Kansas State Treasurer, Kansas Bankers Association propose plan to provide COVID-19 relief for Kansas businesses
Topeka— The Kansas Bankers Association today proposed the start of the Kansas Economic Recovery Linked Deposit Loan Program with the full support of Kansas State Treasurer Jake LaTurner and other stakeholders. This COVID-19 relief measure would utilize existing state idle funds to provide low-interest loans to businesses seeking relief from losses sustained due to COVID-19.
In order to fund the program, the legislature would need to allow for the reallocation of $60-million dollars currently set aside for the Kansas Housing Loan Deposit Program (KHLDP), which began in 2008 and is currently not being utilized. The funds are distributed to banks using what is called a linked deposit program model where the State of Kansas makes a certain amount of its idle funds available for banks to borrow at less than the daily market rate so that they can turn around and provide loans to their customers at a lower rate.
“Kansas businesses have taken some devastating losses during the drastic economic downturn we are facing due to COVID-19, and the time to act is now. We owe it to our businesses and ag producers to utilize the resources we have available to help them during this time,” said LaTurner. “This is not a government handout. It is a free market solution to assist our Kansas businesses and families. I urge the legislature and the governor to make this law as quickly as possible so that we can assist as Kansans rebuild from this pandemic.”
The Kansas linked deposit program was successfully utilized in 2000 when the Kansas Legislature allocated $50 million for the Kansas Agricultural Production Loan Deposit Program (APLDP) to assist struggling Kansas farmers with their day-to-day farming expenses at a low interest rate. Within 3 weeks of the KS Legislature approving the $50 million to be used for the program, 36 banks had requested and received nearly the full amount allocated for the benefit of over 400 borrowers. In 2001 the Kansas Legislature added an additional $5 million to the program.
In this new proposal for the Economic Recovery Linked Deposit Loan Program, loans would be authorized for a length up to 10 years with a maximum individual loan limit of $250,000. Participating financial institutions would be responsible for the underwriting of each loan and the state would be repaid on those deposits at a floating rate of 2% below market rate with a floor of 0.25%. The interest rate spread for participating institutions would be capped at 3%.
Doug Wareham, President and CEO of the Kansas Bankers Association has been working closely with legislative leaders to develop a robust state-level response addressing the need for low-cost credit for Kansas businesses and supports repurposing the KHLDP funds for COVID-19 relief.
“We support the Kansas State Treasurer and policymakers arming the business community with tools needed to restructure debt when feasible and to allow struggling businesses to manage their way through this crisis,” said Wareham. “The COVID-19 pandemic has severely harmed businesses, including farmers and ranchers, across Kansas. Shuttered storefronts, a crippled energy sector, low farm commodity prices and disruptions in the food processing sector are causing a ripple effect that will negatively impact the cash flows of agricultural operators and small businesses for the foreseeable future. The negative economic impact of COVID-19 has been unprecedented and Kansas businesses will need both short and long-term credit strategies to remain viable.”
Surrounding states, such as Missouri, Oklahoma and Iowa have similar programs that are currently infusing
hundreds of millions of working capital dollars into businesses in their respective states.