When jobs fall short, REDI loan recipients face financial penalty
PIERRE — The state Board of Economic Development adopted a new policy Tuesday for businesses that receive low-interest state loans for projects but don't fulfill their job-creation agreements.
The board now will require that a business pay back the remainder of its loan at prime interest rate plus 2 percent.
The previous policy used the commercial loan rate of the board's loan servicing agent, BankWest of Pierre.
Banks vary in their commercial loan rates. The new policy standardizes the board's approach, said Travis Dovre, a member of the Governor's Office of Economic Development staff.
He said the current calculation of prime rate plus 2 percent would be 5.25 percent. He said the board could alter the 2 percent in the future if the prime rate drops or increases by any significant degree.
"Prime may go up, so it may not be cheap someday," said Jeff Erickson of Sioux Falls. He is the board's chairman. He is a retired banking executive and serves on the state Banking Commission.
The Board of Economic Development makes low-interest loans at below-prime rates as incentives for businesses such as manufacturers, processors and financial services to develop more primary-type jobs in South Dakota.
The program, known as the Revolving Economic Development Initiatives, was created by the Legislature in 1987 at the request of then-Gov. George S. Mickelson
It became one of the major tools in state government's efforts to recruit and promote business development.
Dovre said the higher rate of interest applies when borrowers don't act in good faith to create the projected numbers of jobs or move the businesses out of South Dakota.