An interim legislative committee on Tuesday approved a state-run loan program for small cannabis businesses. The decision was approved by the New Mexico Finance Authority Oversight committee with a 9-2 vote.
The program will be overseen by the state’s finance authority and will be funded by the Economic Development Revolving Fund. According to a presentation from the authority’s CEO Marquita Russell, there will be about $5 million from the revolving fund made available for qualifying businesses. Each loan, Russell told lawmakers on Tuesday, would be limited to $250,000 and terms would be limited to five years. Applicants to the loan program would need at least a conditional approval for a cannabis microbusiness from the state’s Regulation and Licensing Department with a business plan that shows three years of financial projections. Loan applicants would also need to put up money, property or equipment as a form of collateral. Any loans of less than $100,000 or for a term less than three years would be charged two percent interest and loans more than $100,000 or for a term longer than three years will be charged three percent interest.
Russell told lawmakers that a state-backed loan will likely benefit underrepresented communities around the state.
“We anticipate that a significant portion of the licensed cannabis micro businesses owned by minorities, or located in rural or economically disadvantaged communities, will face disproportionate barriers in accessing financing in order to participate in the emerging industry,” Russell told the panel.
Part of those barriers, she said, is that banks generally do not offer traditional financing for cannabis businesses and many entrepreneurs are starting to discover that there are more costs involved in starting a cannabis business than they expected.
Russell said NMFA identified about three dozen micro business applicants that would qualify for a loan from the state and that rigorous requirements from the finance authority will ensure a limited amount of defaults.
“This does have to be a real business,” Russell said. “Folks have to have a business plan, where they articulate how they’re going to be producing and selling their goods and to whom.”
Tuesday’s meeting was the second time NMFA appealed to the committee. Last month the same committee voted against the proposal, with many members asking for the finance authority to make changes to the proposal. On Tuesday, Russell said some of the suggested changes were made. But there were still concerns from lawmakers regarding loan defaults and businesses that may not be able to raise enough collateral to qualify for a loan. Russell said the requirements to receive a loan and the short loan terms will help to keep borrowers from defaulting. In terms of making it available to those who need it the most, Russell said the NMFA still needs to protect its investments.
“They do have to be secured loans and we need to make certain that these are good financial investments,” Russell said.
Russell added that “first and foremost,” the NMFA needs to be assured that loan applicants
“know what they’re getting themselves into, from a business perspective, from a crop perspective.”
Russell estimated that after legislative approval, the NMFA can finalize the wording on applications and make them available to entrepreneurs by early next year.