Recently, we posted on a financial support program approved in May of 2009 by the Michigan Economic Development Corporation (MEDC) that may assist suppliers in obtaining loans for diversification programs. The recent economic downturn has also left some auto suppliers with little or no collateral value to borrow against in order to fund diversification or expansion projects as a result of their property, plants and equipment being devalued by as much as 80%. As a means of compensating for this loss in value, the MEDC launched a second program under the MSDF that is known as the Michigan Business Growth Fund -- Collateral Support Program (MBGF-CSP).
The purpose of the MBGF-CSP is to supply cash collateral accounts to participating lenders to enhance the collateral coverage of suppliers. Similar to the MLPP, in order to be eligible for the MBGF-CSP, a supplier must be working with a participating lender and determined to have a collateral shortfall according to the lender’s financing requirements.
If eligible and approved for the MBGF-CSP, the Michigan Strategic Fund (MSF) will deposit cash equal to the supplier’s calculated collateral shortfall into an interest-bearing account with the supplier’s lender and the account will be pledged as collateral on behalf of the supplier. As the loan principal is paid down, the MSF will draw down the cash collateral account. Fees of 1% to 3% of the MSF participation amount will be charged at closing and, on an annual basis, the participating lender must sign a State Small Business Credit Initiative Cash Collateral Deposit Agreement and any owner with 20% or more ownership in the supplier will be required to personally guaranty the cash collateral account.
If you are a supplier looking to diversify and/or expand any of your projects and have been unable to do so as a result of reduced cash flow projections or reduced value in collateral, you may be able to take advantage of the MLPP or MBGF-CSP programs to achieve your business goals and objectives.