Rhode Island Offering $125 Million Loan-Guarantees to Tech Firms

On June 11, Gov. Donald L. Carcieri signed the Job Creation Guaranty Program. Sponsored by House Finance Chairman Steven M. Costantino and Senate Finance Chairman Daniel Da Ponte, the legislation establishes a $125 million dollar loan-guarantee program for the knowledge and technology-based sectors. Under this program, the state will not directly issue any loans. Instead, it will provide state backing to facilitate private loans. The Rhode Island Economic Development Corporation (RIEDC) will administer the program.

Under the program, 75 to 90 percent of each loan made by private lending institutions to qualified businesses will be guaranteed by the RIEDC. Responsibility of the loan only would be assumed by the state if the company defaulted. In cases of default, the RIEDC would request appropriate funding from the state’s General Assembly. They also would seize assets from the defaulting business to cover the loss.

An underwriting fee is charged to the borrower of the loan based upon the size and scope of the deal. A reserve will be created to house the fees collected. The reserve fund will cover the administrative costs and also will cover defaults.

The program goal is to facilitate loans to the knowledge and technology-based sectors that have had trouble finding sources of funding for business expansion. State guarantees should reduce the current risk involved in lending to these businesses. Due to the weak economy, banks and investors have been less willing to fund businesses that produce difficult-to-value intellectual property or software. Banks and investors also have been hesitant to invest in these businesses due to their lack of fixed-assets or tangible collateral. The software, engineering, high-tech and digital media sectors typically have less fixed-asset collateral than manufacturing sectors. Unable to obtain funding, businesses have been unable to expand. Supporters of the bill argue that this has hurt the competiveness of these Rhode Island firms versus states that have established similar programs.

Creation of permanent, high-paying jobs also is a top priority of this bill. Priority will be given to loans that will create permanent, full-time jobs paying at least 250 percent of Rhode Island’s minimum wage, or at least $18.50 an hour. The business also would have to offer industry-comparable benefits.

Establishment of the Procurement Assistance Program also was included in the law. The RIEDC, through the procurement process, will hire a consultant to augment the current procurement services currently provided by the RIEDC. Businesses will receive help obtaining federal, state and local contracts through the program. The consultant will provide business development services and/or products, assistance, and services throughout the procurement process.

Read the Job Creation Guaranty law at: http://www.rilin.state.ri.us/publiclaws/law10/law10026.htm.

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