Last week, Gov. John Bel Edwards announced the creation of the state-led Louisiana Loan Portfolio Guaranty Program, which will offer loans of up to $100,000 to Louisiana small businesses impacted by the COVID-19 crisis.
But with many loan programs currently up for grabs, small business owners may be overwhelmed and unsure of whether this source of funding best fits their needs. Furthermore, many wonder whether they can pair it with other funding streams—such as the Paycheck Protection Program and Economic Injury Disaster Loans—to stay afloat during this time.
Here’s a more in-depth explainer of the LPGP for businesses looking for capital, based on information from LED.
What is this meant to address?
It’s meant to help main street and rural businesses sustain operations. Loans will provide up to $100,000 in immediate financing to help small businesses meet their payroll, retain employees, pay their rent and mortgages, and keep their lights on and doors open.
Importantly, use of loan proceeds must be directly related to the economic injury caused by the COVID-19 pandemic. Suggested uses for the loan are to maintain employee payroll for an eight-week period at payroll levels at the time of application for the loan, as well as to continue operations within COVID-19 executive orders, proclamations and relevant state agency guidance.
Which companies can take advantage of this program?
All for-profit small businesses domiciled in Louisiana that employ fewer than 100 workers and have been impacted by COVID-19 are eligible, including day cares, farmers and fishermen. Main street small businesses like restaurants are especially encouraged to participate.
However, unless otherwise engaging in essential activity, the following kinds of businesses are not eligible for the program: those engaged in gaming, nonprofit organizations, real estate developers, pawnshops, payday loans, lending and investment concerns or speculative activities.
How does it work?
The LPGP will supply capital to create a loan guaranty fund of up to $50 million, in which LED would guarantee 20% of the pool allocated to each participating bank. So far, more than 30 members of the Louisiana Bankers Association have agreed to participate in the program; to date, they’ve requested allocations for about two-thirds of the $50 million in loan capacity available. Each bank will be responsible for reviewing, issuing and securing collateral if necessary, and collecting loans of up to $100,000 per applicant and any affiliates.
Meanwhile, the loan program will be administered by the Louisiana Public Facilities Authority, a self-supporting public trust and public corporation that issues taxable and tax-exempt bonds to finance projects throughout the state.
To apply, qualifying businesses must contact a participating bank directly. Applicants will be able to borrow up to $100,000 at below-market interest rates of no more than 3.5%. An acceptable loan amount would be tied to pre-COVID-19 employment and functionality of business expenses before the pandemic, as evaluated by the banks. Non-revolving lines of credit and term loans are eligible types of financing in the program.
During the first six months, no interest and no payment would be due. The repayment period could range from one to five years.
Is there a deadline to apply?
Applications will be accepted by banks until April 30, 2020.
Can this loan be combined with the Paycheck Protection Program or Economic Injury Disaster Loans?
While LED is not aware of anything that would prevent participation in both the state program and SBA programs, the SBA has cautioned that the use of funds by borrowers from the state program should be for different purposes than funds used from the SBA programs by the same borrower. Confirm with your lender how the use of funds in different loans would affect the individual borrower’s situation.
Editor’s Note: This story has been updated with more recent information from LED regarding whether the loan can be paired with existing federal loan options.