Q&A: City Of Chico Finalizes Plan To Help More Businesses Qualify For Emergency Loans

Jun 16, 2020

The city of Chico is finalizing a plan to set aside about $400,000 to help more businesses in the city qualify for emergency disaster loans through 3CORE, a nonprofit economic development corporation serving the area. 

NSPR's Andre Byik recently spoke with Chico Assistant City Manager Chris Constantin about the plan, as well as the businesses affected by the coronavirus pandemic that could be helped. 

Here are highlights from their conversation. You can also listen at the top of the page.

On the plan being finalized by the city

Well, one of our partners 3CORE, our region's Community Development Bank has a $3 million emergency disaster loan program that they're able to offer to businesses. There are criterias with that program, just like there is anything else through the Small Business Administration. And what we're doing as the city is dovetailing off that program and allowing for that criteria to be lowered to increase the number of businesses that could participate in the entire disaster loan program. 

How could the city’s involvement help more businesses qualify for the 3CORE loans

In some cases, applying for programs such as these and the credit evaluation that occurs would be similar to what you face when you go to a bank, a commercial bank, where they ask you for your financials, the assets that you may have and whatnot and it goes through a process to determine what level of credit risk you may be. 

In the case of some of our businesses, downtown and other places, they may be a newer business, they may be a business that doesn't necessarily have the amount of assets that a bank would be looking for. They may not have a 600, 700, or 800 credit score, but could be a reasonably good credit risk for us to assist. It is that type of business that we're looking for one that we know, we believe that they can fully repay the loan, ensuring that we don't end up anywhere in the city with a vacant block full of businesses.

On how this program fits alongside federal business aid, like the EIDL and PPP programs

This is intended to be a gap loan where a business may not qualify for the EIDL and then the PPP, or receive a commercial loan from their institution or any other source. This is intended to really be somewhat of a last resort for not getting it anywhere else. We'll take a look at it and see if we can make it work. And that is to say, there is no guarantee that a business would qualify even for that type of last resort loan. So we need to caveat that this isn't a program where if you don't qualify anywhere else, you can qualify here.

On what loan amounts are being offered

The program through 3CORE is a $10,000-plus type of loan, and we would have to evaluate depending on what the need is, to what extent we could grant that loan and the dollar amount that goes with it. We have to understand that we don't have an unlimited amount of money and so trying to maximize where the money can be most effective is a balancing act between the dollar amounts, the credit risk, and the business impacted.

On which businesses could potentially benefit

While we're looking at citywide, we understand that certain businesses are going to see the effect of a double whammy with the university changing the schedule. One of our primary focuses is ensuring we can provide a bridge for those businesses that were both impacted by the pandemic and then by the reduced operations here in the downtown area with the university so that we can get them through to the next semester when activity starts to come back and they can self sustain themselves.

On the application process

So the application process will be similar to what it is currently. They would be applying through the CDFI the Community Development Financial Institution, 3CORE, they would go to their website and see what the application process is and what's required and then go through that.

On what risk exposure there is for the city

Currently, the program when it offers a loan has other partners and programs, whether state, federal or private, that backstop that loan. For example, I issue a $10,000 loan for somebody with a reasonably high credit score and asset. And I may find a state program that's willing to secure that loan at 95%. Which means if that business fully defaulted on all $10,000 of that loan, that state program would cover $9,500 of that. The remaining $500 would be a risk exposure of our Community Development Financial Institutions program, that they would have to set aside money in their accounts to ensure that if they default, they can pay for that. 

When we go to a higher risk type of business, that security may be 80%, 50% or even zero, in which case, our Community Development Financial Institution cannot take that risk and expose itself to such a large loss. And that would be where the city would step in and determine whether or not it wants to secure that loan or portion of that loan to allow it to meet the thresholds that it can be granted that overall loan through our Community Development Financial Institution.

This interview has been edited for brevity and clarity. Click the “play” button to listen to the entire interview.