Second Stage Loan Program

The Program is a loan guarantee to be administered by the Commonwealth Financing Authority (CFA). It will guarantee loans made by commercial lending institutions to life science, advanced technology or manufacturing businesses.

Many early to mid-stage businesses in these industry sectors have significant working capital needs during their early operational years. Because of a lack of business history, banks are often reluctant to extend lines of credit or other working capital financing to early-stage businesses. The program’s purpose is to provide banks with an extra measure of security to encourage them to provide early-stage companies with working capital financing.

If a bank wants to take advantage of the loan guarantee program, it must apply to the CFA for enrollment in the program. The bank will provide information to the Authority about its lending operations, and how participation in the loan guarantee program will help it to better serve the business community within its service area. This will help it to better serve the business community within its service area. If the information provided to the Authority is acceptable, the bank will be enrolled in the program and the Authority will execute a master loan guarantee agreement in favor of the bank.

As the bank approves loans for eligible businesses, it will submit information about each business and the borrower to the CFA. If the loan meets the requirements set by the Authority, a loan guarantee certificate will be issued to the bank indicating that a portion of the bank’s loan will be guaranteed by the Authority.

The guarantee program is only available to life science, advanced technology and manufacturing businesses that are at least two years old but less than eight years old.

Preference will be given to working capital financing provided to eligible businesses. However, financing for land, building, machinery and equipment will also be eligible to receive a guarantee under the program.

The program will guarantee up to half of the outstanding principal amount of the bank loan, not to exceed $1 million, for the first two years of the loan. Thereafter, the program will guarantee up to 25 percent of the outstanding principal amount of the loan for the remainder of the loan term or until the end of the seventh year of the loan term. No guarantee will be provided for a period longer than seven years. The guarantee will only cover loan principal; it will not cover any unpaid interest or fees.

The bank will be required to pursue all avenues of collection against the borrower and any other guarantors, including foreclosure on collateral and liquidation of assets. Only after the bank has exhausted all of its collection efforts may it seek a payment from the Authority under the guarantee.

The program will provide guarantees in an aggregate amount not to exceed $50 million.

The business must first check with its bank to see if the bank has enrolled in the program. If the bank is enrolled, and the business is a life science, advanced technology or manufacturing business that is at least two years old but less than eight years old and in need of working capital or other financing, the business should meet with loan officers at the bank to see if a loan backed by the Second Stage Loan Program is right for that business. If the bank approves a loan to the business, the bank will take the next steps to insure that it receives a loan guarantee certificate from the Authority to cover that loan.