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Ahead of the Curve Auto Supplier Blog

September 17, 2012

Auto Suppliers May Use Michigan Loan Participation Program

If you are reading this, then you are an auto supplier that survived the economic downturn that brought an end to so many in this business. As a business that made it through, you may be able to take advantage of the financial support programs approved in May of 2009 by the Michigan Economic Development Corporation (MEDC) under the Michigan Supplier Diversification Fund (MSDF) in consultation with Michigan’s participating lending institutions. One program adopted by the MEDC was the Michigan Loan Participation Program (MLPP), which is intended to help auto suppliers secure financing for diversification projects that they otherwise would be unable to traditionally finance due to a lender’s determination that the projected cash flow for such a project is too speculative. To overcome this cash flow concern, the MLPP is designed to help a supplier secure necessary financing by purchasing a portion of the private loan (up to 49.9% of any new commercial credit) from the supplier’s lender and offering the supplier a 36-month grace period to repay that portion. The MLPP benefits both the supplier and lender by (i) giving the supplier “free cash flow” during the grace period to pay for costs of the project, including paying down the lender’s portion of the loan; and (ii) limiting the lender’s exposure on the project. To be eligible, a supplier must be actively seeking a commercial loan from a participating lender to pay for a diversification project and must have a short fall on the cash flow requirements of its lender. A “diversification project” may include, but is not limited to, any high technology activity involving advanced computing, design and development of computer hardware, data communication, information technologies, development of advanced materials, biotechnology, electronic device technology, engineering and laboratory testing, advanced vehicles technology (including components used in the construction of electric vehicles, hybrid and alternative fuel vehicles) and tool and die manufacturing. The maximum participation under the MLPP is $500,000 except in the case where the project provides unique and high-level economic development or job creation for the state of Michigan. If approved, the supplier’s lender manages the loan under a Loan Participation and Servicing Agreement.

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