COLLATERAL SUPPORT PROGRAM

NEVADA STATE COLLATERAL SUPPORT PROGRAM

In 2011, the economic downturn seriously impacted business and industry in Nevada. Jobs and job growth in Nevada are important to turning our economy around. The economic downturn resulted in the devaluation of property and equipment by as much as 80 percent, leaving companies little or no collateral value to borrow against to fund diversification projects.

GOAL:  Nevada Collateral Support Program supplies cash collateral accounts to Nevada financial institutions to enhance the collateral coverage of borrowers. These accounts will cover all or a portion of a calculated collateral shortfall as determined by the lending institution.

The Nevada Collateral Support Program is the one of the programs launched under the Nevada Strategic Fund. The program is funded by federal support provided under the federal State Small Business Credit Initiative Act of 2010 and is designed to assist lenders and borrowers in financing diversification projects. Specifically, the program seeks to enable suppliers to acquire the necessary financing that might otherwise be unavailable due to a collateral shortfall according to the lender’s analysis. The program will supply pledged cash collateral accounts to lenders to achieve this goal for approved projects.

Borrowers with a collateral shortfall will apply for coverage through their financial institution that will then coordinate directly with Nevada Governor’s Office of Economic Development (GOED). Companies using this program will be otherwise strong with typically good historical cash flow coverage and typically strong indicators of future business and or sales activity. They will also tend to have strong management teams in place, which the lender believes will perform well going forward.

GOED provides the administrative services for the program for the Nevada Collateral Support Program. Once approved, the Nevada Collateral Support Program will deposit the funds into an interest-bearing account with the Nevada financial institution to be pledged as collateral on behalf of the borrower. Based on an amortization schedule, the NSF will draw down the account as the loan principal is paid. In the event of full default, the lender will have rights to the account, based on a pro-rata basis less a liquidation fee.

ELIGIBLE BORROWERS:

  • Borrower must fall under the definition of a firm, which creates or retains jobs associated with the base economic industries. More specifically, a company must have a unique Federal Employer Identification number and participate in one or more of the following: mining, manufacturing, research and development, whole sale and retail trade, film and digital media production, office operations or a business that is qualified information technology or green technology business.
  • Borrower must have 250 employees or less and otherwise comply with all state and federal program requirements.
  • Borrower must be engaged with a private lender for the purpose of acquiring a commercial loan for a diversification project and must exhibit a collateral shortfall according to the lender’s analysis.
  • Borrower must grow the number of existing employees or open a new operation with the intent of hiring new employees.

PROGRAM GUIDELINES:

The entire proceeds of the credit facility must be used to fund projects within the state of Nevada.

The program can provide collateral support for up to 35% percent of a collateral shortfall.

The maximum collateral deposit is capped at $5 million and may not be used to support loans of greater than $20 million. Generally, the Program shall target loans of $250,000 and shall not provide support for loans with a principal balance of greater than $5 million.

The program shall enhance the collateral position of borrowers by depositing cash into accounts at participating lending institutions, which will then be pledged as collateral on behalf of the borrower on a transaction-by-transaction basis.

Personal guarantees are required from any individual holding a 20 percent or more ownership interest of the borrower. The guaranty is normally subordinate to the existing exposure for the project of the participating lender at the time of closing.

The program balance shall be reduced proportionately with the principal reduction of the loan so as to eliminate over-reliance on program deposits as part of the collateral commitment on the loan.

The program shall collect at its determination, from the lead bank, its credit analysis, borrower financial statements, risk rating justification, cash flows, and other documents which the program deems necessary.

The program validates that assessment and evaluates the economic development benefits to the state to determine project approval.

The program charges a fee at closing in the amount of 3 percent of the amount balance at the time.

Participating lending institutions will be required to make periodic reports to the NSF.

The lender must sign the State Small Business Credit Initiative Cash Collateral Deposit Agreement, which requires the lender and the borrower to sign their respective assurances.

APPLICATION PROCESS

Potential borrowers must complete a loan application with Nevada financial institution.

WHAT TO EXPECT NEXT

Staff from GOED will be in contact with your institution to confirm receipt of application materials and answer any questions. We will process applications on a timely basis. The staff will contact you as soon as a loan decision has been reached. If approved, you will be required to sign the State Small Business Credit Initiative Cash Collateral Deposit Agreement, outlining the terms of the agreement.

Contacts:

Patricia Herzog
Director of the Nevada Main Street Program
775-687-9911
pherzog@diversifynevada.com