Illinois gives guidance for Cannabis Loan Funds
As reported in November, the Illinois Department of Commerce and Economic Opportunity (DCEO) and Governor JB Pritzker announced in a press release that $8.75 million in direct forgivable loans, fully financed by the State of Illinois, will be made available to all conditionally-approved social-equity loan applicants in order to provide immediate access to capital. This week, DCEO announced sample guidelines for the use of the Cannabis Loan Funds.
The guidance states, “Cannabis Loan Funds shall be used for ordinary and necessary expenses to start and operate a cannabis business.” Though not an exhaustive list, DCEO set forth examples of allowable and non-allowable expenses. Examples for allowable uses for the Cannabis Loan Funds include rent, payroll, purchase of equipment, purchase of inventory, regulatory compliance expenses, payment of fines or penalties, certain legal expenses, and employee training.
Examples for the Cannabis Loan Funds that are not allowable include food, entertainment travel, expenses for facilities outside of Illinois, purchase/lease of vehicles (except for transporter licenses), and legal expenses associated with litigation involving the state of Illinois relating to any regulatory or criminal matter. All proposed uses of funds will be negotiated and memorialized in the loan agreement. Potentially allowable with DCEO approval (assessed on a case-by-case basis) is construction projects but not build-outs. All uses of the proceeds must be necessary for the Illinois business, supported by adequate proof of obligation and expenditure, and comply with all requirements of the loan program.
Based on the business type, the following loan amounts (from a total of $8.75 million) are available per participant:
- Craft Growers: $500,000
- Infusers: $250,000
- Transporters: $50,000
The announcement also states the following about the Prevailing Wage Act and Personal Information Privacy Notice:
Prevailing Wage Act
The Prevailing Wage Act governs the wages that must be paid to laborers, workers and mechanics who perform work on public works projects. “Public works” means all fixed works constructed paid in whole or in part with public funds. Examples of “public works projects” include, but are not limited to, construction, demolition, build-outs, and landscaping. If cannabis loan funds are used to fund a public works project, then the Prevailing Wage Act applies. For more information about the Prevailing Wage Act, please visit here.
Personal Information Privacy Notice
The Department is committed to protecting the privacy of its vendors, grantees and beneficiaries of programs and services. At times, the Department will request social security numbers (SSNs) or other personal identifying information. Federal and state laws, rules and regulations require the collection of this information for certain purposes relating to employment and/or payments for goods and services, including, but not limited to, grants. The Department also collects confidential information for oversight and monitoring purposes. Furnishing personal identity information, such as a social security number, is voluntary; however, failure to provide required personal identity information may prevent an individual or organization from using the services/benefits provided by the Department as a result of state or federal laws, rules and regulations.
There are a few main differences between the original program “Social Equity Loan Program” and the new “Direct Forgivable Loan Program.”
- In the old program, approved licensees were “eligible, not guaranteed to receive funding” and in the new Cannabis Social Equity Loan Program, every participant that “completes the simplified documentation process and funding disbursement steps will receive funding.”
- The lender has changed from financial institutions and lending partners to the State of Illinois.
- Interest rates in the original program were below market with no accrual grace period, and the new program offers “4% after an 18-month grace period of no required payments and 0% interest; applicants can also pursue forgiveness prior to any interest accruing.”
- The original loans were not forgivable, but with the new program the “loan principal is 100% forgivable upon providing documentation for eligible business expenses.”
The forgivable loan has an 18-month grace period with no payments or interest accrued to provide businesses with flexibility. The Cannabis Social Equity Loan Program is a first-of-its-kind program that launched in the summer of 2021 with the goal of providing low-interest loans to social equity licensees through a partnership with lending institutions. According to the announcement, program participants have encountered significant delays in receiving capital through financial institutions because of the complexities of navigating a new industry that remains illegal under federal law, as well as institutions’ fiduciary, regulatory responsibilities, and underwriting standards that are set independent of the program.
In response to feedback from participants, and out of an unwavering commitment to increasing equity in the cannabis industry, DCEO’s new Direct Forgivable Loan Program will make funding from the state available to all eligible program participants regardless of their original loan application status with a lending partner. Interested participants can continue to pursue funding through the original loan program, while also receiving the new Direct Forgivable Loan.
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