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Collateral Assistance Fund

Providing Collateral Assistance to Howard County Small Businesses

Purpose:

The HCEDA (Howard County Economic Development Authority) Catalyst Loan Fund is a locally managed source of capital used to finance small, growth-oriented, and expanding businesses whose efforts will create permanent jobs and leverage private sector investment. In order to assist small, minority-owned businesses, including women-owned, U.S. veteran-owned, or businesses owned by other socially disadvantaged groups that are unable to qualify due to insufficient collateral, Howard County has provided the HCEDA with funds to institute a Collateral Assistance Fund.

The Collateral Assistance Fund is a collateral assistance program designed to assist these small businesses to obtain a HCEDA Catalyst Loan that would otherwise qualify if sufficient collateral was available. Specifically, as outlined more fully below, a certificate of deposit or other similar account, will be set up and held by the HCEDA from funds in the Collateral Assistance Fund to serve as supplemental collateral with respect to the Catalyst Loan.

Collateral assistance is capped at $100,000.

Eligibility Guidelines:

  • Business must be located in Howard County.
  • Business must be profitable and must have been operational for at least 2 years.
  • Cash flow and projections must be sufficient to repay obligations.
  • Borrower must demonstrate ability to repay debts, as indicated by a good credit history.
  • Business must be deemed capable of achieving projected goals, including the requested financing.
  • All individual business owner(s) who own 20% or more of the business must provide personal guarantees.
  • Business owner(s) must not own any real-estate in the State of Maryland that is available to be pledged as collateral.
  • Business may not have a prior loan outstanding with another lender (business assets must be available to HCEDA as 1st or 2nd position to pledge as collateral through a UCC lien) unless special circumstances exists. The analysis will be conducted on a case by case basis.
  • No prior bankruptcy within 7 years.

Uses of Funds:

  • Working capital
  • Inventory/equipment purchase
  • Build-out/expansion costs or similar expense.

Note: The uses of funds must not include “retiring existing debt”

Application Process:

  • Any potential borrower must submit a complete Catalyst Fund Application package along with the required financials and a $300 non-refundable application fee. After review of an Application, it is at the sole discretion of the HCEDA to determine if an applicant qualifies for the Collateral Assistance Fund.
  • If approved for a Catalyst Loan with a collateral supplement through the Collateral Assistance Fund, the following fees shall be paid by the borrower: The borrower, at closing, will be responsible for paying a 1.5% Commitment Fee, a $25 UCC filing fee, and a $10 document processing, in addition to any fees associated with establishing a CD account, or other collateral account, as determined by the Bank.
  • Interest rate for a Catalyst Loan with a collateral supplement from the Collateral Assistance Fund is 7%. Should a borrower obtain real estate or other qualifying collateral during the loan period, it must be pledged as collateral. Once pledged, the interest rate on the Catalyst Loan shall be reduced to 4%.

Review Process:

  • HCEDA will review compliance with the eligibility criteria and conduct the underwriting process of loan requests.
  • All Catalyst Loan requests utilizing the Collateral Assistance Fund are subject to review and approval by the HCEDA Incentives Committee.
  • Approvals are subject to availability of funds and at the discretion of the Incentives Committee.

Collateral Supplemental Implementation:

  • As HCEDA identifies a qualified Loan Fund applicant requiring supplemental collateral from the Collateral Assistance Fund, and upon receiving the approval of the HCEDA Incentives Committee, a certificate of deposit or similar account (Collateral Account) will be set up in the name of the HCEDA as Lender, with a written agreement through the Bank, and assigned to guarantee the collateral shortfall of the Applicant. When the loan is sufficiently paid down, as determined by the HCEDA, the Collateral Account, including interest earned thereon, will be released and returned to the Collateral Assistance Fund. If the borrower defaults, the CD will be released to the Lender’s Loan Fund account.
  • If a personal guarantor(s) purchases real-estate in the State of Maryland subsequent to the loan and collateral short-fall assistance approval, the borrower must notify the HCEDA in writing and must pledge the property as collateral as part of the existing loan.

Loan Maturity/Payoff:

  • Upon satisfying the repayment requirements of the loan, HCEDA will release all the liens and will release the Collateral Account and deposit the funds from such account, including all interest earned, to the Collateral Assistance Fund.
  • The borrower will be responsible for paying fees that might incur through the release process.

Please contact our Loan Fund manager at dhpatel@hceda.org for more information.