Main Street Bail Out Plan For NJ Comes Into Focus
Corporate & Finance Alert
December 30, 2008
On December 16, 2008, New Jersey Governor Jon Corzine signed legislation creating the New Jersey Main Street Business Assistance Program. This program is part of the series of initiatives established under the Governor’s Economic Assistance and Recovery Plan which was announced by the Governor on October 18, 2008 in response to the economic crisis. The Program is intended to enable qualified small and mid-size businesses and nonprofit organizations in New Jersey to access capital by leveraging $50 million in State support for bank lending through loan participations and credit enhancements. The Program will be in place for the next twenty-four months.
The new legislation amends The New Jersey Economic Development Authority Act (N.J.S.A. 34:1B-1, et. seq.) in order to expand the purposes of the Economic Recovery Fund established pursuant to the Act. $50 million is appropriated to the Economic Recovery Fund for the purpose of implementing the Main Street Business Alliance Program and will be administered through the New Jersey Economic Development Authority (NJEDA) to stimulate the economy.
NJEDA has the authority to adopt emergency rules and regulations to implement the program. Although rules have not yet been published, the State has released some details regarding the Program that are similar to existing programs administered by NJEDA. Through its participating banks and Preferred Lender Partners , NJEDA will offer a loan participation and/or guarantee product and a line of credit guarantee. For fixed assets such as buildings and equipment, NJEDA will provide a maximum participation of 25 percent, not to exceed $1 million, in a bank loan and a maximum bank loan guarantee of 50 percent, up to $2 million. For working capital loans to cover operating expenses, NJEDA will provide up to 25 percent of a bank loan, not to exceed $750,000, and a maximum guarantee of 50 percent, up to $1.5 million. The interest rate on NJEDA loan participations will be fixed at 5 percent for a maximum of five years.
It is expected that in order to qualify under the Program, borrowers must be in business at least two years, maintain jobs in New Jersey and meet other NJEDA eligibility requirements. NJEDA has not yet identified qualifications for the size of a borrower to be eligible for the Program, although NJEDA currently describes “small” businesses as having between 5 and 100 employees and under the program “mid-size” businesses will be eligible as well. Applications are expected to be available from NJEDA in early January 2009.
1 NJEDA’s website on December 29, 2008 indicated that the following lenders are Preferred Lender Partners: Bank of America, Capital One Bank, TD Bank, Cornerstone Bank, Columbia Bank, PNC Bank, Sovereign Bank, Sun National Bank, Peapack-Gladstone Bank, The Bank, New Jersey Community Capital, Roma Bank and Susquehanna Bank.