COVINGTON, Ky. — Covington has a new $4 million loan program that greatly improves its ability to help small businesses grow and create new jobs.
The Section 108 program will offer federally backed loans of $35,000 to $1 million at low cost to growing businesses, filling a gap in the city’s economic development toolbox, officials said.
“This is huge,” said Ross Patten, the city’s economic development project manager. “Covington currently doesn’t have a loan program that helps small businesses in areas they need help the most — finding affordable financing for things like acquiring land, a building, new equipment and machinery, or just ensuring that they have working capital to grow operations.”
The city received permission from the federal government to start such a program in 2014 but never established it. The Covington City Commission recently voted 5-0 to approve guidelines and underwriting criteria so economic development officials can begin accepting applications immediately.
“For years, the city didn’t take advantage of this opportunity,” Economic Development Director Tom West said. “It’s time we do so. We want every possible tool in our toolbox as we continue to build a vibrant local economy in Covington and create jobs for our residents.”
About the loan program
The program in essence creates a $4 million line of credit, with the city using its current and future federal Community Development Block Grant allocations as collateral to borrow money on the private market and then loan that money to small businesses.
Because the U.S. Department of Housing and Urban Development will guarantee the loans, the city can borrow and lend at a lower interest rate and pass that savings onto businesses, Patten said. “Currently, we anticipate we’ll be able to offer loans at 4 percent to 5 percent,” he said.
Likewise, the city’s down payment requirements will be lower than traditional financing as well, with the ability to offer financing with as low as 10 percent equity from qualified applicants.
Patten assured city commissioners that staff would be vigilant when underwriting loans and would take a hard look at applicants’ ability to repay, their ownership, experience and financials. Approval by the city commission will be required for each individual loan.
Patten gave three examples of the types of loans that could be made under the Section 108 program:
- Acquisition of real estate (20-year term).
- Acquisition of machinery and equipment (10-year term).
- Working capital for business (up to 10-year term).
“We think it’s perfect, say, for a growing medium-sized business looking to acquire their commercial building with long-term, low-cost financing,” he said.
Covington currently has incentive programs that help small businesses with first-year rent and façade improvements and larger businesses with payroll taxes.
Under Section 108 guidelines, only projects that create new jobs will be eligible, Patten said. Any project must create one new job for every $35,000 loaned to qualify.
Because the CDBG program is the source of the funds, HUD requires that a majority of the new jobs created be made available to low- and moderate-income residents, said Jeremy Wallace, the City’s Federal Grants Manager, whose office oversees the CDBG program.
Businesses will be encouraged to work with the Kentucky Career Center for free assistance with identifying and hiring qualified workers.
For more information about the Section 108 loan program, or if you’re interested in applying, contact Ross Patten at [email protected] or (859) 292-2144.