The New Mexico Small Business Investment Corp. is making $25 million immediately available to local lenders at zero percent interest to help channel low-cost credit to small businesses struggling under the coronavirus.
It’s unclear what interest rate lenders will ultimately charge borrowers, but by providing no-cost loans to them, the NMSBIC hopes to make urgently needed cash available at below-normal rates for businesses during the crisis, said NMSBIC President and Board Chair Joseph Badal.
“Ultimately, our mission is economic development to help small businesses throughout New Mexico,” Badal told the Journal. “Our board unanimously approved this new $25 million loan facility last Monday. We’re excited about being able to do something immediately to help small businesses in this unprecedented situation.”
NMSBIC, a nonprofit founded in 2001 under the Small Business Investment Act, currently manages some money from the state’s Severance Tax Permanent Fund to create jobs through small local businesses. It invests the money in small business lending organizations like DreamSpring (formerly Accion) and the New Mexico Community Development Loan Fund, which in turn pump those dollars into new startups and existing businesses that generally can’t get credit from traditional lending institutions.
Last year, the State Legislature raised the amount of money allocated to the NMSBIC from 1% to 2% of the total value of the roughly $5 billion Severance Tax Permanent Fund, providing an extra $57.8 million, which the NMSBIC received in January, said Executive Director and Investment Advisor Russell Cummins. That permitted the NMSBIC to create its new $25 million lending vehicle.
The new “COVID-19 Loan Assistance Fund” will make zero-percent loans available to different lending partners for up to three years. The NMSBIC will also lower the 2% interest rate it currently charges on existing loans to 1% for one year to help lending organizations manage expenses and shore up their available capital during the crisis.
NMSBIC lending programs have produced positive returns. But the board is now allowing the new COVID-19 fund to operate on a break-even basis to help lending partners offer loans at discounted rates, Badal said.
The lending organizations will determine appropriate interest rates for borrowers based on their own overhead costs, institutional expenses, and the specific circumstances and conditions of businesses applying for assistance.
In some cases, it could be as low as 3.75%, which is equal to the U.S. Small Business Administration’s disaster relief loan rates, said DreamSpring President and CEO Anne Haines. But that depends on available funds and the type of aid needed by particular businesses.
Apart from low-cost credit, DreamSpring is also helping existing borrowers by delaying loan repayments or allowing interest-only payments.
“Small businesses across the state, in nearly every sector of the economy, are suffering devastating losses,” said Gov. Michelle Lujan Grisham in a statement. “We are tapping every resource we have, such as the NMSBIC, to provide relief to businesses during this unprecedented public health emergency.”