The New Jersey Economic Development Authority introduced a direct loan and bonding plan Tuesday to encourage small businesses in the state to expand.

Under the plan, the authority will work in conjunction with the Federal Home Loan Bank of New York and its 113 New Jersey members to make low-interest loans to New Jersey businesses and nonprofit organizations.

In addition, the bank will extend its triple-A credit rating to the authority for bond sales on behalf of small businesses. The bonds will be backed first by a letter of credit from the local home loan bank making the loan and then by a triple-A letter of credit from the Federal Home Loan Bank of New York.

The authority will also provide a guarantee covering up to 25% of any losses to bondholders.

The authority has formed a number of similar alliances with banks over the past few years to increase access to capital for small businesses, according to Anthony R. Coscia, the authority's chairman.

"The EDA's guarantee has helped commercial banks make loans they want to make but can't because of regulatory constraints," Coscia said. "With the help of the FHLB, we're extending this structure to savings and loan institutions that normally handle only residential loans."

State commerce commissioner Gualberto Medina said small businesses offer the best opportunities for job growth, "but it's also the small business owner who faces the most challenge when it's time to raise capital," especially urban businesses.

"Now we're changing those dynamics by making it possible for business owners to borrow money for their operations from the same neighborhood bank from which they get their home mortgage," Medina said.

Under both the direct loan and bond financing programs, member banks have agreed to charge a rate no higher than 200 basis points above the rate at which they are able to borrow from the Federal Home Loan Bank of New York, which is currently about 25 basis points above comparable Treasury securities.

The maximum available loan is $6 million for financing costs of fixed assets and $4 million for working capital. The minimum loan amount is $100,000.

To qualify, businesses must have been in operation for at least two years and meet specific collateral and repayment criteria.

The financing must also benefit families with incomes of 80% or less of the area's median income, or the business must be located in a neighborhood containing at least 51% of such families.

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