Aid for Small Businesses

Los Angeles County is developing a new device to create jobs and help local small businesses raise capital.

The Economic Development Corp. (EDC) of Los Angeles County, a quasi-governmental agency that seeks to promote economic growth and jobs, plans this August to raise up to $35 million on behalf of as many as 30 qualified small businesses through a special offering of tax-exempt industrial revenue bonds.

The offering, to be coordinated by a consortium headed by Developing Systems Ltd., a Washington-based financial and economic consulting firm, essentially will pool the borrowing needs of the small firms into a single offering.

Such pooling will enable the small firms to receive more favorable interest rates and lower up-front financing fees than they would have had if they entered the capital market on their own, EDC President Ted Howard says.

“Our ultimate purpose is to create jobs,” he says, adding that it could create at least 700 jobs among the participating firms.

A handful of states and municipalities have tried or are contemplating similar pooled bond offerings, Howard says. The bonds will be backed by the small firms themselves, with a top-rated bank or other financial institution agreeing to make payments should any of the small firms default, Howard says.

To qualify for inclusion in the offering, firms must have annual sales of at least $3 million, have been in business at least four years and meet certain credit and growth standards, the EDC says.

Under California law, priority will be given to companies involved in basic industrial and manufacturing businesses, including those engaged in warehousing, distribution and trucking.

The offering, approved in February by the Los Angeles County Board of Supervisors, will be underwritten by Salomon Bros., a major investment banking firm.