Are Increasing Interest Rates Impeding Growth Plans? Consider this Lower-Interest Financing Option

Are Increasing Interest Rates Impeding Growth Plans? Consider this Lower-Interest Financing Option

With the Federal Reserve Board increasing interest rates seven times in 2022 and another hike likely next month, you may be hesitant about taking out loans to move forward with growth plans and investments in new products, technology, and equipment. What if we told you (or reminded you) there is a funding program available to eligible manufacturers in New York State that can save you 2% to 3% in interest, while supporting business growth?

The Empire State Development Linked Deposit Program (LDP) helps existing businesses in the state secure reduced-rate financing to improve productivity, performance, and competitiveness. Loans are available for 2% or 3% lower than the fixed interest rate a lender would normally charge (depending on factors like where your business is located; whether it is minority or woman owned; if it’s for a defense industry diversification project; the lending institution’s 4-year CD rate; and more). With the LDP, you may qualify for higher levels of funding and funding may be available even if you have less than stellar credit.

This is made possible by New York State, which makes a linked deposit of funds to induce a lender to charge the borrower a lower rate for the first four years of the loan. The lender pays the state a reduced rate of interest on its 4-year deposit (in the form of a CD) and it reduces the interest rate charged on the borrower’s loan by a like amount. Translation: You pay 2% to 3% less than the lender’s going interest rate on the loan.

Who’s eligible? If your manufacturing firm has 500 or less full-time employees based in New York State, you may qualify.

What can an LDP loan be used for? Prepare strategic plans to improve productivity and competitiveness; introduce modern equipment and/or purchase or expand facilities as part of a modernization plan; improve production processes and operations; introduce computerized information, reporting and control systems; reorganize or improve work systems; adopt total quality and employee participation programs; develop and introduce new products; identify and develop new markets; buy out viable companies; and obtain working capital for modernization activities to improve competitiveness and productivity, while creating or retaining jobs.

How much can I get? There are no loan minimums. The maximum for each linked deposit is $500,000 and the lifetime limit is $2 million. You can have up to three LDP loans for up to $1 million at any given time.

How much can I save? 2% to 3% on loans for a four-year term. So, if you’re approved for a 3% reduction on a $500,000 loan and the lender’s interest rate is 7% on the loan, your rate will be 4%. So, you stand to save $60,000 over the life of the loan.

Loan Amount$500,000$500,000
State’s Deposit– 0 –$500,000
Lender’s Interest Rate on Business Loan7%4% (with 3% reduction)
Lender’s Interest Rate on C/D3%0% (with 3% reduction)
Estimated Savings to Borrower (4 yr. term)$60,000

While the uncertain economic environment increases the temptation to curb spending as much as possible, as reported in Forbes, “Some experts say that economic downturns can present the best opportunities for growing a business while others are retreating.” If you agree with the later and are interested in learning more about the LDP, visit the Empire State Development Link Deposit Program for more information, including frequently asked questions, a list of lenders, an application, and more.

For additional insights, including how this may affect your accounting and taxes, give RBT CPAs a call. We’re a leading accounting, tax, and audit firm serving the Hudson Valley and beyond for over 50 years and we believe we succeed when we help you succeed.