that we cannot be involved in a deal that involves SBA or USDA or other government agency support if we're providing support for the same purpose as the government agencies so on an sba seven a deal if that 7a loan is for real estate we cannot be involved in providing our advantage Illinois support for real estate but we can work with the bank on providing support for equipment or for working capital or any other purpose other than the same purpose that the SBA in this case is providing support form under the sba seven a program which as you know is a deficiency guarantee program whatever the SBA is providing it's a guarantee support for is an area that we're not allowed to play in we can only provide support for purposes other than what the SBA is providing support for in a separate loan here's a quick example we've been working with a company that is planning on a 12 million dollar expansion 8 million dollars of that expansion is for real estate four million dollars of that expansion is for equipment the company was planning on using the SBA 504 program and doing a 12 million dollar SBA 504 supported project however because of the change in our program they've asked that they do a nate million dollar SBA 504 supported real estate project and then we and the bank will split the four million dollars for equipment and therefore we're splitting that loan fifty-fifty the bank's interest rate on that particular portion was five percent our rate was going to be three percent therefore the borrower was going to get support for this real estate portion at four percent fixed for ten years pretty good huh so we can provide support as a companion lender under programs that are under projects that are supported by the SBA but we have to make sure we're using different purposes or supporting different purposes we also are one of two states in the entire United States that received support or approval from the US Treasury to invest in venture capital directly we are able to invest in common stock preferred shares or other equity or quasi equity investments like convertible subordinated debentures we targeted high tech companies we were not the lead investor there had to be a lead investor who actually investigated the company and brought the investment to us to help them finish their investment rounds we were also looking not to have a big part of the of the entitle investment not more than twenty-five percent well this program really took off and with insects six months we had done about 17 or 18 different deals and we decided okay this is going a little too fast we need to take a rest so right now this program is indefinitely suspended while we manage the deals the investments that we now have whether or not we get back into venture capital lending or venture capital investment is up to the new d CEO management but this is a program that we invested several million dollars in and so far it looks pretty good now we have a website and we're very proud of the website because it's actually very user-friendly this website is under the department of commerce and economic opportunity homepage if you go to the d CEO homepage look for where in the blue section on near the top it says small business assistance if you click on that there's a drop-down formula drop-down table and one of the options is financing your business or financing options if you click on that you will then get to two options one is I think Enterprise Zone financing and the other one is advantage Illinois you want to click on advantage Illinois and that'll get you to this page that you see pictured here under advantage Illinois on the right hand side you'll see descriptions of our capital access program our participation loan program and our Investor lanoy venture and under that you'll see where it says lenders that's where banks go in order to join our program and in order to get the application documents they need for each and every deal that they bring to us so that's a great place in case your bank is not on our list of participating lenders that's a great place for you to direct your bank to go in order to sign up and signing up is a very easy process for your bank there are some frequently asked questions there you can peruse those if you wish however an important part for borrowers to check out is the section there that says advantage Illinois participating institutions that's the
last link under the section that says downloads if you click on that you will see the list of about a hundred and five banks that are already participating institutions in our advantage Illinois program now you will note that the very largest banks are not in this program they've just decided maybe they're too good or too big to nationally spread to deal with each state's programs however there are lots of banks that are in that program that are in our program that are listed there please ignore the addresses that you see in that list ok there are addresses there that indicate the office of that bank that signed our master agreement so for instance on mb financial i think you'll see them listed under rosemont illinois borrowers do not have to go in this particular case 2 mb financial's branch in rosemont illinois they just go to any mb financial branch or any wind trust bank branch or any American chartered bank branch or any one of the other banks that are there as they if the particular banker that you're dealing with at a particular branch does not know about advantage Illinois programs please contact me and I'll be glad to not only speak with them but if necessary to visit the bank with you in order to get them either signed up for the program or to help you with your particular loan need and the next and easiest slide for me to put together is our thank you slide well thank you Stan for sharing all of that great information with us about advantage Ellen oi it's a great resource for all of our Illinois small businesses it is something that we look forward to being able to share on a regular basis with our guests who are on the webinar as well as those who are going to be listening to the recording what we would like to do right now is encourage you to ask any final questions that you have so that we might answer those for you and take just a moment to complete our poll questions here we we do need to show you that we have linked here that are available to you and you oh sorry folks navigate to those slides for your youth and we want to thank Stanley for joining us today that's the department of commerce and economic opportunity we're going to end our recording now but we will leave the pod open so that you can download the links
