Virginia Small Business Financing Authority (VSBFA)

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The Virginia Small Business Financing Authority (VSBFA) is the Commonwealth of Virginia’s business and economic development financing arm.

VSBFA provides businesses and localities with debt financing resources for economic development projects and other small business and entrepreneurial financing needs. VSBFA’s definition of “small business” is $10 million or less in annual revenues over each of the last three years, or a net worth of $2 million or less, or fewer than 250 employees in Virginia, or qualification as a 501(c)(3) nonprofit&nbsp entity.

For more information, please refer directly to VSBFA.

Contacts

Anna Mackley
Virginia Small Business Financing Authority
804.371.8254
anna.mackley@sbsd.virginia.gov

Eligibility and Program Overviews

Industrial Development Bonds (IDBs)

VSBFA issues tax-exempt and taxable bonds to provide qualifying businesses and 501(c)(3) entities with access to long-term, fixed-asset financing at favorable interest rates and terms. IDBs can fund land acquisition, building construction, and capital asset (equipment) purchases.

Eligible borrowers include new or expanding manufacturing companies, “exempt” facilities such as solid waste disposal facilities, and 501(c)(3) entities. Through IDBs, creditworthy manufacturers and 501(c)(3) entities can borrow up to 100% of the cost of acquiring, constructing, and equipping a facility, including site preparation. IDBs may also facilitate tax-exempt funding for leased manufacturing facilities and equipment. All projects financed with IDBs must meet the federal tax code’s eligibility requirements. The maximum manufacturing project size is $20 million; 501(c)(3) entities and exempt facility projects are not subject to this dollar limitation. At current interest rates, unless a bank will be directly providing the financing, projects under $3 million are generally not cost-effective due to the transaction costs of bond financing.

Economic Development Loan Fund (EDLF)

The EDLF offers permanent working capital, owner-occupied commercial real estate, and equipment loans to fill the financing gap between private debt financing and private equity. Project eligibility is determined by guidelines set by the federal Economic Development Administration (EDA) and the VSBFA.

Eligible borrowers include local industrial or economic development authorities and businesses engaged in technology, biotechnology, tourism, manufacturing, renewable energy, government contracting, and those businesses or entities that provide an enhanced “quality of life” in a locality or region. Businesses that derive 15% or more of their revenues from defense-dependent activities and can demonstrate economic hardship related to defense downsizing may also be eligible.

Eligible projects must provide economic benefit to the community through job creation/retention (minimum $10.00 hourly wage) or by enhancing a locality’s ability to attract private capital investment. The maximum loan amount is generally the lesser of 40% of the total project cost or $500,000 unless the project is located in a city/county defined by the EDA as “economically distressed.” Loans in distressed areas can be higher, potentially in excess of $1 million depending on risk factors, the number of jobs created, and the region in which the project is located. Generally, loans have 10-year maturities with amortizations based on the life of the asset and the borrower’s ability to repay. Rates are risk-based but can be below market. Loans are secured by assets and require personal guaranties.

Loan Guaranty Program (LGP)

The LGP helps Virginia’s businesses obtain funds to start or expand operations in Virginia. The program reduces a bank’s commercial loan risk in order to increase the availability of commercial loans to Virginia’s businesses. The maximum guaranty is the lesser of 70% of the credit amount or $750,000. The guaranty term cannot exceed seven years for term loans. Guaranties for lines of credit are available on an annual basis with a maximum of four subsequent renewals. Eligible borrowers must be a VSBFA-defined small business and meet VSBFA credit standards. Loan purposes include lines of credit for accounts receivable and inventory, term loans for permanent working capital, and fixed asset purchases.

Cash Collateral Program (CCP)

The CCP helps Virginia's businesses obtain the funds to start or expand their operations in Virginia. VSBFA's participation helps reduce a lender's credit risk by providing cash collateral on deposit at the lender bank as support for a business purpose loan. Most typically, the CCP is used in those instances when the applicant company has demonstrated the ability to cash flow the debt, but the collateral coverage is insufficient for the lender's normal underwriting standards. It is also used for SBA 504 loans when the lending bank is funding the certified development company's loan pending the sale of a debenture. VSBFA can provide cash collateral up to 40% of a loan or $500,000, whichever is less, with a maximum relationship participation between the borrower and the VSBFA of $500,000. The lender sets the interest rates and terms. VSBFA's participation is for a maximum of five years on term loans. Annual lines of credit not matured may be renewed up to two times with a maximum term of three years.

Process

Industrial Development Bonds (IDBs)

Businesses and 501(c)(3) not-for-profits seeking tax-exempt financing should first contact a bond attorney and seek guidance as to whether the business and the financing need would qualify for tax-exempt financing under regulations established under the U.S. Internal Revenue Code. The VSBFA can provide a list of bond attorneys in Virginia to assist with this determination. If a bond attorney believes that the business and the project qualify for tax-exempt financing, then the bond attorney will apply to VSBFA on behalf of the company. With any tax-exempt financing, a public hearing and approval by the VSBFA board of directors is required. The application fee is $1,000, in addition to an annual fee of 0.1% of the outstanding principal of the bond.

Economic Development Loan Fund (EDLF)

Businesses and industrial or economic development authorities should apply directly to the VSBFA, but should also have a bank or private equity provider committed to finance a portion of the financing need because VSBFA will finance no more than 40% of the total project cost, up to its maximum cap amount. VSBFA staff will review completed applications. For applications requesting $500,000 and less, the staff generally can make the credit decision within a few business days. For requests in excess of $500,000, recommendations will be made to the VSBFA’s board of directors at its next monthly meeting. Credit decisions will be based on the business’s creditworthiness, ability to repay the loan, collateral offered to secure the loan, and the economic benefit to the Commonwealth. The fee for applying to EDLF is $500.

Loan Guaranty Program (LGP)

Businesses should apply directly to their commercial bank for their financing need. All applications under this program are initiated by a bank, which has determined a government guaranty is needed for its approval. Prior to submitting an application, the lender is encouraged to call VSBFA to discuss the transaction. VSBFA typically processes applications under the program within a week of receiving all required information; however, actual processing time may depend on other factors, including application volume.

Loan closings for approved requests are scheduled by the bank and documented using the bank’s normal procedures and forms. In considering whether to extend a guaranty under the program, VSBFA conducts its own credit underwriting and assesses the company’s ability to repay the loan, the experience of the company’s management, and the adequacy of the collateral available to secure the loan. Although there is no specific job creation requirement under the program, VSBFA also considers the economic impact and job creation and/or retention resulting from the financing. Fees for participation in LGP are 1.5% of the loan amount, in addition to a $200 application fee.

Cash Collateral Program (CCP)

Businesses should apply directly to their commercial bank for their financing need. The bank determines if VSBFA participation is needed for its approval. The lender is encouraged to call the VSBFA to discuss the transaction. VSBFA approves or declines participation within a week of receiving all required application information. Loan closings for approved requests are scheduled by the bank and documented using the bank’s normal procedures and forms. In considering whether to provide cash collateral support for a bank’s loan, VSBFA assesses the company’s ability to repay the loan, the experience of the company’s management, and the adequacy of the collateral available to secure the loan. Although there is no specific job creation requirement under the program, VSBFA also considers the economic impact and job creation and/or retention resulting from the financing. Fees for participation in CCP are 1.5% of the loan amount, in addition to a $200 application fee.

Resources

FAQ

How are the programs of the VSBFA funded?

VSBFA programs are a combination of federal- and state-funded programs. Each is designed to meet a variety of financing needs.

What types of businesses can benefit from VSBFA programs?

Since VSBFA’s primary function is to assist banks in making loans to businesses, VSBFA can assist any type of for-profit business as well as 501(c)(3) nonprofit entities. VSBFA can also lend to local industrial and economic development authorities and provides bond financings to benefit for-profit businesses and 501(c)(3) nonprofit entities, and to support clean energy and P3 transportation projects.

What needs to be provided to VSBFA to be considered for a loan or credit enhancement?

VSBFA underwrites credit the same way a bank does, so it will require the business’s financial statements, business plan, and a clear understanding of the financing needs of the project. A banking or equity partner is also necessary for most VSBFA programs.

How does a company apply for a loan, bond, or credit enhancement from VSBFA?

VSBFA can assist with the application process. It can be contacted directly at 804.371.8254 or through its website.

How long does it take to receive approval for a VSBFA loan or credit enhancement?

If VSBFA has received a complete application package, loan or credit enhancement requests of $500,000 or less usually receive a response within a week. For requests in excess of $500,000, the VSBFA board of directors must approve the request. The board of directors meets monthly.

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