accessing contracts and capital in this economy

Loan Guaranty, Insurance and Interest Subsidy Program -Philip Viles, Chief, Division of Capital Investment

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Accessing Contracts and Capital in this Economy

PTAC Event

February 1st-2nd, 2010Catoosa, OKPresenter: Philip Viles, Chief, Division of

Capital Investment, Office of Indian Energy and Economic Development


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Office of Indian Energy and Economic DevelopmentDivision of Capital Investment

Loan Guaranty, Insurance and Interest Subsidy Program


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Program Purpose

Guarantees commercial Indian loans up to 90%.


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Legal Authority

The law governing the program is:

25 U.S.C. 1481 et seq. 25 CFR Part 103


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Borrower Eligibility

o The borrower must be :o an Indian individual, o an Indian-owned business

entity,o a tribal enterprise, oro a tribe


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Borrower Eligibility, cont’d. An Indian individual means:

Member of one of the 564 federally recognized tribes

An Indian-owned business entity means: Legally established entity such as

partnership, corporation, limited liability company, or joint venture that is 51% or more owned by eligible Indians


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Borrower Eligibility, cont’d.• A borrower’s business must be at

least 51% Indian owned during the entire term of the loan.

• A borrower’s business must contribute to the economy of a reservation or tribal service area.


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Loan Requirementso Borrower equity – the borrower must

have 20% equity in the business-o In the form of cash or unencumbered tangible assets

o To be used in the business being fundedo Upon which a lender can secure a first lien


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Loan Requirements, cont’d.

oTerm of loan – the loan cannot be for more than 30 years, including extensions.

oInterest rate – the interest rate must be reasonable, in light of rates charged in the region for loans to similar businesses.

oSome policy restrictions, such as no loans for gaming, tobacco, etc.


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Our Offices Instead of using BIA credit officers in

12 different regions, we now have four Credit Office Service Centers with DCI personnel.

Current COSCs: › Anchorage, AK› Lakewood, CO› Albuquerque, NM› Reston, VA (central office)


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Application Processo Borrowers apply to lenders. Lenders

apply to DCI if they need a guaranty.o Authorized DCI field officials can

approve guarantees up to $5 million.o Applications over $5 million and

applications requesting interest subsidy must be approved at the DCI central office.


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What are the requirements for lenders?

All lenders must sign a Loan Guaranty Agreement to participate in the Loan Guaranty, Insurance and Interest Subsidy Program.


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What are lender benefits of using a loan guaranty?

o Lending opportunities to Indian-owned businesses, entities and tribes

o Loan security up to 90 percent oDCI allows lender to use its own loan

documents – only one required DCI formoBorrower may qualify for interest

subsidy to assist in cash flow for three years with the possibility of two one-year extensions


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Lender Benefits, cont’d.

oGuaranteed portion does not count against lending limits

oGuaranteed portion can be sold to make new loans

o Lender can participate in large loans and earn servicing fees

oHelps meet Community Reinvestment Act requirements

o In default, liquidation by bank is optional.


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What premium does DCI charge for a loan guaranty?

DCI charges 2% of the guaranteed portion of the original loan amount.


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What are Interest Subsidies?

o Reimbursement from DCI equal to a portion of the interest a borrower actually pays - Can be paid by DCI for up to 5 yearso Initial three year termo Yearly renewal for two more years, if

business qualifieso Interest subsidy payments are based on

the difference between:o Lender’s interest rate (can be variable)o IFA interest rate (fixed over life of subsidy)


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Who gets the subsidy payment?

• The borrower gets the payment. The lender has already received its full payment according to the repayment schedule.

• Although the lender submits the request for subsidy to DCI and DCI sends payment to the lender, the use of these funds is at the discretion of the borrower.

• The borrower may use the funds to reduce principal, increase operating capital, or for similar business purposes.

• The borrower should make arrangements with the lender on the use of these payments.


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Summary of Loan Application Processo Borrower applies to lender for a

loan.o If necessary, lender will request a

loan guaranty from DCI.o Lender applies to DCI Credit Office

Service Center, or in some cases, the DCI central office.


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Statistics

Since 1974 we have guaranteed almost $1 billion in loans.

FY ‘10 loan guaranty ceiling of $93 million

Stimulus funding of $122 million in guarantees.

Loss rate of <3% since 1992.


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American Recovery and Reinvestment Act of 2009

$122 million ceiling for loan guarantees Funds available until Sept. 30, 2010 Loan guarantees for individually-owned

businesses available up to $500,000, and available to larger Indian or tribally-owned businesses for more

No casino or other gambling establishment, aquarium, zoo, golf course, or swimming pool


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Division of Capital Investment (DCI)

o For more information about the program, contact us at:

[email protected]://www.bia.gov/WhoWeAre/AS-IA/IEED/DCI/index.htm

accessing contracts and capital in this economy

Documents

subsidy program philip

subsidy program loan

indian individual

individual indian

indianowned business

lienloan guaranty

term of loan

borrowers business