Editor’s note: This is one of a series of articles examining the bond questions that will appear on the Nov. 4 ballot in Maine. Question 3 reads: Do you favor a bond issue to provide $4,000,000 in funds to insure portions of loans to small businesses to spur investment and innovation and to provide $8,000,000 in funds to make flexible loans to small businesses to create jobs, revitalize downtowns and strengthen the rural economy?
PORTLAND, Maine — Two state funds that help businesses secure loans could receive a boost of $12 million if voters approve borrowing that amount in November.
The $12 million question appears third on the Nov. 4 state ballot and has support from group Mainers for Small Business, which is making the argument the borrowing will spur economic growth during a period of recovery for the state, prompting an estimated $132 million in additional lending to Maine businesses.
If approved, the measure would allow the state borrow $4 million for a fund administered by the Finance Authority of Maine to guarantee loans to banks. That program is what FAME spokesman Bill Norbert called the agency’s “bread and butter,” acting as a backstop for lending institutions mitigating risk for loans they otherwise would not approve.
According to an estimate Norbert provided in legislative testimony, neither supporting or opposing the bill, the agency estimates an additional $4 million in that fund would generate about another $68 million in additional lending to create and retain about 1,548 jobs.
Chris Roney, FAME’s attorney, said the addition of $4 million to its reserve of $28.4 million to insure bank loans would immediately allow the quasi-public business and education lending agency to insure an additional $20 million in bank loans and would leverage more investment as those loans are repaid.
The other $8 million would go to a fund FAME distributes to regional economic development entities. Those entities, in turn, use the money to provide what’s called “gap financing” for businesses with fewer than 10 employees and businesses with as many as 50 employees in certain sectors. For businesses that can’t secure a bank loan or other money for the full value of a project, money from the Regional Economic Development Revolving Loan Program, or REDRLP, could help close the gap.
Representatives of various companies credited those programs with helping their businesses gain funding at a critical time.
“A first REDRLP loan 16 years ago allowed us to set the stage for future growth,” wrote James Detert, president of the Wiscasset-based Rynel and business development director for the wound care company Molnlycke Health Care. “We are now the the No. 1 hydrophilic foam manufacturer in the world, with a multimillion-dollar manufacturing facility in Wiscasset, and have since been acquired by Molnlycke, the No. 1 wound care company in the world.”
Supporters and others who testified on the borrowing proposal as it made its way through the Legislature said both pools of money would have an amplified effect on the state’s economy, as they are used to spur other investment in or lending to a business.
The bond’s most notable opponent is Gov. Paul LePage, who vetoed the borrowing proposal in May, objecting to more state borrowing and the effectiveness of the regional program. He stated support, however, for the $4 million boost to the loan insurance program.
“I support providing flexible capital for Maine small business,” LePage wrote. “However, I believe that borrowing money on the back of all Maine taxpayers is not the right way to go.”
The total cost of the bond is estimated at about $15 million, assuming a 10-year payback and an interest rate of 4.5 percent. That’s a conservative estimate of interest rates, which have been lower in recent years but are expected to rise in the next year.
As with all other borrowing proposals before the voters in November, the governor’s signature is required before the state can borrow any funds, meaning the person who occupies the Blaine House will have a major impact on when approved bonds are issued. LePage withheld his approval of development bonds voters approved in 2010 and has used bond authorization as a bargaining chip in past negotiations with the Legislature.
Jayne Giles, CEO of Bangor-based nonprofit financing institution MaineStream Finance, said in testimony on the bill that through the revolving loan program, the Penquis subsidiary has helped 51 businesses with $700,000 in loans that leveraged another $1.47 million in loans from other government and private sector sources. Giles said the agency has a loss of about 2 percent on its loans.
Roney said that amount varies depending on the lending agency, but FAME evaluates the performance of those lenders regularly and as part of their applications for funds from the revolving loan program.
Economic development organizations from Washington to York counties echoed support of additional funds for the program, which has distributed money to 26 entities.
“We understand that it is hard to justify new spending at a time when the state budget is in dire straits, but we also believe programs like the [revolving loan program] and other secondary, gap-financing vehicles are vitally important to the sustainability of Maine’s rural economy,” wrote Jennifer Peters, assistant director of the Sunrise County Economic Council. “These funds, and others like them, are the backbone of our economic recovery.”
No one testified in opposition to the bill that spawned Question 3 as it passed through the Legislature.
FAME’s Norbert wrote the revolving-loan program, created in 1993, initially distributed $16.2 million in loans that, as they are paid, revolved back into the fund and supported 772 loans, totaling about $39 million. Based on estimates from the program’s history, another $8 million could spur another $64 million in additional bank lending.
Carla Dickstein, senior vice president at the community lending institution Coastal Enterprises Inc., said in testimony CEI used more than $1.7 million from the regional program to make business loans, which, she wrote, would not have happened otherwise.
“These loans — often referred to as patient capital — are critically needed to make a deal possible that conventional lenders would not otherwise do because the business may fall short of their credit standards,” Dickstein wrote. “Yet there are many good deals out there than can grow and provide jobs if there is a willingness to take more risk on the deal.”