Aug. 3—As part of a highly touted effort to help small businesses recover from the economic fallout of the coronavirus pandemic, New Mexico lawmakers made it easier to qualify for funding under a low-interest loan program.

Broadening the availability of funds with less restrictive criteria was one of the first orders of business during the 60-day legislative session earlier this year.

But so far, only about $73.5 million of the $500 million appropriated for business loans has been disbursed.

At least one disappointed legislator questioned the success of the loan program Monday during a meeting of the Legislature's New Mexico Finance Authority Oversight Committee, saying the effort negatively affected one of the state's permanent funds.

"This comes at a cost to the state of New Mexico in terms of the Severance Tax Permanent Fund," said Sen. Joe Cervantes, D-Las Cruces. "I think that we're missing the opportunity for the state to be investing that money in the long term for better returns because we're suspending it, effectively. We're kind of having it in limbo for this program."

The $6 billion Severance Tax Permanent Fund, created in 1973, is the state's second largest permanent fund. It initially was funded with natural resource taxes and has grown through investments. Of all the state's endowments, the Severance Tax Permanent Fund has the greatest flexibility in how its money can be invested.

Marquita Russel, chief executive officer of the finance authority, which was tasked by the Legislature to oversee the loan program, noted the agency only pulls the money down from the Severance Tax Permanent Fund as it's needed.

"We didn't move $500 million over," she said. "We have

$500 million, and we can draw those monies down from the SIC [State Investment Council] as we have application need. ... It's still earning the money that it was earning before because we tell them a month in advance about how much money we think we're going to need."

Russel also told lawmakers having a financial cushion has its advantages.

"The nice part about having more money than you have need is that you can do it on a first-come, first-served basis," she said. "When you think there's going to be scarcity, you have to then identify who gets first crack at it and who would get the money. When you have to prioritize that, you slow up the applications for the other people."

Russel also told lawmakers more loans are in the works.

"We have another almost $26 million in various stages of closing," she said, adding her agency is reviewing an additional $35 million to $40 million in requests.

The agency screens applications "quickly but carefully" because of the potential for fraud, she said.

The application period will be open until May.

Lawmakers first made $400 million available for loans for small businesses affected by the coronavirus pandemic last year under the Small Business Recovery Act of 2020. Despite the need for financial relief among businesses that faced closures and other restrictions under state-ordered mandates, more than $42 million was dispersed through 880 loans under the program.

"That program enjoyed some success and helped a lot of people, but it did not help as many as had asked for help," Russel said. "There were some very specific requirements in that program that unfortunately hindered its access."

As a result, lawmakers revised the eligibility criteria under a reauthorization bill that also made an additional $100 million available, bringing the total to $500 million.

Since then, the finance authority has disbursed an additional $31 million through 502 loans, for a total of about $73.5 million loaned.

As part of the changes adopted under the reauthorization bill, only 51 percent of the ownership in a business must be held by a New Mexico resident. Before, it was at least 80 percent.

"A lot of family-based businesses whose parents may have moved out of state or whose sister moved out of state now qualify, so a lot of family businesses were able to access the funds as a result of your change," Russel said.

Russel said the terms of the loan changed "fairly substantially," going from a three-year loan to up to a 10-year loan.

"There's no interest in that first year, the next two years are interest-only and are paid annually, and then it's seven years of repayment of monthly principal and interest payments," she said, adding it's a fixed interest rate loan.

The reauthorization bill also increased the number of nonprofits eligible for funding and raised the maximum amount of a loan from $75,000 to $150,000. To qualify for $150,000, Russel said the finance authority requires personal guarantees from any owner that owns more than 20 percent of the business.

"There's more money available, significantly more available, to businesses, and we're seeing a number of them come in and take advantage of the additional funds because their businesses right now really need that," Russel said.

Under the original legislation, businesses could only use the loan proceeds for general operations. Now they're allowed to cover capital improvements stemming from the pandemic, such as the construction of an outdoor patio.

Cervantes said during the meeting he had predicted the loan program wouldn't generate a lot of interest.

"One of the arguments I would make frequently in the [Democratic Senate] caucus was that my experience in business and with business people I knew was that these programs would probably not have a lot of participation because businesses in the middle of a pandemic are not looking to get into more debt," he said. "They're already stretched pretty thin and even if the terms are very favorable, oftentimes the last thing they need to do is to take on more debt. And so I wasn't surprised don't remain surprised that you're seeing ... very low participation. Let's just be straight about it."

Still, Cervantes said businesses would be "foolish" not to take advantage of the loan program.

"I gotta tell you," Cervantes said with a chuckle, "it's business malpractice not to be doing this. I'm not here to tell businesses how to run their thing, but I cannot think of any circumstances where this isn't a great deal for businesses in New Mexico. So, the fact that we have little participation, lots more money than people are taking out, I think it's got to come back to us a little bit to try and get the word out."

Follow Daniel J. Chacón on Twitter @danieljchacon.