U.S. Treasury Program to Support EO Transactions and Working Capital: Update

The U.S. Department of the Treasury announced the 31 states that have received credit funds totaling $10 billion under the State Small Business Credit Initiative (SSBCI). The states, in alphabetical order, are Alaska, Arizona, California, Colorado, Connecticut, Hawaii, Idaho, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Utah, Vermont, and West Virginia.

This program is distinct from SBA loan programs, and the credit can be used to purchase the interest of a business owner through an ESOP, coop, or employee ownership trust (EOT). To qualify for participation in the program, at the end of the transaction the employee-owned company must be at least majority employee-owned. The funds are available to companies with 500 or fewer employees, and loan sizes under $5 million.

A state can use the SSBCI funding to support an ESOP deal:

• through a loan guarantee that will help a small business attain the loan
• through participating in the ESOP loan alongside a private lender and sharing the risk
• through portfolio insurance where the lender creates a loan loss reserve fund made up of premium payments by the lender and the borrower
• through a collateral support program where the state sets aside funds to be used for collateral for the loan

Companies that already have an ESOP can borrow up to $5 million for working capital, acquisition of equipment, or facility improvements.

Transaction advisors should contact their state development agencies to learn about the potential to support specific ESOP deals. The NCEO has a list of Treasury outreach managers in each state in case people need help contacting specific state officials, and we can assist with contact the appropriate person in the Treasury Department or in your state. Contact Loren Rodgers for assistance.