As published in the April 1, 2008 Toledo Business Journal
Richard Cordray
Ohio Treasurer of State
State of OH increases
low interest
loans
Toledo Business Journal recently interviewed Richard Cordray, Ohio Treasurer of State. He shared the following thoughts.
Toledo Business Journal: Your office is offering a program called GrowNOW. Can you discuss the purpose of this program and its expected impact?
Richard Cordray: This is a program whose entire intent is to help small businesses have access to financing at low market interest rates – 3% off the market interest rate – to help them grow and create jobs. Small businesses are the job growth engine in Ohio’s economy and really throughout the country; this program is a way for us to take some of the Treasury’s money and put it into local banks in our community in return for them loaning it to small businesses at reduced rates so small businesses can buy machinery, retool their facilities, and be in a position to grow and add jobs.
TBJ: How much money does the State of Ohio have for this program during the coming year? Do you see this continuing in the future? What impact will a potential budget deficit for the State have on this program?
RC: By law, we’re supposed to be putting up to $500 to $600 million into this program. When I came into office, they had only put $18 million into the program the year before. So we thought that was a huge missed opportunity for the State. The State has had trouble adding jobs for the last 12 years. Small businesses are the places you go to find and make new jobs, and we were not providing the assistance we could to small businesses in the state. So we are determined to rectify that.
[A potential budget deficit] doesn’t really have any impact directly on our program. This is authorized by law, so it is part of what we do already with the investments and should have no negative impact on the program.
TBJ: What specific requirements must a company meet in order to be eligible for loan funds through the GrowNOW program?
RC: They are pretty general. If you are a small business, defined as 150 or fewer employees, your operations are in Ohio, and a majority or your employees are Ohio residents, then you qualify to participate in the program. It is a private / public / private partnership, so it’s banks working with the Treasury to provide assistance to small businesses. So, you do have to be able to show you’re creditworthy to a bank in order to get financing. But what we do then is we buy down the interest rate and we make sure that you get your money at 3% off of the market, which is a significant amount for a small business. And then that’s all there is to it. You show us your job growth and your job creation figures, and we will approve those loans and are happy to help those small businesses grow.
TBJ: What role do local financial institutions play in the GrowNOW program?
RC: They are critical to our program. They are our partners. We, by law, operate through banks. We don’t lend money directly from the State Treasury, because the State Treasury should not be bearing those kinds of risks. So, it’s banks that make the loans, and they’re the ones who take the risk. What we simply do is buy down the interest for them. But obviously then banks become critical partners. If this program is not easily workable for them or if there are problems in the program and they aren’t willing to make loans, then our program won’t operate. So we work closely with the banks and make sure that they can use this program easily with minimal hassle. And if they do, it’s beneficial to them because they get access to State deposits and they also on the other end get business clients that they are lending to in the community, which leads to all kinds of potential growth opportunities for the bank and the business.
TBJ: Can a small business get a GrowNOW loan at any bank, or are there selected participating banks in this program?
RC: Any Ohio bank can be a State depository, which means that they qualify to do business with the Treasury. We have tried to sign up every bank we can find in Ohio to be a State depository. At this point I think we have more than 130 depositories, and the list of those is up on our website. In every community in the State there are a number of banks that they can do business with. If any business is having trouble finding a bank that qualifies to work with our program, we can give them alternatives in their area. Whenever we find a bank that is not a State depository, we go out and recruit them. So pretty much any bank can do this.
TBJ: Can you discuss the collateral requirements that a small business may need for a loan that involves the GrowNOW program?
RC: That’s pretty much set between the bank and the small business. We don’t really try to control the bank decisions on financing. Collateral can be a problem for some small businesses that are new and don’t really have equipment yet, although the loan often allows them to buy equipment, and that can serve as collateral itself for the loan. So we don’t hear too much about collateral problems, but those would really be for the business to iron out with the bank rather than the Treasurer’s office itself trying to organize that.
TBJ: Some of the small businesses that may consider using the GrowNOW program may also be candidates for SBA financing. Can you discuss the differences that bankers will see with the GrowNOW program vs. an SBA loan? How do these two programs work with each other?
RC: First of all, they work together very well. We typically partner a lot with the SBA. It hasn’t been as extensive as our travels with the National Federation of Independent Business / Ohio (NFIB), but we do some traveling with the SBA and make some joint presentations. There is no reason why a small business couldn’t qualify for our program and an SBA loan.
A difference is the SBA loan typically involves some form of guarantee, which is not what we provide. What we do is buy down interest rates, so there are advantages and disadvantages to both programs. But we do find a number of businesses that access both. And as far as we’re concerned, that allows us to draw down federal funds into Ohio to our small business community. That’s a very good thing. Those funds otherwise would go to Alabama, Arizona, Idaho we’d like to see them come to Ohio. So we’ve been aggressive about building a partnership with the SBA both in the northern and southern districts of Ohio.
TBJ: We have seen financial institutions in our market tighten their lending standards with the current concerns about the economy. Can you discuss the loan activity around the state for the GrowNOW program and whether it’s being impacted by a tightening credit market?
RC: That’s an interesting question, because we’ve been wondering about that and concerned about that ourselves. I have not yet seen a lot of credit tightening in Ohio local banking markets. That’s a phenomenon that seems to exist on Wall Street with the Wall Street investment banks. I have not seen a lot of that in our local community. It may show up, it may be starting to show up, but at the same time that’s a reason why our program is important, because we are funneling money in deposits into the banks to lend in their local communities. So there is some sort of credit tightening that occurs in Ohio. This is one of many steps that can be taken to try to ease the crunch.
TBJ: Many business professionals will not spend time and effort if there is an involved and cumbersome bureaucratic process. Can you discuss the loan application process for the GrowNOW program?
RC: That is a very accurate observation and something that we’re mindful of. I have a small business background, and I know what it’s like to fill out lots of forms on top of trying to make your small business work. So we keep our program very easy, very accessible. With the GrowNOW [program], you can apply online. It takes less than a half hour to fill out our application.
Of course you have to work with your local bank, and that’s a different issue, but we promise a 48-hour turnaround time on a decision. Sometimes government programs don’t work because they are slow to decide. Businesses have to be able to plan. If they are dealing with a crisis or an issue or an opportunity, they need to be able to respond to that. So the least we can do with this program is make it very easy, very quick for them to work with us.
I’ll give an example. We visited a greenhouse in Bluffton [in late February]. They had a problem with their business because of the energy crisis going up so much. They had a boiler that heated the place that was burning oil. And of course oil has gone from $40 or 50 a barrel to over $100 a barrel [at that time]. They needed to replace that. They applied for a grant from the federal government from the USDA. They were in the running for the grant, but in the end they didn’t get it.
The trouble for them was they applied in May, the deadline was July, and they didn’t hear until September. All during that time they’re losing money because they haven’t solved their problem. They came to us and worked with our program to borrow the money to buy what they needed, and they said it went very quickly with us – less than two weeks start to finish.
That’s something we can offer and we try hard to offer. We know that if small businesses have trouble working with our program, they just won’t bother and we won’t succeed. If we’re going to succeed, our part of it has to be very easy for the businesses to work with and very easy for the banks to work with. And that’s something we take very seriously, and we’re working hard to be user friendly to them.