Oregon Legislature passes plan to offer bigger loans to startups and small businesses

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Oregon lawmakers have approved a bill expanding access to capital for businesses that are too new or too risky to qualify for conventional bank loans.

Under the bill, Business Oregon would increase the cap on direct loans to startups through its Entrepreneurial Development Lending Fund to $1 million, up from the current temporary limit of $250,000. Business Oregon is the state’s economic development agency.

House Bill 4015 passed both houses with bipartisan support and now goes to Governor Kate Brown for her signature.

The measure only applies to loans made through the Entrepreneurship Development Loan Fund (EDLF). This program aims to fill a funding gap for startups and start-ups, helping them through the first few years of operation before they typically qualify for private loans.

Economic development officials told lawmakers that the program’s loan limits were long exceeded.

“Many small businesses have loan needs that far exceed the old program,” Business Oregon’s John Saris said at a public hearing earlier this month.

Until recently, EDLF loans were capped at $100,000. Lawmakers approved a temporary increase — to $250,000 — during the pandemic. And now they have agreed to further expand the capacity of the program.

Oregon State Capitol Building, May 18, 2021. The Capitol was completed in 1938.

Kristyna Wentz-Graff/OPB

Saris said supply chain shortages, rising wages and rising real estate costs have added up for small businesses still weathering the pandemic.

“And ultimately these rising costs increase the lending needs of businesses that are not eligible for private debt,” he said.

The measure permanently expands loan eligibility to businesses with less than $1.5 million in revenue or less than 25 employees. The bill does not change collateral requirements, but it does reduce the amount of equity business owners are required to invest in their projects.

The EDLF program was created in 1991, according to Business Oregon. It made just three loans in 2019 and 2020, the agency said, and 11 loans last year.

By expanding loan eligibility and amounts, Business Oregon hopes to increase these lower numbers.

No public opposition to the bill was raised during the legislative hearings. The measure has no impact on the budget or on forecast revenues.

At a Senate hearing last week, some lawmakers raised concerns that as loan sizes increase, defaults could cost the public program more.

Scott Bruun of Oregon Business & Industry, a powerful trade alliance, urged lawmakers to approve HB 4015. The bill, he said, is unlikely to help current members of the group, but it could help develop new ones.

Brown is expected to sign the bill.

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