Legislature approves loan program for struggling businesses

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The Kansas Legislature early Friday morning passed legislation that will create a $60 million low-interest loan program for businesses struggling from the economic fallout of the coronavirus pandemic.

The bill also would allow the banks to deduct interest income from agricultural loans and single-family housing loans in rural areas with populations of less than 2,500 people outside a metro area.

The bill passed 114-3 in the House and 29-11 in the Senate. It now goes to Gov. Laura Kelly for her signature.

Some lawmakers criticized the banking portion of the bill, saying it would put a for-profit bank on the same footing as non-profit credit union.

“You’ve got a non-profit credit union and a for-profit bank and (the banks) want the same rules,” said Democratic state Rep. Cindy Neighbor. “That’s why I have a problem and I could see some unintended consequences.”

Neighbor’s argument was similar to the one that the credit unions made as they wrestled with banks over an early version of the bill, which allowed banks to deduct interest income from business loans and single-family housing loans in rural areas of the state.

The banks said the legislation would make them more competitive, holding out the possibility that it will lead to lower interest rates for borrowers, possibly by a quarter of a percentage point.

The credit unions said it was a special not-for-profit tax exemption for banks without requiring them to operate by the same rules as not-for-profits.

The banks and the credit unions ultimately agreed to a compromise in their fight over the legislation.

The banks dropped the proposal allowing them to deduct interest income from business loans, which potentially could have cost the state many millions in revenue.

The bill also expanded the geographical area that credit unions can serve.

Credit unions, under state law, cannot serve geographic areas totaling more than 1 million people. The bill now expands that area to 2.5 million people.

The banking portion of the bill is projected to cost the state general funded$2 million in fiscal year 2022, $3.9 million in 2023 and $3.9 million in 2024.

The Department of Revenue based its estimates on data about state-chartered banks from the Kansas Bankers Association.

The low-interest loan program emerged in recent weeks as the coronavirus hit the state’s business community.

The bill redirects idle money from a loan program established more than a decade ago to help build new housing during the great recession.

The proposal would take money the Legislature allocated for the program in 2008 and use it to offer low-interest loans to struggling businesses.

The housing program has only been used about a dozen times since 2008 and there are no outstanding loans, which gives the Legislature a pot of money to draw from without dipping into the general budget.

The money for the program in 2008 came from the Pooled Money Investment Board, which invests money available from the general fund.

The state would loan the money to the banks, credit unions or Farm Credit at 0.25%, and the banks could make the loans to the businesses at up to 3.25%.

The program would make loans up to $250,000 to each business for up to 10 years.

Businesses would be required to put up collateral to back the loans. The financial institutions would guarantee the loans.