Louisiana economic development officials are trying to boost a state-led loan program for small businesses that has been slower to ramp up.

But they’re running into challenges from banks too busy handling federal applications and a loan guarantee that’s not as attractive as the SBA’s.

The Small Business Loan Guaranty Program offers loans of up to $100,000 for businesses with fewer than 100 employees. The loans require no payments for the first six months, offer terms of up to five years and carry interest rates capped at 3.5%. They can be used to help employers meet their payroll, retain employees, pay their rent and mortgages and other expenses. Louisiana Economic Development says the program doesn’t prevent borrowers from seeking SBA assistance as well.

Like the federal Paycheck Protection Program, banks are in charge of handling applications, approving loans and distributing money to businesses.

When the state program was announced on April 1, Gov. John Bel Edwards said they had commitments from more than 30 banks who agreed to participate. As of Friday, six banks appear on the loan program’s website, with one of those in the New Orleans area.

Of the program’s $50 million pool, $30 million is in the process of being booked with Louisiana banks, according to LED.

LED Secretary Don Pierson said in an April 16 webinar hosted by GNO Inc. that LED has reached out to 125 Louisiana banks and credit unions to encourage participation, but added that the program “is not as robust to date as I’d like it to be.”

“We are out in the field with agreements which need to go through the banks’ legal (process),” he said.

Metairie Bank is the only New Orleans-area bank currently participating. President and CEO Ron Samford said the program “is another avenue for us to assist small businesses in need as a result of the COVID-19 pandemic shutdowns.”

“We also knew that the PPP funds would be depleted, and that this vehicle would allow us to ensure our customers and other local businesses had an allocated pool of funds to borrow from on favorable terms,” he said. “Unlike the PPP, which is on a first-come first-served basis, we have a specific allocation of the $50 million LPGP loan pool to distribute at our discretion.”

Samford said his bank has received 140 applications for the state program but hasn’t been able to approve or fund them because they’ve been handling hundreds of PPP applications. The bank is now beginning to underwrite some of the state loan applications, he said.

Banks have various reasons for not participating. Some cite the state’s 20% guarantee on the loans compared to the PPP’s 100% guarantee. Many are inundated with PPP loan applications.

Guy Williams, president and CEO of Gulf Coast Bank & Trust Co., said the bank has been encouraging customers to take advantage of the PPP, which offers a forgivable eight-week cash flow for businesses to pay bills and retain employees.

“We aren’t saying (we won’t participate), but it doesn’t seem to fit too many people,” said Williams, whose bank has been handling thousands of PPP applications.

Chris Ferris, president and CEO of Fidelity Bank, said the bank “felt like we could help more clients through SBA programs that had as good as or more favorable terms.”

“We felt this was a limited amount of money in the LED program, so we thought if there are other banks not ready to fill PPP loans and are not as experienced with the SBA, then those funds could be used by other banks,” he said. “It’s not a knock on the program. It’s more of, ‘What can we do best to help as many people as possible knowing they had a $50 million (limit)?”

Samford said he is comfortable with the state’s 20% guarantee “because loans in this program are underwritten to our normal credit standards, and our asset quality is, and has been for many years, among the best in the state.”

Pierson said one of the reasons for the 20% guarantee is so that LED can offer a larger pool of $50 million to help a bigger number of potential applicants. LED did not provide information on how many people have applied, and said loan volume “will be reported in the coming weeks.”

“We believe we have established a program that’s a win for the bank (1% origination fee), a win for the client (low rate, flexible terms, 6-month holiday) and a win for Louisiana as we attempt to maintain the viability and longevity of our small businesses,” he said in a statement Monday.

“If companies are looking to explore all their options to secure funds with fewer documentation requirements, to have more flexible use of funds, and to work directly with a local lender for a rapid response, we believe our program is a worthy alternative,” he added.

The program received considerable input from the Louisiana Bankers Association. CEO Robert Taylor says they are “very pleased with what LED has implemented to help Louisiana businesses.”

“The program is not in lieu of PPP but in addition to,” he said. “How borrowers and lenders approach the PPP and LLGP will depend on each circumstance. Small businesses need liquidity, and the more options, the better.”

The Associated Press contributed to this report.