As part of a much-publicized attempt to help small businesses recover from the economic fallout from the coronavirus pandemic, New Mexico lawmakers made it easier to get funding through a low-interest lending program.
Expanding the availability of funds with less stringent criteria was one of the first areas of work during the 60-day legislative session earlier this year.
But so far, out of the $ 500 million allocated for business loans, only about $ 73.5 million have been disbursed.
At least one disappointed MP questioned the success of the loan program on Monday during a meeting of the New Mexico Treasury Oversight Committee, saying the efforts negatively impacted one of the state’s permanent funds.
“This is costing New Mexico dear in terms of the Permanent Dividend Tax Fund,” said Senator Joe Cervantes, D-Las Cruces. “I think that we are missing the opportunity for the state to invest this money in the long term to get more profit, because we are actually suspending their implementation. We are kind of in limbo for this program. “
The $ 6 billion Permanent Dividend Tax Fund, established in 1973, is the state’s second largest permanent fund. It was originally funded through natural resource taxes and has grown through investment. Of all government donations, the Permanent Dividend Tax Fund has the most flexibility in how to invest its money.
Markita Russell, chief executive officer of the finance department, tasked with overseeing the loan program by the Legislature, noted that the agency takes money from the Permanent Severance Pay Tax Fund only as needed.
“We didn’t transfer $ 500 million,” she said. “We have $ 500 million and we can get this money from SIC. [State Investment Council] since we have a need for an application. … He still makes the money he used to make because we tell them a month in advance how much money we think we need. “
Russell also told lawmakers that the financial cushion has its benefits.
“The good thing about having more money than you need is that you can do it on a first come, first served basis,” she said. “When you think there will be a deficit, you must then determine who will be the first to deal with it and who will get the money. When you need to prioritize, you slow down other people’s applications. ”
Russell also told lawmakers that other loans are in the works.
“We still have nearly $ 26 million in various stages of closure,” she said, adding that her agency is considering an additional $ 35-40 million in requests.
The agency tests applications “quickly but thoroughly” due to the potential for fraud, she said.
Applications will be open until May.
For the first time, lawmakers provided $ 400 million in loans to small businesses hit by the coronavirus pandemic last year under the Small Business Recovery Act 2020. Despite the need for financial assistance to businesses that faced closures and other restrictions in accordance with government orders, more than $ 42 million was dispersed through 880 loans under the program.
“This program has had some success and has helped many people, but not as much as asked for help,” Russell said. “This program had some very specific requirements that unfortunately made it difficult to access.”
As a result, lawmakers revised the eligibility criteria in line with the re-authorization bill, which also granted an additional $ 100 million, bringing the total to $ 500 million.
Since then, the financial authority has disbursed an additional US $ 31 million in 502 loans, totaling approximately US $ 73.5 million.
As part of the re-authorization bill changes, only 51 percent of the property in a business must be owned by a New Mexico resident. It used to be at least 80 percent.
“Many family businesses whose parents may have moved out of state or whose sister moved out of state are now eligible, so many family businesses were able to access funds as a result of your change,” Russell said.
Russell said the terms of the loan had changed “quite substantially,” from three years to 10 years.
“There is no interest in this first year, the next two years are interest only and are paid annually, and then there are seven years of monthly principal and interest payments,” she said, adding that this is a fixed interest rate loan.
The Re-Authorization Act also increased the number of non-profit organizations eligible for funding and increased the maximum loan amount from $ 75,000 to $ 150,000. Russell said that in order to be eligible for $ 150,000, a financial authority needs a personal guarantee from any owner who owns more than 20 percent of the business.
“There is more money available to businesses, a lot more, and we see some of them coming in and using the extra funds because their businesses really need it now,” Russell said.
Under the original legislation, enterprises could only use borrowed funds for general operations. They are now allowed to cover capital improvements caused by the pandemic, such as building outdoor patios.
Cervantes said during the meeting that he predicted that the loan program would not generate much interest.
“One of the arguments that I have often cited in [Democratic Senate] The caucus was that my experience in business and with business people I knew was that there probably won’t be a lot of participation in these programs because businesses in the midst of a pandemic don’t want to incur additional debt, ” said he. are already quite stretched out, and even if conditions are very favorable, often the last thing they need to do is take on even more debt. And so I was not surprised, don’t be surprised what you see … very low participation. Let’s just say it. “
However, Cervantes said the companies would be “stupid” if they didn’t take advantage of the loan program.
“I have to tell you,” Cervantes said, chuckling, “that not doing this is an abuse of office. a lot for business in New Mexico. So the fact that we have little participation, a lot more money than people spend, I think we need to go back a little to try to get the message across. ”