During the recent legislative session, the Capital Access Act, sponsored by Rep. David M. Jones, D-Salt Lake, was passed, providing incentive for banks to make loans they may otherwise reject.
Under the new program, according to state economic development officials, a loan loss reserve fund is established with money from the borrower, the lending institution and a match by the state.This reserve may be used by the bank in case of default. The bank charges the borrower an initial premium and then matches that amount. The program, administered through the state treasurer's office, matches the total.
For example, when a bank makes a $100,000 loan, the bank charges the borrower a $2,500 premium, placing it and $2,500 of its own money in the loan loss reserve. The $5,000 is matched 1.5 to 1 by the state for a total of $12,500 or 1.25 percent of the loan value.
If the bank makes nine similar loans, it would have $125,000 in the special reserve. In the event of default, the bank withdraws an amount equal to its loss up to the amount of the reserve.
State officials said the program can fill specific gaps by providing small lines of credit for import/export businesses or financing for special purpose facilities or receivable inventory.
Information about the program is available from the Utah Department of Community and Economic Development at 538-8700.