There has been a surge of effort all across the country to save our cities. Earlier this month, a stride was taken in Baltimore that surely will serve its future as a powerful economic hypodermic. And the most significant part of what happened - a first in this nation is the fact that the private sector took its turn on center stage in a play that we believe will be a hit.
What happened was that I was able to announce that our city government had obtained commitments totalling $41.5 million from Baltimore's largest commercial banks and savings institutions to provide long-term financing for the city's small and medium-sized businesses.
It took us more than half-year to hammer out details, but the cooperation of city government; the National Development Council, a private, non-profit organization that specializes in finding long-term financing for small, successful businesses in urban areas, and the Greater Baltimore Committee, a business leadership and civic group, brought a dream to fruition. Indeed, we have taken a step in bringing some assurances to our small businesses that their expectations for the future will coincide with the realities.
Small and medium-sized businesses account for more than half of the private jobs in Baltimore. But these businesses have always had problems in obtaining long-term loans - this despite the fact that most are healthy, profitable and have promising future. The program we developed will help these businesses to get financing on terms as favorable as in the suburbs, thus helping Baltimore by creating new jobs and new tax revenues.
The loan commitment agreed to by our banks, loans that carry partial federal government guarantees, are for 20 to 25 years. Why is this important?
Financiers explain that there should be a direct relationship between the life expectancy of property and the term of the loan to finance its purchase. The life expectancy of a car is three to four years, and bankers are willing to extend automobile payments over a three- to four-year period. The life expectancy of a new home is 40 years, and mortgages are available for 25 to 30 years. The life expectancy of a plant for, say, a "Fortune 500" industrial company is also 40 years, and again, financing is available for 25 to 30 years.
But, normally, small businesses in cities can't locate long-term financing to expand or to build plants, or to purchase new machinery and equipment. And that long-term financing is an imperative.
Until now, what has been available for a small business plant - with a life expectancy of 30 years - was financing over a 5- or 7-to-10 year period. A small business cannot afford, on, say, a $1 million five-year loan, to pay $255,000 a year in repayments. But on a 20-year loan, the interest and principal repayment for a small business for a $1 million loan drops to $115,900 a year.
Our bankers, prudently of course, protecting their own institutions, recognized that the porposed program was sensible for our busicesses, our city and for themselves. They saw that the federal government guarantees made it possible to open up an active secondary market for the loans. And they recognized, too, that making it possible for small businesses with up to 250 to 300 employees to prosper would enhance our community.
The most important aspect of this for Baltimore is that it has meant a coalescing of the private and public sectors. How often we have heard it said that the government can't do it all alone, or that private investment can't do it all alone. Well, it's true. No sanitation department in any city can keep streets clean, really clean, unless the citizens of that city begin thinking in terms of cleanliness themselves. It's the same with nurturing a city's economic well-being. It's everybody's job, and everybody has to care.