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HomeMy WebLinkAbout[07a] Revolving Loan Fund EDA Agenda Item 7a MEETING DATE: February 20, 2018 AGENDA ITEM: Revolving Loan Fund PREVIOUS EDA ACTION: The EDA established a revolving loan fund and have requested to review and update the policy. BACKGROUND INFORMATION: Following is a draft update to the revolving loan fund. The EDA had requested to look at creating a provision for allowing a forgivable loan if a business in operation for seven years. This provision was to be included for the downtown area to encourage and incentivize redevelopment of blighted buildings or convert residential dwelling units. When thinking about how that would function, logistically it seems to not work. Further discussion is needed from the EDA as to how this could work. Another option would be to allow for 0% interest. BUDGET/FISCAL IMPACT: ATTACHMENTS: Draft revised Revolving Loan Policy REQUESTED BOARD ACTION: Discussion ST. JOSEPH ECONOMIC DEVELOPMENT AUTHORITY REVOLVING LOAN PROGRAM BACKGROUND The City of St. Joseph Economic Development Revolving Loan Fund program was originated by the state-funded Minnesota Investment Fund (MIF) program awarded through the Department of Employment & Economic Development (DEED) to the City of St. Joseph. The Revolving Loan Fund (RLF) is administered by the St. Joseph Economic Development Authority (EDA). Reuse of the RLF funds is guided by this policy and Minnesota Statute §116J.8731 and the Minnesota Business Subsidy Law (Minnesota Statutes §116J.993 and §116J.994). POLICY STATEMENT The RLF program is available to businesses in consideration of meeting the one or more objectives of the 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 that may present desirable community building or preservation goals and objectives, the City Council retains the right in its discretion to approve projects and subsidies that may vary from the written principles and objectives of the EDA. PURPOSE AND GOALS 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, giving priority 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 as measured by the wages, skills, and/or education associated with those jobs; in order to create above average economic growth; 2. Investment in technology and equipment that increase productivity and provides for higher wages; 3. The project can demonstrate that investment of public dollars induces private funds to the local economy; 4. Stimulation or leverage of private investment to ensure economic renewal and competitiveness; 5. Increase in local tax base; 6. Businesses receiving revolving loan assistance must pay each employee total compensation, including benefits not mandated by law, that on an annualized bases is equal to at least 110% of the federal poverty levy for a family of four; 7. Improve the quality of existing jobs, based on increases in wages or improvements in the job duties, training, or education associated with those jobs; 8. Businesses requesting assistance in the downtown business district will be given priority for loan funding and may include façade grants as established by the EDA; 9. Improvement of employment and economic opportunity for citizens in the region to create a reasonable standard of living; and 10. Stimulation of productivity growth through improved manufacturing or new technologies. City of St. Joseph – Revolving Loan Fund Guidelines 1/10/2018 Page 1 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. Priority will be given to applicants re-developing in the downtown district, removing a blighted site or converting residential dwellings to an approved commercial use. Participants must be located in the City of St. Joseph city limits. The following types of property are not eligible:  Tax delinquent  Special Assessment delinquent  Property in litigation  Property in condemnation or receivership  Tax exempt properties  Exclusively residential buildings  Businesses with going concern issues 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 $40,000 $50,000 in value. Projects estimated at $40,000 $50,000 or less may be exempted from this standard at the sole discretion of the Council and EDA. The maximum loan amount shall not exceed $40,000 and at no time will deplete available funds below $1,500. 5. Project must meet the public purpose which may include, but not limited to, increasing the tax base. Job retention may only be used as a public purpose in cases where job loss is specific and demonstrable. INELIGIBLE LOAN ACTIVITIES 1. Ineligible activities include the operation or expansion of a casino, sports facility when the principal tenant is a professional sports team or any firm engaged in retailing merchandise, housing projects, sexually-oriented business, and operating expenses. 2. Tax exempt organizations are not allowed to borrow revolving loan funds. City of St. Joseph – Revolving Loan Fund Guidelines 1/10/2018 Page 2 3. Loans may not be used for refinancing existing indebtedness or projects begun prior to loan application. APPROVAL CRITERIA The grant or loan shall be based on the following criteria: 1. A gap in project financing is demonstrated. 2. Business applicants must be organized as a proprietorship, partnership, LLC, or a corporation. 3. The business must locate, remodel or expand within the corporate limits of the City of St. Joseph. 4. The project will result in the creation or retention of existing jobs. 5. The project will result in an increase in tax base. 6. The project can demonstrate the investment of public dollars induces private funds. 7. The project can demonstrate an excessive public infrastructure or improvement cost beyond the means of the affected community and private participants in the project. 8. The project provides higher wage levels to the community or will add value to current workforce skills; 9. Assistance is necessary to create new or retain existing businesses; and 10. Job/wage goals must be consistent with the Minnesota State City of St. Joseph Business Subsidy Law policy. 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. At no time shall a loan exceed $40,000 for an individual project or deplete the available funds below $1,500. Applications will be considered on a first come, first basis based on when complete applications are received. 2. Interest Rate – The interest rate shall be set at the time of issuance and dependent upon qualifications. The interest rate shall not exceed current average lending rates for similar loans for the type of project proposed. The City of St. Joseph considers the length of the loan, collateral, job creation, wages and other factors when determining the final interest rate. At no time will the interest rate exceed 3%. 3. Term – Machinery/equipment: up to seven years. Land/buildings: up to ten years. Terms for other purposes will be flexible, but at no time longer than ten years. Loans may be paid off early at anytime without penalties. All balances will be due if the loan recipient sells or transfers any part of his/her interest in the property or fails to meet the guidelines established, unless the sale or transfer is approved by the EDA. Upon completion of the loan agreement, the Finance Director will submit a loan completion certificate to the loan recipient within 30 days of the final payment. 4. Redevelopment Loans – An applicant redeveloping in the downtown area, removing/remodeling a blighted building or converting residential structures to a commercial use, shall be allowed to apply for a forgivable loan provided the business is in operation for seven years. City of St. Joseph – Revolving Loan Fund Guidelines 1/10/2018 Page 3 5. Electronic Payments – Automatic electronic payments are required for all loans established after December 31, 2017. 6. Equity – There shall be minimum ten (10) percent equity (cash or fixed assets) investment of total project costs required of all applicants requesting loan amounts greater than $10,000 $25,000. It is the intention of the EDA to secure each loan wit a first or second mortgage on real estate or a UCC filing on equipment, inventory and/or receivables, and may include personal assets and guarantees. 7. Fair Market Value – The fair market value of the subsidy to the loan recipient will be the fair value determined on the benefit date. 8. Security – The business owner (those persons having 20% or more ownership in the business) will be required to provide personal guarantees for the loan amount. The guarantees will be recorded against the property at Stearns County within 120 days of RLF awards. Securities may include collateral on the equipment being financed, mortgage on a building, a line of credit from another lender, or a parent company guarantee. 9. Benefit Date – The date benefits are disbursed from the City of St. Joseph to the loan recipient. 10. 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. Extension approvals are considered by City Council. In addition, no building construction should commence until the required City permits are secured. 11. Loan Fees – A loan origination processing fee of 1% of the total loan amount is payable at closing. Loans may be prepaid without penalty or additional charge. The borrower Approved borrowers are is responsible for all legal fees, document preparation costs, recording and filing fees in addition to the loan origination fee. loan fees incurred by the City of St. Joseph in excess of the 1% processing fee. 12. Project Costs – Borrowers are responsible for submitting final project invoices to the City’s Finance Director within two (2) months of final completion of the project. Third party verification such as invoices, sworn construction statements, lien waivers, detailed receipts, etc. will be required. Project costs incurred prior to the benefit date are ineligible loan costs. 13. Annual Reporting – Once a formal award is provided, the business is required to complete and submit an Annual Progress Report to the Community Development Director detailing the RLF st goals met job creation and wage levels each April 1 until the loan agreement ends. Failure to meet goals under the loan agreement requires the loan recipient to pay back the assistance plus interest to the City of St. Joseph. The repayment may be prorated to reflect partial fulfillment of goals. 14. Data Privacy – City staff will adhere to data privacy when reviewing applicants business proformas and financial information as specified under the Minnesota Government Data Practices Act, particularly Minnesota Statute §13.591, Subd. 1 and 2. Information not protected under this law will become a matter of public record. 15. Conflicts of Interest – A conflict of interest shall be deemed to exist when a decision on a MIF transaction would compromise a duty to another party or if special advantage is deemed to occur. Potential conflicts of interests will also be considered. Members reviewing or approving a loan request with a conflict of interest will refrain from decision making processes on the loan. 16. Delinquency – Delinquency will be handled in a firm, yet flexible way, with provision for modifying or restructuring consistent with program objectives and responsible money management. Any City of St. Joseph – Revolving Loan Fund Guidelines 1/10/2018 Page 4 modifications of loan terms and conditions must be requested in writing by the recipient and approved by the EDA Director and, if over $3,000 in modifications, the EDA. 17. Loan Default – Defaults will be handled on a case-by-case basis. Specific action will depend on the nature and circumstances, amount and availability of collateral, and costs versus benefit of liquidating assets or other collateral. Loans are considered to be in default when payments are at least two (2) months past due. 18. Loan Restructuring – RLF loans will only be restructured if the restructuring improves the borrower repayment ability, and normally only where additional security is obtained. Refinancing will not be allowed solely for the purpose of reducing the interest rate due to lower market interest rates. 19. Continuing Operations – The loan recipient must commit to continuing operations in the City of St. Joseph where the loan proceeds were used for at least three (3) years after the benefit date. 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. Requested IRS forms must be submitted prior to loan closing; G. Any other pertinent data. 2. A sub-committee comprised of the St. Joseph Finance Director, at least one (1) but not more than two (2) members of the EDA and the EDA Director shall review the application to determine whether or not it is complete. 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. 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 recommendation to the City Council. Upon approval, a Development Loan Agreement, amortization schedule 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 EDA Director. The City/EDA may work with a conventional lender to review the creditworthiness of the applicant and the loan application. City of St. Joseph – Revolving Loan Fund Guidelines 1/10/2018 Page 5 4. The St. Joseph EDA may deny any project which it deems inappropriate according to the guidelines established in this document. City of St. Joseph – Revolving Loan Fund Guidelines 1/10/2018 Page 6