The Auburn City Council took further measures to assist small businesses Thursday, as the Council approved a resolution allowing the City to utilize municipal funds to help private businesses cover interest payments.
The Council met via Zoom video conference Thursday afternoon, allowing community members to watch via live stream on YouTube, to discuss a resolution to establish the working capital loan interest subsidy program.
This program allows the City to pay the interest or provide interest subsidies for working capital loans made to local businesses severely impacted by the COVID-19 pandemic, according to the resolution.
The City will cover the interest on loans up to $25,000 given by participating banks to businesses that operate within the city limits of Auburn. Participating banks will submit each loan to the City Council for interest subsidy approval, according to the resolution.
The resolution was approved unanimously, although Ward 8 Council Member Tommy Dawson was absent from the meeting. This program will begin immediately.
To participate in this program, small business owners need to apply for and obtain a loan from one of seven participating banks including Auburn Bank, BancorpSouth, BBVA, Max Federal Credit Union, Regions, River Bank & Trust and Southern States Bank.
These banks were chosen because they were already a part of a coalition to help with affordable housing initiatives in Auburn. Any bank that wants to participate now that this resolution is approved may request to be added to the list of participating banks, said City Manager Jim Buston.
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The banks committed to each have $500,000 available for loans to small businesses. That means $4 million in working capital for small businesses in Auburn, according to the resolution.
“Basically, we’re talking $500,000 of our money and leveraging it into $4 million of capital into the local market,” Buston said.
The City also committed to provide $500,000 for the program. The money will cover the interest for the loans for the length of the loan. Of that $500,000 that the City will provide, $250,000 will come from the economic development budget and the other half, which is another $250,000, will come from the general fund of the City’s budget.
Businesses that utilize this program will still be eligible for Small Business Administration disaster loans, Buston said.
“We look at this [program] as a stopgap measure to fill the void,” Buston said.
This program comes after businesses around the country have instituted shorter hours or closed completely during the pandemic.
“We’ve had businesses contact us and tell us they’re closing their doors because they can no longer stay open,” Buston said.
The working capital program is intended to assist businesses that operate in Auburn. Businesses that have locations in other communities as well as Auburn still qualify for this program.
The City is not signing on as a guarantor of the loan, they are only committing to covering the interest. If the businesses default on the loan, then the City is no longer responsible for the remaining interest on the loan, Buston said.
The Council is required to vote to cover the interest on each loan because the way in which the City is authorized by the state, though the Constitution of Alabama, to have this program requires the Council to approve each participating loan. The plan is that all of the loans the banks receive between each Council meeting will be given to the Council in a bundle at that next Council meeting.
This is similar to the way the Council does incentive programs. Buston said he does not believe this will cause delays for businesses to receive the loans.
“We are asking the banks to go ahead and share the risk with us,” Buston said. “Whether they will or not, I don’t know. We’re not guaranteeing [the banks] that [the Council] will approve these loans, but we’re saying that there’s a good chance and that if they will take a little risk on their own.”
The Council is only likely to not approve a loan for this program if it is determined the business is outside the city limits, otherwise, Buston said he could not think of a reason to not approve a loan for this program.
Ward 3 Council Member Beth Witten asked if Council members are allowed to utilize this program since three Council members have small businesses in Auburn. Buston said Council member’s businesses are allowed to utilize this program. When the Council member’s business’ loan comes before the Council for approval, that Council member needs to step aside for that particular vote.
Buston said he asked the mayor to call a special meeting to discuss this resolution because the next Council meeting is not until April 7, almost two weeks away.
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