Ohio Budget Bill Expands Small Business Lending Program

By Daniel M. Prendergast, CPA

Somewhat lost in the headlines of the State of Ohio budget process, the Ohio Legislature approved changes to an existing loan program that make it more attractive to consider financing construction projects.

Gov. John Kasich signed H.B. 153 into law on June 30 to approve budget cuts and tax changes, but the measure also made significant changes to the Ohio 166 loan program. The program provides fixed-rate financing for the purchase of fixed assets or construction of owner-occupied commercial property.

Ohio 166 finances up to 50 percent of a total project’s cost with loans of $25,000 to $1.5 million and an equity contribution of 10 percent of the project’s cost. The company’s commercial bank typically finances the remaining 40 percent of the project while retaining a shared first-lien position on the property and the business owner’s personal guarantee.

Interest rates are fixed at two-thirds of the prime rate as of the loan closing date (minimum of 3 percent) or 3 percent if the project property is located in an economically disadvantaged community. In northeast Ohio, the cities of Cleveland, East Cleveland, and Lorain all qualify as economically disadvantaged. Loan amortization terms reach up to 10 years for equipment financing and 15 years for real estate acquisitions or construction.

The program has two tiers, depending on the size of the loan. The Ohio 166 Regional Loan program is administered by local Certified Development Companies (CDC) and handles loans of up to $500,000. Larger loans ranging from $500,000 to $1.5 million are handled directly through the Ohio Department of Development’s (ODOD) Ohio 166 Direct Loan program. Both loan programs have job creation or retention provisions that require the borrower to create or retain one job for every $50,000 borrowed under the program.

Historically, the program was used mainly for equipment financing because it mandated that any wages associated with installing or constructing the project property had to be paid at the “prevailing wage” rate.  The Ohio prevailing wage is determined by the Ohio Department of Commerce’s Wage and Hour Bureau and has become synonymous in the market with union wage rates. The prevailing wage requirement was repealed under H.B 153, however, so that construction projects are no longer required to comply with the prevailing wage standard.

The CDC servicing Northeast Ohio is Growth Capital Corporation. Growth Capital administers two economic development lending programs – the SBA 504 and Ohio Regional 166 loan program. Over its history, there has been almost no participation in the Ohio 166 program related to construction projects. Small businesses have typically found that the increased costs associated with using a prevailing wage contractor have significantly outweighed the interest rate savings associated with participating in the Ohio 166 loan program.

John Kropf, Growth Capital’s executive director, stated that he is excited about the recent change. “I am hopeful that it will bring more businesses into the program and provide increased activity in the commercial construction marketplace,” he said.

For more information on how the newly revised Ohio 166 loan program might benefit your company, call your Meaden & Moore representative or Dan Prendergast at (216) 241-3272 or dprendergast@meadenmoore.com.