NEW YORK, June 2 (LPC) - The New Mexico State Investment Council (SIC) fund is offering financing to in-state businesses, an alternative to federally funded loans for small and mid-sized companies that are heavy in requirements and often reserved for better-known borrowers.
The state sovereign wealth fund has provided a US$100m commitment to lend to companies within the state’s borders. It has partnered with Sun Mountain Capital, a client of the SIC since 2007, to manage the fund.
The extra capital is precious as businesses across the United States scramble to access and preserve cash amid the global pandemic. Risk aversion by more traditional sources of funding, like banks, as well as regulatory hurdles make it difficult for small and mid-sized borrowers to access federal funds.
“When the situation started getting worse, the council looked for ways they could help,” Charles Wollmann, an SIC spokesperson, said. “It is meant to supply emergency capital and fill the gaps that the other programs may have had.”
Some potential borrowers have had trouble ascertaining if they are eligible for the US$695bn Paycheck Protection Program (PPP) implemented by the US Small Business Administration (SBA) and the Treasury Department, according to a May 25 legal update by law firm Proskauer
Established by the CARES Act, the PPP provides small businesses with funds to pay up to eight weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
“The Recovery Fund was set up to be more flexible than PPP, which is about job retention. Ours is about setting the businesses up for job retention, growth and recovery. We want to make sure all parts of New Mexico are included,” beyond just the urban areas, said Lee Rand, a partner at Sun Mountain. “The program was intentionally made to be very broad.”
Businesses that already had a lending relationship with a bank were more likely to obtain loans through the PPP program, Federal Reserve Bank of New York economists wrote in the institution’s blog, Liberty Street Economics.
“The SBA always suggests that borrowers begin with lenders they already have an established banking relationship with because they know them best,” an SBA spokesman said.
Small business owners that may not be getting approval for loans should reach out to another PPP-participating lender. There are more than 5,500 lenders active in the PPP program, which had US$130bn available as of Friday, the agency said.
A Treasury Department spokesperson did not respond to a request for comment by press time.
Other programs, like the Federal Reserve (Fed)’s Main Street Lending Program are more all-encompassing, catering to both large and small companies, which has yet to launch. The US$600bn program can be upsized, if needed, Fed Chair Jerome Powell said in an April news conference.
A Fed spokesperson referred questions to Powell’s public remarks.
For the New Mexico Recovery Fund, loans are US$10m or less, with fixed interest rates of 3% to 10% and will be outstanding for normally two to four years, though the loans are not forgivable like PPP loans.
To be eligible, businesses must have 40 or more in-state employees, been affected economically by the pandemic, and commit to spending at least 80% of the loan proceeds in the state, according to the guidelines outlined by the SIC.
“One (driving factor for in-state lending) is to promote economic growth within your state and make sure companies within the state have various financing sources,” said Neil Sheth, director of global research at investment consultant NEPC.
Ninety companies applied to the Recovery Fund with about half meeting the basic requirements, and 23 proceeding into different stages of due diligence, Wollmann said. Several of the initial borrowers are in the hospitality and manufacturing industries but he declined to name the businesses. Additional term sheets were issued last month that could result in more loans, and the SIC anticipates even more coming forth this month.
“We are expecting the possibility of additional interest from borrowers as federal PPP funds run out,” Wollmann said. (Reporting by Andrew Hedlund; Editing by Michelle Sierra and Kristen Haunss)