A Valuable Lending Resource for Connecticut BusinessesNovember 02, 2009
By Megana Patel
Small Business Advisory Council
Special Project Liaison
Connecticut Development Authority
In these tough economic times, it is good to know that important financial resources are available for Connecticut businesses – the key is knowing where to find them.
The Connecticut Development Authority (CDA) is a quasi-public agency whose mission is to work with businesses and their lenders to help ensure that the State maintains jobs in the near term and plays a role in stabilizing businesses for potential job creation in the future.
The overriding goal of CDA is to structure and design loan transactions for the purpose of leveraging additional liquidity (cash) into a company at critical times during the business cycle, especially during these very difficult economic times. One of the basic precepts of CDA is job retention and job growth.
Over the past year CDA has underwritten an increasing number of transactions in participation with banks under the direct loan, loan guarantee and junior participation programs. Each of these transactions required the company to restructure, deleverage and recapitalize their balance sheet. The CDA accomplished this by timely intervention with the business and its lender and by the appropriate utilization of numerous CDA credit enhancements, in most cases a successful restructure/recapitalization plan allows the company to avoid bankruptcy.
From July of 2008, through June 30th 2009 CDA provided $34.6M in loans which leveraged $275M in non-state assistance. CDA works in cooperation with 32 lending institutions to provide the assistance to companies in the form of loans that bolster much needed liquidity.
CDA primarily assists and lends to manufacturing companies in need of an alternative financing source. They are positioned to inject additional working capital into a business that is not currently obtainable through their respective banks. However, some requirements are needed to qualify:
- An experienced management team
- A good business model
- A defined market /distribution channel
- A demonstrated ability to service the debt currently or on a projected analysis
Why turn to the CDA?
The CDA's Loan Programs can be utilized to assist manufacturers in situations where the company has exhausted their bank line as a direct result of the company's inability to meet the bank's financial covenant requirements. These requirements may include a call for an annual or bi-annual clean up. Often no additional draws are permitted until this situation is resolved.
Another example in which CDA Loan Programs can be of help is in the case where the business is experiencing reduced line availability under a borrowing base formula that has been lowered by the lender due to the shrinkage of the collateral value of the assets securing the line. This devaluation negatively impacts the advance rates allowed by the bank. In each of the examples outlined it's not long before the lack of liquidity creates tremendous downward pressure on the company's ability to deliver product, meet other debt obligations and maintain its workforce.
Many of the companies CDA works with have a highly skilled work force and provide subcontracting work to a number of other companies throughout the state. They develop a codependency on each other's success or failure.
What does a company do when its life blood (line availability) has been suspended? How can they continue to manufacture product, perform research & development and invest in retaining /creating jobs, new equipment and purchasing inventory. In short, how do they stay in business during these difficult economic times in the absence of sufficient liquidity?
If you are facing any of these difficult situations, contact the CDA for more information www.ctcda.com