Loan guarantee program passed

The House voted May 16 to approve a plan to encourage lending to small businesses by having the state guarantee certain gap loans.

One caveat: if enacted, the program would go unfunded for now.

Rep. Bob Gunther (R-Fairmont) sponsors  HF611, which would establish a small business loan guarantee program. His goal is to thaw credit markets that have been frozen during the recent economic crisis.

“The financial collapse of 2008 dried up the mortgage market and lending market for small businesses,” Gunther said.

Under the proposal, the state would guarantee up to 70 percent of loans made by qualified gap lenders — organizations that provide subordinate loans in conjunction with larger loans made by commercial financial institutions. The total guarantee amount would be capped at $1.5 million per loan.

The bill would establish a loan guarantee trust fund to cover the cost of potential defaults; however, no appropriation is made to the fund. Gunther said the bill is intended to serve as a “placeholder” until the state can afford to fund the program.

“They hope to in the future; that’s why the language is here,” Gunther said.

Passed 113-20 by the House, it was laid on the table May 17 by the Senate, where Sen. John Sterling Howe (R-Red Wing) is the sponsor.

Some members questioned the value of establishing a loan guarantee program that isn’t funded.

“Why is it that we need this bill if this is already happening?” said Rep. Debra Hilstrom (DFL-Brooklyn Center).

Rep. Ryan Winkler (DFL-Golden Valley) argued the state might not be the best organization to make decisions about which businesses deserve loans.

“What does the state know about private market loans and guarantees that the private market doesn’t know?” he said.

The bill specifies a number of criteria and requirements for businesses to qualify for the program. Basic requirements include having 500 or fewer employees and using the money for specified business purposes exclusively in the state.