Frequently Asked Questions for Lenders: Eligible Use of Loan Proceeds
Other Lender Questions
Eligible
Businesses
Underwriting
Servicing Responsibilities
What are the eligible uses of proceeds?
Loan proceeds can be used for the purchase or improvement of land, buildings,
machinery and equipment; purchase of inventory; closing
fees; permanent working capital, revolving lines of credit, soft costs
and refinancing existing debt that does not exceed 75% of the WHEDA guaranteed loan, WHEDA closing fee (this portion will not be guaranteed).
Will a project involving real estate
qualify if the borrower leases a portion of the space to a tenant? 
Yes, under the mixed-use category, as long as the borrower's business
occupies at least 25% of the total square footage of the building,
it qualifies. A mixed-use property can be a combination of commercial
and residential space or totally commercial where some of the space is
leased to one or more businesses.
Is there a limit to the amount of
loan proceeds that can be used in the part of a mixed-use property not
occupied by the borrower's business?
Yes. The majority of the proceeds from the guaranteed loan should benefit
the borrower's business. Some of the proceeds may, however, be used to
make improvements to the remaining part of the property.
What is the difference between
working capital and permanent working capital?
Working capital is used to finance the day-to-day operations of a business
(i.e., all expenses, except owner's salary). It is usually set up as an
interest-only line of credit in which the borrower can take advances up
to a certain level. The lender generally requires that the borrower rest
the line (bring the balance down to zero) for a period of 30 consecutive
days each year. If the borrower is unable to rest the working capital
line, the lender may "term-out" the portion of the line that
the borrower cannot rest and convert it to permanent working capital.
Permanent working capital is typically used to finance a permanent investment
in inventory or accounts receivable. Permanent working capital loans are
usually structured as term loans.
The maximum term of a guarantee on a loan made to fund permanent working
capital is 7 years. The maximum term of a guarantee on a loan made to
fund revolving working capital is 2 years.
Can WHEDA guarantee contract
type loans?
Yes. In this situation, the borrower typically needs money up front
to purchase material and equipment or pay wages. The borrower gets paid
once the contract or purchase order has been performed and repays the
loan. As long as the borrower has a signed contract or purchase order
that is legal and binding and meets other eligibility requirements, we
can guarantee these types of loans. More on Contractors Loan Guarantee.
Can WHEDA guarantee a "floorplan"
line of credit?
Yes. A floorplan line of credit is used to purchase and secure specific
assets such as automobiles. WHEDA will guarantee this type of loan for
a term not to exceed 24 months.
Can WHEDA guarantee a new loan
to refinance existing debt?
Yes, refinancing existing debt that is accompanied by
a business expansion is an eligible use of proceeds. The portion of the loan to be used for refinancing cannot exceed 75% of the WHEDA guaranteed loan.
Can the borrower finance capital
stock transactions?
No, a stock transaction involves purchasing a right of ownership in
the business and this is not eligible.
Can the WHEDA Small Business Guarantee
be used to finance an in-Home business (i.e., computer consultation, desktop
publishing or day care)?
Yes, however, if the borrower wishes to finance the purchase or improvement of land and buildings, the business must utilize at least 25% of the total property.
There are no restrictions on the percentage of the property used for business purposes if the borrower wants to finance assets other than real estate.
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