In a much-touted effort to help small businesses recover from the economic fallout from the coronavirus pandemic, lawmakers in New Mexico have made it easier to qualify for funding under a loan program. low interest rate.
Expanding the availability of funds with less restrictive criteria was one of the first agendas during the 60-day legislative session earlier this year.
But so far, only about $ 73.5 million of the $ 500 million allocated for business loans has been disbursed.
At least one disappointed lawmaker questioned the success of the loan program Monday at a meeting of the New Mexico Finance Authority’s Oversight Committee of the Legislative Assembly, saying the effort had negatively affected l one of the permanent funds of the State.
“This comes at a cost to the state of New Mexico in terms of a permanent severance tax fund,” said Sen. Joe Cervantes, D-Las Cruces. “I think we are missing the opportunity for the state to invest this money for the long term for better returns because we are suspending it, effectively. We’re kind of in limbo for this program.
The $ 6 billion Permanent Severance Tax Fund, established in 1973, is the second largest permanent fund in the state. It was initially funded by taxes on natural resources and grew through investment. Of all state endowments, the Permanent Severance Tax Fund has the most flexibility in how its money can be invested.
Marquita Russel, chief executive of the financial authority, which has been appointed by the legislature to oversee the lending program, noted that the agency only withdraws money from the Permanent Compensation Tax Fund if it is. necessary.
“We haven’t moved $ 500 million,” she said. “We have
$ 500 million, and we can take that money out of the SIC [State Investment Council] as we need application. … He always earns the money he made before because we tell them a month in advance how much money we think we need.
Russel also told lawmakers that a financial cushion has its benefits.
“The advantage of having more money than you need is that you can do it on a first come, first serve basis,” she said. “When you think there’s going to be a shortage, then you have to identify who gets the first shot and who would get the money. When you need to prioritize that, you slow down applications for other people. “
Russel also told lawmakers that other loans were pending.
“We still have almost $ 26 million in various stages of closing,” she said, adding that her agency was considering additional claims of $ 35-40 million.
The agency reviews applications “quickly but carefully” because of the potential for fraud, she said.
The application period will be open until May.
Lawmakers first made $ 400 million available for loans to small businesses affected by the coronavirus pandemic last year under the Small Business Recovery Act of 2020. Despite the need for financial assistance for businesses facing it to closures and other restrictions under state-ordered mandates, more than $ 42 million has been dispersed through 880 loans under the program.
“This program has had some success and has helped a lot of people, but it hasn’t helped as much as those who asked for help,” said Russel. “There were very specific requirements in this program which unfortunately hindered its access. “
As a result, lawmakers revised the eligibility criteria as part of a reauthorization bill that also made available an additional $ 100 million, bringing the total to $ 500 million.
Since then, the financial authority has disbursed an additional $ 31 million through 502 loans, for a total of approximately $ 73.5 million loaned.
Under the changes passed as part of the reauthorization bill, only 51% of a business’s ownership must be owned by a New Mexico resident. Before, it was at least 80 percent.
“Many family businesses whose parents may have left state or whose sister has left the state are now eligible, so many family businesses have been able to access funds as a result of your change,” he said. said Russel.
Russel said the terms of the loan had changed “quite dramatically” from a three-year loan to a 10-year loan.
“There is no interest this first year, the next two years are only interest and are paid annually, then it is seven years of repayment of monthly payments of principal and interest,” he said. she said, adding that it was a fixed interest rate loan.
The reauthorization bill also increased the number of nonprofits eligible for funding and increased the maximum loan amount from $ 75,000 to $ 150,000. To qualify for $ 150,000, Russel said the financial authority requires personal guarantees from any owner who owns more than 20% of the business.
“There is more money available, a lot more available, for businesses, and we’re seeing a number of them come in and take advantage of the extra money because their businesses really need it right now,” said Russel. .
Under the original legislation, businesses could only use the loan proceeds for general operations. Now they are allowed to cover capital improvements resulting from the pandemic, such as building an outdoor patio.
Cervantes said at the meeting that he predicted the loan program would not generate much interest.
“One of the arguments I would frequently make in the [Democratic Senate] caucus was that my experience in business and with business people I knew was that these programs probably wouldn’t have much participation because companies in the midst of a pandemic aren’t looking to take on more debt, ” did he declare. “They are already running out of steam and even though the conditions are very favorable, often the last thing they have to do is take on more debt. And so I wasn’t surprised don’t be surprised that you see… very low turnout. Let’s be clear about this.
Still, Cervantes said companies would be “dumb” not to take advantage of the loan program.
“I have to tell you,” Cervantes said with a chuckle, “it’s professional misconduct not to do that. I’m not here to tell companies how to run their business, but I can’t think of the circumstances. where it’s not a good deal for companies in New Mexico. So the fact that we have little ownership, a lot more money than people get out, I think it has to come back to us a bit. to try to spread the word.