For eligible small business incorporated, or registered to operate, in Washington State, there are several good reasons to seek certification through the Office of Minority & Women’s Business Enterprises (OMWBE) and/or the Washington State Department of Veterans Affairs (WDVA). One of these reasons is the Linked Deposit Program. This program is available to State certified businesses, regardless of whether or not the business is involved in government contracting.
PROGRAM OVERVIEW AND BACKGROUND
The Washington State Legislature found that minority and women owned businesses had been historically denied access to capital and that lack of capital is a key barrier to the development of minority and women owned businesses. In response, the legislature passed the 1993 Minority and Women Owned Business Assistance Act, which created the Linked Deposit Program (“LDP”). The Washington State Office of the State Treasurer (OST), Office of Minority & Women’s Business Enterprises (OMWBE), Department of Community, Trade, and Economic Development (CTED), and the Washington State Department of Veterans Affairs (WDVA) are responsible for administering the Linked Deposit Program
The Act directs the Office of the State Treasurer (“OST”), OMWBE, WSVA, and the CTED to operate a program that links the deposit of state funds to loans made by participating financial institutions to qualified minority and women-owned businesses. The deposit of state funds is made at below market rates. The savings are then passed on by the bank to the Linked Deposit borrowers in the form of an interest rate reduction not to exceed two percent (2%).
Any firm currently certified by OMWBE as a Minority Business Enterprises (MBE), Women’s Business Enterprise (WBE), Minority Women’s Business Enterprise (MWBE), Combined Business Enterprise (CBE), or by WDVA as a Veteran or Service member Owned is entitled to the Linked Deposit benefit. Any business related loan carried by a certified firm, and made by a participating lender, is eligible for enrollment in the program. A firm must be certified by OMWBE or WDVA before their business loan can be enrolled in the program.
The LDP is not a loan or loan guarantee, and the State cannot help a firm obtain a business loan. Firms must satisfy their bank’s financing/loan criteria. The LDP allows a certified firm to receive an interest rate reduction on existing business loans made by a participating lender. For loan eligibility, contact your financial institution.
HOW THE PROGRAM WORKS
The State Treasurer is authorized to use up to $190 million (as of 6/12/08) of the State’s short-term surplus funds to purchase certificates of deposit in an amount equivalent to the amount financial institutions loan to certified minority and women’s business enterprises.
The LDP “links” the State’s surplus fund deposits to the commercial loans that financial institutions make to certified minority and women’s business enterprises. Two percent (2%) of the interest that is earned on the State’s certificate of deposit is used to reduce the interest rate that would otherwise be charged to a certified business for its loan or other financing. If the interest rate returns earned by the State on the CDs fall below 2%, banks are allowed to reduce the interest rate reduction passed onto the firms by an equivalent amount.
Effectively, the State buys certificates of deposit equal to the amount lent to certified firms. The State then forgoes 2% of the interest it would earn on the CDs and the banks transfer the savings to the certified firms in the form of an interest rate reduction.
- Businesses participating in the LDP must be certified by OMWBE or the Department of Veterans Affairs (DVA).
- Businesses must satisfy their participating bank’s lending criteria.
- Qualifying loans include:
- Lines of credit
- Financing of accounts receivable
- Working capital
- Equipment purchases
- Real property acquisition
- Other business related financing
- $1 million per-loan maximum; no limit on the number of loans a firm may have.
- Interest rate: Up to two percent (2%) below the market rate for a commercial loan (determined by the bank).
- If the effective return on the timed CD is less than 2%, the interest rate reduction passed onto the firm can be reduced by an equivalent percentage.
- Loan term: Up to 10 years.
- Participants decertified by OMWBE will have their loans removed from the program, at which time they will lose the interest rate reduction.
Washington State is striving to get more qualified firms certified! Native PTAC has been working with OMWBE to provide hands on certification workshops to our community. See our calendar of events for details on our upcoming October 23rd and December 11th workshops.