Community Services

LOAN GUIDELINES

 

To meet eligibility requirements, a small business should be a for-profit entity that meets SBA guidelines.  (Under special circumstances and subject to written request and approval, the Department will consider loans to larger businesses and to not-for-profit corporations.)  Small businesses eligible to apply for a CSBG Loan are:  proprietorships, partnerships, subchapter S corporations, or regular corporations.  Financial institutions are not eligible.

 

The following assurances are required when the Grantee provides CSBG loan funds directly to a private sector entity (also, see CSBG Loan Program Rules for more detail):

 

1. CSBG may participate in up to 49 percent of the total loan application.  The remaining participation in the venture should substantially include conventional financing from a licensed Illinois lending institution.  The benefiting local government also may participate in the project.

 

2. Eighty to 90 percent of the portion of the total loan obtained through a licensed Illinois lending institution may be guaranteed by the SBA 7(a) program.

 

3. The interest rate for the CSBG loan portion shall:

 

a. if CSBG grant funds, have a fixed rate of no more than five percent (5%) or;

b. at the grantee’s option, the interest rate to the borrower may be set at loan inception at a rate not to exceed one-half (1/2) of the Prime Interest Rate (National Prime Rate as shown on that date in the Wall Street Journal). This calculated rate would become the loan’s fixed interest rate for a one-year period.  Thirty (30) days before the annual anniversary date of the loan, the Grantee shall notify the borrower of the interest rate to be charged for the next year (base on ½ of Prime at date of notice).  The annual interest rate under this flexible option shall never exceed the original interest rate (ceiling) and the Grantee may set a minimum (floor) interest rate of five percent (5%) or less for the duration of the loan

c. if CSBG recaptured funds, have a fixed rate of no more than 7.5%.

4. Job creation requirements for the CSBG Loan Program are as follows:

a.   Businesses accepting CSBG loan funds must hire at least one new full-time equivalency (minimum 37 ½ hour work week, averaged annually) CSBG eligible employee for each $10,000 or any portion thereof of CSBG monies borrowed.

                                                                             Minimum

     Example:               $           1-$10,000                   1 Job

                                    $10,001-$20,000                  2 Jobs

                                    $20,000-$30,000                  3 Jobs, or

 

b. The Department will allow, based on presentation of written verifiable jobs (to be created) and salary data submitted as part of its loan application, the Grantee set the amount loaned per job at seventy-five percent (75%) of the entry level salary for each proposed job up to a maximum of $20,000 per job.  (For example: an entry level salary of $40,000 would warrant lending of $20,000, a $20,000 entry salary would warrant lending of $15,000; a $7,000 entry salary would warrant lending of $5,250.)  The Department will, upon written request, consider the inclusion of fringe benefits  (e.g., health insurance) in the salary calculation.  (Combining (a) and (b) of this subsection is not allowed.  The Grantee must choose one method or the other.)

      c.   If part-time employment is involved in the created jobs under either (a), (b) or (c) of this subsection, the full-time equivalency shall be no more than two employees making up one 37 ½ hour work week.

 

      d.   A hiring schedule must be a part of each loan agreement.  The required hiring must be completed within the first 24 months of the loan, with at least 50% of the new employees hired in the first 12-month period.  For purposes of this hiring timeframe, the loan is considered consummated on the date the borrower first receives the loan funds.

     

      e.   The job positions of CSBG eligible clients created by the loan must be retained and filled by an eligible client for at least 24 months from the date the job was first created.  Grantees should attempt to retain the availability of the loan-created jobs for CSBG eligible clients over the full loan term maintaining professional contact (e.g. Workforce Investment Act job referrals, Targeted Job Tax Credit Program) with the business and tracking the jobs.  Grantees, through their individual loan agreements, may negotiate more restrictive hiring requirements.

     

       f.   The Grantee shall have the right to review the borrower’s employment verification records at the time of the loan closing to establish the pre-loan employment level in order to assure that no personnel cuts were made by the business in anticipation of the pending loan and its hiring requirements.

5. The term of the CSBG loan may not exceed 10 years.

 

6. The CSBG financing must be committed prior to the closing of other financing.

 

7. CSBG funds loaned may be used to purchase machinery, equipment or inventory or to provide working capital.  CSBG Category “D” funds may not be used to purchase or improve real property.  This real property restriction does not apply to loans made with “Recaptured Loan Funds” (repaid principal from previous CSBG loans).

 

8. Recaptured funds must be used by the Grantee to make other loans subject to these guidelines.

 

9. All specific provisions of the CSBG Loan Program stated herein and in the Loan Program Rules must be met and take precedent over these abbreviated provisions.