Mississippi Small Enterprise Development Finance Program (SED)

The Mississippi Small Enterprise Development Finance Program (SED) enables the Mississippi Business Finance Corporation (MBFC) to make loans to qualified private companies that will increase employment and investment in the State. The State of Mississippi issues general obligation bonds as the source of funding under the SED Program. The bonds are issued on a composite basis. The costs of issuance are prorated to each company participating in the issue, allowing companies to obtain tax exempt financing that would otherwise be unavailable due to prohibitive costs.

This program provides tax-exempt financing for small projects, and gives banks in the State, which meet MBFC criteria, an opportunity to issue letters of credit to support these efforts. The combination of lower than market interest rates and a fixed term make this program an attractive alternative for projects requiring loans of $4 million or less. Sales tax exemptions are granted for this type of public financing. Other tax incentives, such as those through the Mississippi Rural Economic Development Assistance Program (RED), as described in a subsequent section of this web-site, may be available. Ad valorem exemptions may be granted if approved by the appropriate city and county.

ELIGIBILITY

If the project is located within the 49 counties designated under the Gulf Opportunity Act of 2005 (GO Zone), most commercial businesses are eligible.

If the project is located outside the GO Zone, only manufacturers and processors are eligible.

USE OF PROCEEDS

Loan proceeds may be used for fixed-asset financing, including land, buildings, and machinery and equipment. No used equipment may be financed with loan proceeds.

Expenditures made before inducement by MBFC typically cannot be included in the bond financing. A company whose funding needs do not coincide with the timing of a bond issue may use its own funds or obtain interim financing to begin the project. At the time of issuance, bond proceeds may be used to reimburse the company or to repay the interim loan. Companies considering participating in the SED Program should have their project induced as early as possible.

RESTRICTIONS

The company must commit that the proposed project will create a minimum of ten (10) net new full-time jobs.

Loans may not be made in excess of 90% 0f the market value of the financed assets.

No loans shall be made to refinance any existing debt.

LOAN AMOUNTS AND TERMS

The aggregate amount outstanding for any one borrower may not exceed $4 million.

Interest rates on these loans are equal to the net interest rate on the bonds issued by the State, plus a servicing fee. This rate excludes the letter of credit fee. Maximum loan term is fifteen years.

COLLATERAL

All loan applications must identify a qualified financial institution that will issue a letter of credit guaranteeing the loan.

ASSOCIATED COSTS

The cost of the letter of credit is negotiated by the bank and the borrower; however the cost is limited to a maximum of 2% per annum of the loan. The borrower must pay a prorated share of the costs of issuance which include fees for legal services, financial advisors, and other professional services involved in closing the bond issue.

APPLICATION PROCESS

The borrower must file three copies of a completed application with MBFC. The standardized application form must be accompanied by a non-refundable application fee in the amount of $500 and by documentation indicating the issuance of a letter of credit. MBFC will review the application on the basis of completeness, financial soundness, feasibility (including the financial ability of the borrower to repay the loan), and compliance with program guidelines.

STATUTORY AUTHORITY

The Mississippi Small Enterprise Development Act is found in Chapter 71 of Title 57 of the Mississippi Code of 1972, as amended.