Business  |  Business Grants, Loans and Tax Credits

The Ohio Minority Direct Loan Program provides direct loans for businesses locating or expanding in Ohio that demonstrate they will create new jobs for Ohio citizens.

The Minority Direct Loan Program focuses on several factors to determine the eligibility of a business for the Ohio Minority Direct Loan Program. Chief among those determinations are the number of jobs created and/or retained as a result of the State's investment, the extent of participation by the business and a conventional lender in the project; and the demonstration by the business that the State's assistance is necessary in order for the project to go forward.

In its review of loan applications, the office also evaluates the management capacity of the company, the availability of working capital, and the overall ability of the company to repay its debt.

These criteria are designed to provide a more definite review of the applicant's need and capabilities.

The State's financing is take-out financing. In other words, the business will need to complete its project utilizing interim financing from a conventional lender, and its equity. When the project is completed, the State's funds will be released.

Funds received under the Minority Direct Loan Program may be used for part of the cost of acquisition, renovation or construction of depreciable fixed assets.

This includes the following categories:

• Acquisition of land and buildings
• New construction
• Renovation to existing buildings
• Acquisition of machinery and equipment

In addition, limited soft costs related directly to the fixed asset expenditure may be included. Examples of eligible soft costs include: architectural/engineering costs; installation costs for machinery; and financing costs for bank loans.

Minority Direct Loan funds may not be used for:

• Working capital
• Refinancing
• Rolling stock
• Inventory/receivable financing
• Speculative real estate development
• Relocation costs
• Office equipment
• Small tools
• Supplies

Eligible borrowers include any operating business entity which has been certified by the State Equal Opportunity coordinator as a Minority Business Enterprise and which demonstrates that its fixed asset expansion/retention project will create or retain jobs for Ohio citizens.

The Minority Direct Loan Program may lend funds to businesses engaged in commerce, manufacturing, research and development or distribution.

Under Ohio Revised Code Chapter 122.76 (A), other eligible borrowers include Community Improvement Corporations and Ohio Development Corporations.

• The minimum direct loan under the Minority Direct Loan Program is $45,000.
• The maximum participation by the Minority Direct Loan Program in any one project cannot exceed 40 percent of the total fixed asset costs serving as collateral for the State loan.**
• The actual level of participation will be determined by the Department based upon the criteria described under "Criteria for Loan Application Evaluation."

** Guidelines used by the Office of Minority Financial Incentives normally limit the loan amount to $450,000. However, the Director of Development may authorize a higher loan amount or modified terms which address a unique and demonstrated economic development need.

The interest rate for Minority Direct Loan financing is currently set at 3 percent and it is a fixed rate.

The term on the Minority Direct Loan will be based upon:

• The useful life of the assets being financed
• The term of the bank loan in the project
• The term on a Minority Direct Loan cannot exceed 15 years for real estate financing, or 10 years for machinery financing.** The Minority Direct Loan term cannot exceed the term of the bank loan.

** Guidelines used by the Office of Minority Financial Incentives normally limit the loan amount to $450,000. However, the Director of Development may authorize a higher loan amount or modified terms which address a unique and demonstrated economic development need.

The State requires that a conventional lender and the business itself participate in the project to the maximum extent possible. Preference will be given to projects, which maximize these sources.

The minimum amount of private lender participation required in the project is 30 percent of the Minority Direct Loan eligible project costs.

A typical Minority Direct Loan project structure would be:

• Bank Loan: 50 percent of total project cost
• Owner's Equity: 10 percent of total project cost
• Minority Direct Loan: 40 percent of total project cost

The State may request any of the following as collateral or security for the State incentive financing invested in a project:

• Personal guarantees from owners;
• Corporate guarantees from related companies;
• First mortgage or lien position on the assets financed
• with State funds (share with bank);
• Key person life insurance on the principal operating officer(s)
• of the company;
• Financial covenants on the operations of the business; and
• Letter of credit

The Minority Direct Loan Program requires the payment of two fees:

• A $300 nonrefundable application fee submitted at the time of the filing of the application; and
• A processing fee of 1.5 percent of the amount of the State loan which covers all legal expenses associated with the State's processing of the loan

Companies receiving assistance under the Minority Direct Loan Program are not required to complete their project utilizing the Ohio Prevailing Wage for construction, renovation and machinery installation.

The following areas will be evaluated by the ODOD staff in making a determination that the business is eligible to receive Minority Direct Loan financing:

1. Ability To Repay. Can the business demonstrate (through historical and/or projected financial statements) that it has the ability to generate sufficient cash to pay all financing from this project?
2. Management. Does the business possess sufficient management capability and expertise to handle the project?
3. Working Capital. Has the business demonstrated sufficient equity and/or lines of credit/bank loans to cover all working capital needs for both the existing operation and any expansion?
4. Need. Can the business demonstrate the need for the State's incentive financing to make the project go forward? For example, is the lower rate from the direct loan needed because cash flow is limited? Has the business demonstrated that it cannot finance the project itself or only with bank financing? Can the applicant demonstrate that the proposed project will have a completion value at least equal to the total amount of money expended on the construction, acquisition and/or improvement of the project?
5. Job creation. The Minority Direct Loan Program guidelines endeavor to finance projects which demonstrate the creation of at least one job for each $35,000 of State investment during the first three years of the project.
6. Job Retention. If the applicant is claiming retained jobs from the State's financing, there must be clear documentation of such retention satisfactory to the Department.
7. Minimum Assistance Necessary. The Department will determine minimum assistance, if any necessary to cause a project to go forward. This is essential in order to conserve funds and assure that assistance is extended throughout the State
8. Occupancy. The applicant must demonstrate that all facilities financed by the program will reach a reasonable occupancy level within one year after completion. If a project involves the construction of a new building, at least 75 percent of the building must be occupied by the operation business. If a project involves the purchase and/or renovation of an existing building, at least 51 percent of the building must be occupied by the operating business.
9. Collateral. All assets offered as collateral for the State loan must have third party evaluations (i.e. appraisal).

• Step 1: The applicant should first file a Financial Assistance Application along with a nonrefundable $300 application fee. All of the information requested (including MBE certification) must be submitted along with the Financial Assistance Application in order for the Department to proceed with its analysis.
• Step 2: If determined to be eligible for Minority Direct Loan financing, an Office of Minority Financial Incentives Loan Officer will analyze the project, and determine the level of State assistance. In this process, the Loan Officer will complete all negotiations on the State Minority Direct Loan directly with the borrower and the borrower's lender. The Loan Officer may also request additional information during this time.
• Step 3: Upon determination of the final assistance recommended, the Loan Officer will present the loan application to the Minority Development Financing Advisory Board (MDFAB), which meets monthly, usually during the last week of the month. In order for a Loan Officer to present a request to MDFAB, the completed application, all backup documentation and a firm letter of commitment from the participating bank and equity investors must be presented to the State no later than four weeks before the MDFAB meeting. Applicants, their banker and principal officers should be present at the MDFAB meeting to answer questions.
• Step 4: Following MDFAB consideration and approval, the loan is presented to the State Controlling Board, which will meet approximately 30 days following the MDFAB meeting. Controlling Board approval is required for disbursal of any State funds.
• Step 5: Following Controlling Board approval, the Department will prepare a Commitment Letter, which is a basic agreement between the State and the Borrower. The business may not begin their project until the signing of the Commitment Letter. To do so would result in the State's determination that the business could proceed without State assistance and therefore did not need the funds.
• Step 6: When the project is complete (certificate of occupancy issued, last piece of machinery installed, etc.) the State will wire its funds to the interim financing lender.