Banks set up fund to boost development Loans would go to new businesses

April 23, 1993|By Amy L. Miller | Amy L. Miller,Staff Writer

Four Carroll County banks tentatively agreed this week to participate in a community development bank designed to attract industry to the county.

The proposed bank now has total commitments for more than $400,000 from Carroll County Bank and Trust, First National Bank, Taneytown Bank and Trust and Union National Bank, William E. Jenne, Carroll's economic development administrator, said yesterday.

Directors at Frederick County National Bank and Westminster Bank and Trust are considering joining the organization, he said.

"We're real close to our goal [of $500,000]. Everyone involved is now eager to move forward," Mr. Jenne said.

Each institution has agreed to contribute 0.5 percent of its county deposit base as an initial investment, he said. Once the bank is created, the money will be lent to companies -- about two or three a year -- that need additional financing beyond what a conventional loan can provide.

For example, when a bank loan is granted, institutions require a company to put its own money into a project, Mr. Jenne said.

"That investment the company has to make can be very large," he said. "This will help with that portion of the deal. This will be one component of the total finance package for a project."

Participants expect the bank to be ready to accept loan applications from businesses in a couple of months.

John Sower, who is president of Development Finance Corp. and is the consultant setting up the bank, will work out final details and create all the legal documents the new lending institution will need, Mr. Jenne said.

Carroll's Industrial Development Authority, which paid the first $6,000 of Mr. Sower's contract, agreed Wednesday to pay the remaining $6,000 to $9,000 if the participating banks do not wish to contribute.

Mr. Jenne said the loan money in the development bank will not be parceled out as grant funds or low-interest loans.

"They [the banks] expect these investments to generate returns upward of 15 percent," he said. "That may seem like an extreme number, but it is a far cry from what a venture capitalist would expect to receive. And, a venture capitalist will want to run the business."

After each loan is granted, one of the participating banks will take the lead role in collecting and administering it, Mr. Jenne said.

County officials will help with marketing and some administrative work for the proposed bank, Mr. Jenne said, but will not be involved in deciding which companies receive loans.

"I don't want to be flag waver and cop," Mr. Jenne said. "We're cheerleaders, not loan collectors."

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