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Capital Access Program
The Capital Access Program is structured as a public/private loan portfolio reserve program. Participating members, along with borrowers, set aside funds as a reserve against loan losses. This is accomplished through the creation of a loan loss reserve which enables banks to be more aggressive while prudently making and structuring loans. The bank makes the approval determination, structures the loan, and simply files a one page form with MEDC.
Each bank has funds earmarked in its name, and can withdraw funds from its CAP reserve to cover losses on any loans it enrolled in the program. The full amount in the bank's reserve is available to cover losses from any bank loan made under the program.
Payments ranging from 6 to 14% of the loan amount are made into each bank's reserve every time the bank makes a loan under the program. The borrower makes a premium payment, the bank matches that payment, and CAP matches the combined total of those two payments. The bank may recover the cost of its payment from the borrower through several means, such as a higher interest rate, up-front fees, or some other combination. These payments and fees can be financed as part of a loan.
For example, if the borrower pays the minimum 1.5% of the loan amount, the bank would match that with another 1.5%, and CAP would contribute 3%, for a total of 6%. At the maximum, the borrower would contribute 3.5%, the bank another 3.5% and CAP 7% for a total of 14%.
The reserve enables a bank to be more aggressive in making loans. If loans are paid off without loss, the bank preserves its reserve funds. While there is a clear incentive for banks to be prudent, the program enables lenders to be cautious while making riskier loans, since they can withstand a substantially higher loss rate than could be tolerated on a conventional loan portfolio.
Eligibility
- Projects located in four county area (Milwaukee, Waukesha, Washington and Ozaukee Counties)
- The program allows any loan size; if the loan is in the principal amount of $500,000 or more, prior written approval for enrollment in the Program must be granted by MEDC.
- Almost any business enterprise is eligible.
Ineligible Projects
- Passive real estate projects.
- Taverns, liquor stores and gun shops.
Uses
- Projects under $100,000 are best suited.
Advantages
- No processing delays and virtually no paperwork.
- Bank uses its own loan documents.
- Good use for lines of credit.
Fees
Timing
- MEDC's share of reserve contribution is sent to the bank after receiving the "loan filing form" for eligible loans.
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