PIERRE, S.D. (KELO) — Businesses that borrow money from one of South Dakota’s major loan programs will be paying a higher rate of interest.
The state Board of Economic Development on Wednesday increased the rate to 3% for loans made from the Revolving Economic Development Initiative program.
The rate had been 2% since 2012. The increase took effect following the voice vote during a teleconference meeting.
The REDI program began in 1987 during then-Governor George S. Mickelson’s administration. The interest rate at that time was 3%.
Travis Dovre, finance director for the Governor’s Office of Economic Development, explained that inflation is running in excess of 3%.
“We’re losing purchasing power in the fund,” Dovre said.
He acknowledged that the higher rate of interest will increase costs to businesses but it would still be reasonable when blended with bank loans.
The rate wouldn’t be applied retroactively, according to Dovre, and any extensions and modifications of existing loans will be considered case by case.
The board’s chair, Sioux Falls banker Jeff Erickson, said that other bankers on the board would recognize that conditions have changed.
“We want to be a healthy partner,” Erickson said. “It seems like it’s time, maybe past time.”
Board member Kevin Tetzlaff, a banker in Brookings, said he would support the increase.
“It totally makes sense for the rate environment we’re in,” Tetzlaff said, calling the increase “a small step” in sustaining the REDI fund.
The board made five REDI loans in the state fiscal year that ended June 30, 2023. A state audit showed the fund had $89,853,119 cash and cash equivalents as of that date and total assets of $132,830,229.