Saturday, November 20, 2010

Businesses Can Use Linked Deposits to Borrow Money Cheaper

What’s a linked deposit, and how can it help your business get a lower cost loan? It’s simple. State and local governments gather up money all the time, and need somewhere to invest and grow it. Some of them figure that they can kill two birds with one stone—invest the money in the form of CD’s in lending institutions in their state, linked to the amount that the institution loans to certain types of businesses in that state, at a lower rate (maybe a couple of percentage points) lower than the going rate. That interest rate savings is passed along to the borrower, and makes borrowing money a couple of percentage points cheaper as a result.

Like most government programs, it is pointed towards a particular end—mostly business development, and particularly, the type of businesses that the state has an eye towards growing. So, in Washington State, certified military service members and veterans have a linked deposit program to provide cheaper loan money for veterans in business. In Maryland, there is a program for certified minority business people. Oklahoma has several programs—for agriculture, small business, and developers of affordable housing. Ohio has a bunch—more than I realized. Besides the one for small business, there is one for agriculture. There’s another one for the rehabilitation of underground petroleum tanks and another one for logging and silviculture. In fact, Ohio has the only linked deposit system of saving that I know of for individuals—SaveNow, which allows a higher rate of savings return for individual Ohioans.

There is no one centralized list of linked programs, even in one state. Many are run out of the state’s treasurer’s office, but not all. Here’s a list of state treasurer’s offices, just to start. To find more possible programs in your state and see if you are the type of business your state wants to grow, Google the name of your state and “linked deposit” program.  Remember that you will still have to come up with a good business plan, and be credit worthy.  These programs are no guarantee that you will be loaned the money!  But they are a good option to consider.

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