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HomeMy WebLinkAbout[05a] RLF Policies/Guideliens Proposed ModificationsDate: Decembber 16, 2009 Memo To: Members of the EDAA City Addministrator WWeyrens mm: Cynthiaa Smith-Stracck, MDG, Incc. Memo Fro RE: Revolviing Loan Funnd Guidelinees and Internnal Policies Backgrounnd: As you aree aware, the EEDA/City reccently closed on its first loan from the EDA Revolving Loan Fund to a local bussiness establiishment. As is oftenn the case, gguidelines appproved with ssincerity prioor to programm administration when placed into pracctice may reeveal certain inadvertent complexitiess which hindder program addministration. Such is the case with thhe RLF guideelines approved by the EDDA and City Council at the time the fundd was established (i.e. 20004). During tthe loan revieew process jusst completed aa few challenges for prograam administraation were nooted: 1. Thee revolving looan guidelinees restrict thee percentagee of the projeect that can be funnded through the RLF to fiffty percent (550%). In the ccase of very ssmall loans (i.e. less than $25,0000) this limit ccan be burdennsome. The EEDA/City will not consider an unssecured loann and thosee applying foor the loan must providde a personnal guaarantee. Giveen the secuurity and guuarantee requuirements it seems overly resstrictive to reqquire no moree than 50% off small projeccts be funded through a loan fromm the RLF. 2. Thee Finance Director and tthe loan revieew subcommmittee noted an absence of inteernal guidelines and reeview criteriaa when connsidering thee recent loan appplication. To those ends, tthe Finance Director is reequesting inteernal guidelines beestablished sso as to maintain consisteency in proceessing, recorrd keeping, and loan evaluation. Please find attached: (A) propossed internal policy stanndards and (B) proposed modificationns to the RLFF guidelines aapproved by thhe EDA/Counncil in 2004. Action: This item iss for your information and ddiscussion. CComments aree welcome. îì ST. JOSEPH ECONOMIC DEVELOPMENT AUTHORITY REVOLVING LOAN PROGRAM PURPOSE The overall goal for the St. Joseph Economic Development Authority’s (EDA’s) Revolving Loan Program is to stimulate St. Joseph’s economy by providing low interest loans to small and medium sized businesses. Revolving loan funds are to be used for business start-ups, expansion, and retentions where jobs are created or retained. This may be accomplished by the following means: 1. Creation or retention of permanent private sector jobs in order to create above average economic growth; 2. Stimulation or leverage of private investment to ensure economic renewal and competitiveness; 3. Increase in local tax base; 4. Improvement of employment and economic opportunity for citizens in the region to create a reasonable standard of living; 5. Stimulation of productivity growth through improved manufacturing or new technologies. ADMINISTRATION The St. Joseph EDA and City Council are the policymaking and loan approval bodies for the Revolving Loan Program. The EDA is responsible for revising guidelines and recommending loan approval to the City Council. The City Council is responsible for authorizing loan. EDA staff and their assigns will be responsible for day to day administration, working with applicants on proposed projects, collecting data, performing pre-loan analysis, overseeing loan processing, preparing agreements and monitoring projects progress. ELIGIBLE APPLICANTS Eligible applicants include most industrial businesses, commercial businesses and technological service businesses. ELIGIBLE LOAN ACTIVITIES 1. Loan funds may be used for acquisition of land and/or buildings(s), rehabilitation of building(s), reconstruction, new construction, site improvements, utilities or infrastructure, and purchase of industrial equipment in connection with starting a new business or expanding an existing business. 2. Land and building must be privately owned, taxable property and proposed for commercial and/or industrial activities. 3. If building(s) are being purchased or rehabilitated with funds from the Revolving Loan Fund any/all building code violations must be remedied. The project must comply with the St. Joseph City Code including standards relating to land use. 4. Revolving loan fund assistance can be for no more than one-half of the cost of the project for projects in excess of $50,000 in value. Projects estimated at $50,000 or less may be exempted from this standard at the sole discretion of the EDA. 5. Ineligible activities include the operation or expansion of a casino, sports facility when the principal tenant is a professional sports team, housing projects and operating expenses. City of St. Joseph – Revolving Loan Fund Program Page 1 îë APPROVAL CRITERIA The grant or loan shall be based on the following criteria: 1. A gap in project financing is demonstrated. 2. The business must locate, remodel or expand within the corporate limits of the City of St. Joseph. 3. The project will result in the creation or retention of existing jobs. 4. The project will result in an increase in tax base. 5. The project can demonstrate that the investment of public dollars induces private funds. 6. The project can demonstrate an excessive public infrastructure or improvement cost beyond the means of the affected community and private participants in the project. 7. The project provides higher wage levels to the community or will add value to current workforce skills; 8. Assistance is necessary to create new or retain existing businesses. 9. Job/wage goals must be consistent with the City of St. Joseph Business Subsidy policy. SECONDARY LOAN ACTIVITIES Loans may not be used for refinancing existing indebtedness or projects begun prior to loan application. LOAN TERMS/CONDITIONS Financial assistance from the Revolving Loan Program is designed to make projects economically feasible. Loan terms and conditions are determined by the information submitted in the loan application. The following are the loan conditions: 1. Loan Amount – Maximum loan amount is 90% of the available RLF balances but shall at no time exceed the gap demonstrated in project funding. 2. Interest Rate – The interest rate shall be set at the time of issuance and dependent upon qualifications. 3. Term – Machinery/equipment: up to seven years. Land/buildings: up to 15 years. Terms for other purposes will be flexible. 4. Equity – There shall be minimum five (5) percent equity (cash or fixed assets) investment amounts greater than of total project costs required of all applicants requesting loan $25,000. 5. Security – The business owner will be required to provide personal guarantees for the loan amount. 6. Project Initiation – All loan funds must be expended within six (6) months from the date of the loan approval. An applicant may request a six (6) month extension. 7. Loan Fees – A processing fee of 1% of the total loan amount is payable at closing. Loans may be prepaid without penalty or additional charge. City of St. Joseph – Revolving Loan Fund Program Page 2 îê The Revolving Loan Program is intended to be flexible and assistance is customized to meet the particular needs of individual projects. APPLICATION PROCESS The City of St. Joseph shall process and administer each loan in a manner which is usual and customary with regard to other loans under similar circumstances. The basic steps for securing a loan are as follows: 1. Applicant meets with St. Joseph EDA staff to discuss proposed project and loan program guidelines. If project meets program objectives and other eligibility items, then applicant completes the attached application which includes: A. Statement describing nature of business and proposed plans; B. Project description – purpose of loan and expected benefits. Itemize and provide cost estimate for building improvements and/or equipment; C. Sources/Uses proforma for the project; D. Complied profit and loss statement for the past two (2) years (if applicable); E. Personal financial statement(s) (for use in connection with applicant’s equity requirement); F. Any other pertinent data t least one but not 2. A sub-committee comprised of the St. Joseph Finance Director, a more than two members of the EDA and the EDA Director shall review the application to The EDA at its sole discretion may require a determine whether or not it is complete. loan officer or a member of senior management from an FDIC insured lender join the Loan Review Committee. If the application is determined to be complete, the subcommittee shall formulate a recommendation to the full EDA concerning the fiscal impact (if any) on the City and the appropriateness of the amount of assistance requested. 3. The St. Joseph EDA will review the application and make a recommendationto the City Council. Upon approval, a Development Agreement and all other necessary documents in connection with the loan will be prepared by the St. Joseph EDA staff and shall be executed by the Director of the EDA. The City/EDA may work with a conventional lender to review the creditworthiness of the applicant and the loan application. RLF POLICIES RLF policies shall be as approved by the EDA and City Council. TIMETABLE Applications may be submitted at any time. City of St. Joseph – Revolving Loan Fund Program Page 3 îé St. Joseph EDA Revolving Loan Fund Policies A. Equity participation. There shall be a minimum 10 percent equity investment of total project costs required of all applicants requesting loan amounts greater than $25,000. B. Collateral requirements. All loan agreements will be secured by one or more of the following: promissory note, mortgage, or security agreement as required by the City; and 1. The revolving fund may take a subordinate position to the primary lender on the assets financed; and 2. Surety deposits shall be required for certain construction contracts as set forth in Minnesota Statutes 290.9705. C. Personal guaranty. Personal guarantees of persons with ownership interest of 20% or greater are required. Personal guarantees of persons with ownership interest between 5 percent to 19 percent may be required by the EDA but are discretionary. D. Loan repayments. Repayment of the loan must begin within one month of completion of construction or taking possession of machinery and equipment purchased with loan funds. The City may make exceptions to this rule on a case by case basis. E. Loan closing documents. The City will close the loan within sixty (60) days of final City Council approval of the loan application. At that time, the City will deliver to the Borrower all closing documents and a final debt service schedule. In exchange, the Borrower will deliver to the City its loan obligation which is defined as a mortgage, bond, note, or other evidence of obligation issued by the Borrower to evidence it indebtedness under the loan agreement. F. Post closing amendments and modifications. Requests for amendments and modifications following award, closing or disbursement of funds to the underwriting of the original request require EDA approval and shall be presented at the next scheduled meeting of the Board. G. Loan declination. The EDA will not recommend loan issuance and the City Council will not make a loan if it determines that the loan amount would place an undue burden on the financial resources of the Borrower or the Borrower cannot demonstrate adequate financial capacity to repay the loan or the EDA otherwise determines that making the loan is not in the best interest of the City. H. Appeal. There will be a complaint and appeal procedure for aggrieved applicants: 1. Written notice. Applicants will receive written notice of the denial of the loan and the reason(s) for the determination within fourteen (14) days of the determination. 2. Petition. The aggrieved applicant may petition the EDA in writing for reconsideration within fourteen (14) days from the date of the written notice of denial. Any request to appear before the Board must be in writing and must be submitted at least seven (7) days prior to the Board’s scheduled meeting. Upon receipt of the written petition for reconsideration, the EDA shall consider the petition at its next scheduled meeting and advise the petitioner in writing of its decision within fourteen (14) days of that meeting. The Board’s decision will be final. 3. Re-application. Applicants aggrieved by the Board’s final decision may re-apply for revolving loan funds after ninety (90) days if the concerns in the preceding application are adequately and appropriately addressed. 1 îè I. Loan review committee. The a subcommittee comprised of at least one but not more than two members of the St. Joseph EDA, the City’s Finance Director, and the EDA Director (Community Development Director). The EDA at its sole discretion may require a loan officer or a member of senior management from an FDIC insured lender join the Loan Review Committee. The Loan Review Committee shall report to the St. Joseph EDA which will make a recommendation to the City Council. The final determination on all revolving loan applications rests with the City Council. J. Conflict of Interest. All city officials and employees shall comply with the applicable conflict of interest regulations set forth in Section 21 of the City Code as may be amended. K. Staff responsibility. The Community Development Director (i.e. EDA Director) shall have the general responsibility for coordinating the application process, reviewing loan application, preparing applications and recommendations for review by the EDA, and coordinating the loan approval and service process as set forth in Subsections D – G of this Section. L. Loan approval process. The Community Development Director (i.e. EDA Director) shall prepare loan applications and make recommendations to the EDA. 1. EDA agenda. Upon determining the eligibility of the completed application and soundness of project, the Community Development Director (i.e. EDA Director) shall place the loan application on the agenda for the EDA’s next scheduled meeting for initial consideration. 2. EDA authorization. The EDA will determine based on a cursory review of the application and project whether or not the loan application meets revolving loan fund guidelines and is eligible for funding through the revolving loan fund. If the EDA determines the proposed project is eligible for the RLF Program, EDA shall authorize and direct convening of Loan Review Subcommittee. 3. Loan Review Subcommittee. The Community Development Director (i.e. EDA Director) shall make copies of all loan application related materials including, but not limited to, financial statements, pro-forma analysis, credit references, collateral proposed, etc. for the Loan Review Subcommittee. Proprietary information shall remain confidential as requested by the Applicant and be collected after review by the Loan Review Subcommittee with at least one copy retained for insertion in the official file for the project. 4. Loan Review Criteria. The Loan Review Subcommittee shall base their decision on the economic benefit to the City of St. Joseph, credit underwriting typical to the lending community including the borrower’s ability to repay the loan and the collateral offered to secure the loan, the number of jobs to be created or retained, wage rates of jobs created or retained and increase in the local tax base. The Loan Review Subcommittee shall make a recommendation to the EDA regarding: collateral/security required, loan amount, loan term, and loan rate. 5. EDA action. Upon placement on the agenda, the EDA shall make a recommendation to the City Council to either approve or deny the loan application request. Alternately the EDA may postpone a recommendation if specific additional information is requested of the Applicant or the Loan Review Subcommittee. 6. City Council action. Following a recommendation by the EDA, the City Council shall consider the recommendation for loan approval or denial at its next regular meeting. 7. Approval. If approved, the applicant will be sent a written commitment letter that will outline the terms and conditions of the loan approval. A copy of the commitment letter will be signed by the Borrowers and Guarantors signifying acceptance of the terms and conditions of the loan proposal and the conditions for funding. Upon the return of the executed commitment 2 îç letter, Community Development Director (i.e. EDA Director) will begin drafting loan documents and initiate the loan closing process. The loan documents shall be reviewed by the City Attorney. 8. Closing. The Community Development Director will prepare documentation and coordinate the closing with the Borrower or the Borrower’s counsel. M. Loan servicing. The Community Development Director (i.e. EDA Director) with collaboration from the Finance Director shall coordinate loan servicing activities. 1. Monitoring. The Community Development Director (i.e. EDA Director) will monitor loans for compliance with the accepted terms and conditions including job creation statistics and wage and benefit levels (if required). 2. Reports. The Community Development Director is responsible for ensuring that all required reports are filed in a timely manner. 3. Records. Computer files and conventional paper files will be maintained for the purpose of documenting, tracking, and monitoring program and project activities. Program records will be maintained primarily by the Community Development Director (i.e. EDA Director) and financial records will be maintained primarily by the Finance Director. Where applicable, the following records will be maintained: a. Program records. The following program information will be maintained in the program project file, including but not limited to: i. Environmental report (if required for project); ii. Property inspection report (if required for project); iii. Records of official EDA and City Council Actions; iv. Correspondence; v. Loan documents; and vi. Executed loan agreement. b. Financial records. The following financial information will be maintained in the financial project file, including but not limited to: i. Copy of the executed loan agreement; ii. Disbursement data; iii. Repayment data; and iv. Amortization tables. N. Delinquency. 1. The Finance Director is responsible for the timely posting and accounting of all loan repayments. 2. Thirty day notice. Upon thirty (30) days delinquency, the Finance Director will notify the Community Development Director (i.e. EDA Director) of the delinquency and the Community Development Director (EDA Director) shall send the borrower a delinquency notice requesting payment within fifteen (15) days. 3. Forty-five day notice. If payment has not been received by the 45th day a second delinquency notice will be sent to the Borrower by the Community Development Director (EDA Director) requesting payment within fifteen (15) days. 3 íð 4. Sixty day notice. If payment has not been received by the 60th day, the Community Development Director (i.e. EDA Director) will attempt to contact the Borrower by telephone to discuss the delinquency. The Director shall also send a notice of default to the borrower via certified mail requesting immediate payment and advising the borrower the delinquency will be placed on the EDA agenda for discussion at the next scheduled meeting. 5. Ninety day notice. If no repayment plan is submitted by the Borrower, or if there is no attempt by the Borrower to negotiate the amount due, the Community Development Director shall contact the City Administrator who in turn shall contact the City Attorney to discuss sending a 90 day letter calling due the loan in full. 6. Negotiation. Throughout this process, every attempt will be made to preserve the company, the jobs and the loan funds. O. Default. If the EDA or City Council determines a loan to be in default it will pass a resolution declaring the entity in default and convey the matter to the City Attorney for disposition. 4 íï