PIERRE, S.D. - A long-awaited loan-qualifying tool will offer Cheyenne River Sioux tribal businessmen and companies considering relocating to the area new options for accessing financing for their ventures.
The Cheyenne River Sioux tribe signed a joint powers agreement with the state of South Dakota Jan. 4 which allows the tribe to use the Secretary of State's office to file documentation for secured loans from lenders under the tribe's uniform commercial code.
The tribe's code program which mirrors others used in the nation and internationally took nearly five years to develop, said Tribal Chairman Gregg Bourland.
The move to a partnership with the state allows the tribe to officially put the program into action with the state serving as a records keeper for secured loans, said Deputy Secretary of State Tom Leckey.
The system provides a mechanism for lenders to secure loans on the reservation by filing a document listing the assets used for collateral. Previously, tribal members, tribal agencies or companies considering locating on South Dakota reservations couldn't obtain investment capital needed to develop business interests because banks were unable to offer secured loans unless they were tied to government guaranteed loans or grant programs.
The recent agreement, in part spurred by a Federal Deposit Insurance Corp. push to encourage investment in tribal ventures, allows lenders to record liens against assets until the loans are paid off. It also allows potential lenders to track existing secured loans.
Since loans will be treated the same way they are offered in non-Indian communities, those seeking loans for businesses can pledge profits and assets such as buildings or inventory as collateral. Producers can pledge livestock as collateral for the loans.
Reservation business operators traditionally had to rely on government-guaranteed loans and federal programs to aid business growth, but the change gives reservation communities greater flexibility for fueling economic development, Leckey said.
Lenders were allowed to make only 15 to 20 percent of their loans as unsecured loans under federal law, leaving tribal businessmen and companies examining options for locating on reservations with few resources to open new businesses and expand, he said.
The Secretary of State's office, which already handles such documentation for all other lenders and business interests in the state, has a system in place under the state UCC program. Leckey said adding the tribe's filings will be relatively easy under the state's electronic records system. South Dakota lenders are already filing over the Internet. The state will have to develop new programming to integrate tribal filings within the system which will take a couple of months, Leckey said.
"It's curtailed credit to the people on the reservations for years. Now with a UCC program, not only does it help the individuals, I think we are going to see some industry move in. I think it is a great tool."
Leckey said the tribal chairman noted at least two companies have come forward with plans to locate on the reservation, bringing as many as 200 jobs, because they have a way to secure collateral.
Bourland said more than five years ago the Federal Reserve convened a meeting with tribal leaders from the region to find ways to facilitate more opportunities with lenders for tribal communities.
"Out of that meeting there was only one tribe that took them up on their offer and that was Cheyenne River. We were very interested in facilitating credit on the reservation," Bourland said.
Cheyenne River began working closely with a federal reserve bank in Minneapolis, Minn., and the FDIC in Kansas City, Mo., meeting every three months. None of the tribal governments had a uniform commercial code. Cheyenne River officials started looking at UCC programs to determine how to write the tribe's own code.
"We discovered that 140 nations share the same commercial code. It was decided by our tribal council about two years ago to build and adopt a code that was very similar to all of those nationwide so that companies would feel more comfortable doing business here rather than come here and reinvent the wheel," he said.
"If you look at most transactions done in locations or reservations without a UCC, you will find they are very expensive, the interest is usually high or the collateral is excessive," he said.
"With the UCC, it levels the playing field."
Bourland said in some cases banks required more than four times the collateral to secure loans.
Finding a proper place to file documentation was the next step. States had changed codes to include electronic filing, but the tribe didn't have the computer resources to electronically file, so it began looking for a way to do it using state resources.
The arrangement doesn't affect tribal members when it comes to dealing with the potential loss of property tied to a failed venture. While the UCC filings allow easier options for securing a loan, the laws governing foreclosure or the seizure of assets in the event of a default remain the same on the reservation, requiring action in tribal court before assets can be taken.
"We just simply saw the need to protect tribal members and at least allow them to defend themselves in our court before property is taken off the reservation," he said.
Bourland wouldn't comment on which companies are negotiating with the tribe.
At least one company, which considered locating on the Pine Ridge Reservation shortly after President Bill Clinton's visit, expressed an interest in a venture on the Cheyenne River Sioux reservation. The Florida-based company eyeing Pine Ridge found the absence of a UCC on the reservation stymied its efforts to secure funding for the enterprise. So company officials focused on Cheyenne River, Leckey said.
Meanwhile another, unnamed company is negotiating with the tribe to start a business. Both are likely to bring as many as 200 jobs to the reservation.
"It opens the door for many different types of businesses, banks and credit companies to be able to do business on an even playing field. It eliminates the excuse that the banks had for charging too much collateral," Bourland said.
"Without a UCC, it will be pretty tough to find any company that is going to want to do some long-term investment. How many big companies are going to go to any reservation and put $20 million into a plant or into any type of investment there without the protection of the law.
"We can't attract millions of tourists and gamblers here. We accept that fact. We're trying to attract big business and big money to find reasons to relocate. We don't really believe we're going to attract big government here any more. We have to make our own way," he said.
"Our jobs as legislators is to provide a body of law not only to protect our people, but to protect the transactions involved and protect commerce. I think our council has done just that," he said.
While the tribal leader encouraged other tribes to follow with a UCC, he warned that tribal leaders need to look closely at what they want to include in such legislation and not simply adopt a copy of his own tribe's UCC.
Bourland said tribal leaders will need to research the UCCs and write laws to match their needs while bringing the tool to the table.