new hampshire business finance authority

new hampshire business finance authority

The Role and Impact of the New Hampshire Business Finance Authority in Supporting Economic Development

1. Introduction to the New Hampshire Business Finance Authority

Since its inception in 1952 as the New Hampshire Industrial Facilities Authority, the BFA’s mission has been and continues to be the promotion of economic development by working with businesses to ensure greater access to capital held by the state’s banks. At no time since the organization’s founding has access to capital been more critical for survival of small businesses to spur the economy. On its balance sheet, the organization offers additional opportunities for leverage that fosters economic development. The BFA’s partners – state banks and operations partners – encourage the mission in the hope that effective economic development will be a likely outcome of the BFA’s work. This paper is about how the BFA executes that plan, primarily by using guarantees to make the qualified loans more affordable for small businesses while earning income to honor the trust with our bank partners.

The New Hampshire Business Finance Authority (BFA) is a publicly-financed authority that leverages private capital to support small business finance in New Hampshire. Because of this public-private alignment that is woven into the fabric of the authority, the BFA is uniquely designed to carry out its mission: promote economic development by working with eligible banks to make conventional loans more affordable for small businesses. These affordable business loans may spur economic development, modernize and expand infrastructure, and create jobs for the state’s residents. Because the BFA acts as co-lender – certifying other conventional (non-government guaranteed) lenders – banks offering the qualifying loans share more risk of default, and this reduced credit risk enables small businesses to secure long-term fixed-asset loans at rates much below those available in the conventional market. Fueled by private capital, not the state’s general fund, the BFA provides financing guarantees to allow private banks to provide lower interest rates to qualified applicants. The borrower’s bank can purchase financing guarantees before finalizing the loan.

2. Key Programs and Initiatives of the Authority

BuyNHA also collaborates with entrepreneurs on vision, structure, capital formation strategies, and execution by matching “coaches” with entrepreneurs. The Christmas Island Development Corporation develops and strengthens local advantage and coordinates and supports major projects that generate the private-sector support. The BFA launched the Certified Capital Company Insurance Program (a.k.a. CAPCO or CAPS) during 1998; CAPCO utilized the state’s insurance premium tax credits to create another source of investment funds for small, medium, and emerging growth businesses in New Hampshire. A second program of the BFA called the Piggyback Program encourages banks to make loans to companies that have already taken as much as is prudent from the bank by providing a superior lien position on assets of the borrowing company. The Bootstrapping Program is yet another means of encouraging investments in start-up and emerging growth businesses in this state.

Four important programs and initiatives of Purchase, a quasi-public agency whose mission is to build capacity and improve the physical infrastructure of the state enabling for-profit companies, not-for-profit entities, and municipalities to grow the economy.

In 2004, the FIU Metropolitan Center, a program of the Igor Ansoff Center for Innovation and Development at Florida International University, finished a study on the principal programs and initiatives that are embracing place as a tool to drive economic development and prosperity. The New Hampshire Business Finance Authority provided generous funding to support the study. In the course of conducting this study, FIU surveyed multiple organizations in different regions, and it became apparent that the New Hampshire Business Finance Authority was using place-based strategies to transform New Hampshire’s economy. Therefore, the authors felt compelled to delve deeper into the inner workings of the Authority’s programs and initiatives.

3. Success Stories and Case Studies

The experience of the BFA and its counterparts in other states suggests a variety of possible policy changes. These implications are relatively general. In some cases, however, they are quite specific, ranging from the need to increase the maximum permissible loan size for SBA 504 loans to the potential value of establishing a relationship between the New Hampshire BFA and state employees. Overall, BFA has been successful at addressing the higher-risk, lower-yield segments of the financial markets. Its relatively low default experience reflects both the high quality of its customer base and effective, experienced management. And the relatively low yields permit it to repay private-sector guarantees at higher-than-typical yields. Although these lessons are primarily relevant to policy in other states, they also suggest that analogous lessons could be developed for loans to other customer groups within New Hampshire.

The case studies detailed in Section 4 give an in-depth examination of the unique advantages of financial leverage provided by the New Hampshire Business Finance Authority (BFA), even as relatively small loans and loan guarantees have leveraged substantial additional resources from private banks for their borrowers. The first example is rather simple and straightforward, involving a small business that could not obtain financing from other sources and that was able to survive only with the assistance of the BFA. In the second and third cases, the BFA provided the underpinning necessary for other institutions to take positions in loans where, for various reasons, others were not willing to be the first in the process. Without the crucial back-up of the BFA, in both instances, the new Enterprise Center at Plymouth (Eney) and the Town of Littleton would not have been developed in conjunction with private banking institutions.

General Overview

4. Collaborations and Partnerships for Economic Growth

Other collaborations include economic development organizations including the local, regional, and state chambers, Regional Economic Development Center, and other economic and community development stakeholders who act as sponsors of the BFA RLFs and conduct business technical assistance, education, and business advisement functions as an adjunct to the micro and above high standard bank loans which can be offered. The applied collaboration allows the BFA to increase its leverage with Debt Service Reserve Corporation support resulting in the development of more loans and loan dollars from other BFA programs. Other funding comes from private or nonprofit sources such as contributions that are tax-exempt, CSSBIs, or bond programs. Bond funding, which is provided to qualified projects, allows a continuous low-interest pass-through lending program under IRC rules which are recognized as integral to a 501(c)(3) tax-exempt entity or a conduit for new sustainable working capital (for IRC rules).

The BFA collaborates, partners, and adds value to economic development and business finance on many levels. Its core competencies are financing and offering management expertise toward the growth of small to medium-sized businesses. The BFA also efficiently partners with other financing resources for larger projects, capital-intensive enterprises, and industry development, municipal projects, and economic development organizations which use low LTC tax-free bonds. Statewide funding and training for business technical assistance and education includes collaboration with a professional and experienced network of the SBDC, New Hampshire Small Business Development Center, Monadnock Economic Development Corporation and Loan Fund in the areas of venture capital, loan funds, angel groups, and business education and technical assistance activities. Through BFA’s RLFs, the collaboration offers more flexible financing instead of regulatory and bank-like rules to ensure the loan is appropriately structured, safely managed, and responsibly repaid.

5. Future Directions and Opportunities for the New Hampshire Business Finance Authority

To be successful in the economic development arena, it will become increasingly important to demonstrate the links between financial programs, i.e., leveraging activities; and New Hampshire’s economic development goals, i.e., creation of higher paying jobs for our residents. State programs are facing increasing scrutiny in their interactions with the economy. This means conducting more frequent and comprehensive program evaluations (monitoring and tracking) than may have occurred in the past; and taking advantage of a greater range of economic development metrics. Given finite resources and increasing demands to drive toward results, the level of coordination around economic development activities can no longer be limited to attending meetings. This hard work is needed to coordinate activities and realize the benefits of ancillary feedback and networking effects. The broad-ranging scope of the economy and the shifting nature of businesses and growth companies are emblematic of the economic forces at play. Yet, New Hampshire has the right kind of strategy to drive policies that respond to economic change. In view of these trends, another important commitment that the BFA can make is to develop the human and financial capital necessary to deliver its mission.

As an organization with a proven track record and a highly competent staff, the BFA will continue to play an important role in the development of New Hampshire’s economy. Interestingly, in the past, the BFA’s niche was in the small business area, defining “small business” as a business with fewer than 250 employees. Today, a business with fewer than 500 employees is considered small. Also, the risk characteristics of various industry sectors continue to evolve, with healthcare and energy often being attractive to financing entities. As a result, interacting with banks and other financial institutions in identifying opportunities and partnering with other entities (e.g., BIA and regional economic development organizations) is important. This partnering framework also holds true in the BFA’s relationship with EDA and SBA. Helping businesses has ripple impacts on the economy and connects to improved life quality metrics in the state.