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HomeMy WebLinkAbout[09c] Revolving Loan Fund Guidelines, Internal PoliciesCITY OF ST.,1[WLPH MEETING DATE: January 21, 2010 Council Agenda Item 9(c) AGENDA ITEM: Revolving Loan Fund Guidelines, Internal Policies SUBMITTED BY: Cynthia Smith- Strack, MDG Inc. BOARD /COMMISSION /COMMITTEE RECOMMENDATION: The EDA has reviewed the proposed internal policy standards and guideline modifications at their December 2009 meeting and recommended the Council approve said standards and guidelines. PREVIOUS COUNCIL ACTION: The City Council /EDA approved the original guidelines in 2004. BACKGROUND INFORMATION: As you are aware, the EDA /City recently closed on its first loan from the EDA Revolving Loan Fund to a local business establishment. As is often the case, guidelines approved with sincerity prior to program administration when placed into practice may reveal certain inadvertent complexities which hinder program administration. Such is the case with RLF guidelines approved by the EDA and City Council at the time the fund was established (i.e. 2004). During the loan review process just completed a few challenges for program administration were noted: 1. The revolving loan guidelines restrict the percentage of the project that can be funded through the RLF to fifty percent (50%). In the case of very small loans (i.e. less than $ 25,000) this limit can be burdensome. The EDA /City will not consider an unsecured loan and those applying for the loan must provide a personal guarantee. Give the security and guarantee requirements it seems overly restrictive to require no more than 50% of small projects be funded through a loan from the RLF. 2. The Finance Director and the loan review subcommittee noted an absence of internal guidelines and review criteria when considering the recent loan application. To those ends, the Finance Director is requesting internal guidelines be established so as to maintain consistency in processing, record keeping, and loan evaluation. BUDGET /FISCAL IMPACT: ATTACHMENTS: (A) Proposed internal policy standards (B) Proposed modifications to the RLF Guidelines approved by the EDA /City Council in 2004 Note: The internal policy standards contained in Attachment A are proposed new language, whereas the proposed modifications to the existing RLF guidelines are illustrated in bold /underline type face in Attachment B. REQUESTED COUNCIL ACTION: Consideration of approval of proposed changes and internal policy standards is requested. A motion to approve proposed changes or to send the item back to the EDA for further discussion is appropriate. ATTACHMENT St. Joseph EDA Revolving Loan Fund Policy The Revolving Loan Fund (RLF) is available to businesses in consideration of meeting the one or more objectives of the St. Joseph Economic Development Authority (EDA). The EDA will make considerations for RLF loans on a case -by -case basis recognizing the importance and benefits to the community from all perspectives including economic diversity, maintaining viable tax base, expanding existing business and industry, and enhancing and retaining employment opportunities. Because it is not always possible to anticipate every type of project which may present desirable community building or preservation goals and objectives, the City Council retains the right in its discretion to approve projects and subsidies which may vary from the written principles and objectives of the EDA. Revolving loans will be considered for business needs for real property, equipment and infrastructure. The determination and process to enter into a loan agreement will be made by the following criteria. A. Equity participation. There shall be a minimum ten (10) percent equity investment of total project costs required of all applicants requesting loan amounts greater than $25,000. B. Collateral requirements. All to an 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 five (5) percent and 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. Further, the City will not deplete the Revolving Loan funds below $2,500. The City will not consider any loans that would expend funds below this level. H. Appeal. There will be a complaint and appeal procedure for aggrieved applicants: 1 1 Proposed Revolving Loan Fund Policies (internal) ATTACHMENT A 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. 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 Community Development Director (i.e. EDA 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 2 1 Proposed Revolving Loan Fund Policies (internal) ATTACHMENT 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 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 (i.e. EDA 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 (i.e. EDA Director) is responsible for ensuring that all required reports are filed in a timely manner. Borrowers are responsible for providing reports to the City within 30 days of request. If reports are not provided to the City within 45 days of the request, the borrower shall pay the City a penalty of $50 for each subsequent day the report is not files to a maximum of $500. 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: Copy of the executed loan agreement; Disbursement data; 3 1 Proposed Revolving Loan Fund Policies (internal) ATTACHMENT A 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 along with a 0.5% late fee. 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. 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. The delinquency notice will include 0.5% late fee on the total unpaid balance. 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 (i.e. EDA 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. Late fees will continue to accrue on the unpaid balance at a rate of 0.5% per month, 6% annually. 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 1 Proposed Revolving Loan Fund Policies (internal) ATTACHMENT B 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 economic growth; 2. Stimulation or leverage of private i competitiveness; 3. Increase in local tax base; 4. Improvement of employment and a reasonable standard of living; 5. Stimulation of productivity ~,through ADMINISTRATION The St. Joseph EDA and City Coun e Revolving Loan Program, The EDA ii, pons loan approval to the ' il. The Ci ouncil and their assigns ible for o „ proposed project`' ecting perform , preparing agreeme d monit projects Elig opportunity for to create above average economic renewal and or region to create loan approval bodies for the n 'delines and recommending ble outhorizing loan. EDA staff !4tion °working with applicants on overseeing loan processing, businesses and technological 1. p funds may sed f r uisition of land and /or buildings(s), rehabilitation of bil (s), reconstr n, new struction, site improvements, utilities or infrastructure, and ase of ind Oyu al equipment in connection with starting a new business or expan existing ' " mess. 2. Land and p 01 st be privately owned, taxable property and proposed for commercial an strial 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 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 Guidelines Page 1 ATTACHMENT B 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 p Ilar: 6. The project can demonstrate an excessive p y structt beyond the means of the affected community v I I icil 7. The project provides higher wage workforce skills; 3. Term — I for other commu induces private funds. re or improvement cost ants in the project. gill add value to current Business Sftidy policy. begun prior to loan Program is designed to make projects determined by the information submitted in n amoun % of the available RLF balances but shall at trated in project funding. it " " "' II be set at the time of issuance and dependent upon .lent: up to seven years. Land /buildings: up to 15 years. Terms flexible. 4. E uit — There II be minimum ten (10) percent equity (cash or fixed assets) investment of total project costs required of all applicants requesting loan ... f 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 Guidelines Page 2 ATTACHMENT B 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: ligi A. Statement describing nature of business and praig plans; B. Project description — purpose of loan and estimate for building improvements an C. Sources /Uses proforma for the pr fi D. Complied profit and loss statement If subcommittee 3 O zany) Itemize and provide cost past two ) years (if with le); nt's equity r, at review the application to i is determined to be complete, the to the full EDA concerning the fiscal eness of the amount of assistance 3 The St. Josephk will " the application and make a recommendation to the City ncil. Upon ap al a pment Agreement and all other necessary documents m nection with Joan will '^ prepared by the St. Joseph EDA staff and shall be ex e by the Dire ----,of the A. The City/EDA may work with a conventional lender to re vi a creditwo ess of the applicant and the loan application. TIMETABLE Applications may be submitted at any time. City of St. Joseph — Revolving Loan Fund Guidelines Page 3