6. EDSR 05-09-2011^+//
Elk REQUEST FOR ACTION
River
TO ITEM NUMBER
Economic Develo ment Authori 6.
AGENDA SECTION MEETING DATE PREPARED BY
Catherine Mehelich, Director of
Economic Develo ment
ITEM DESCRIPTION REVIEWED By
Consider Adoption of Amended Micro Loan Fund Policy
REVIEWED BY
ACTION REQUESTED
Staff requests the EDA's adoption of the attached Micro Loan Fund Policy as amended and
recommended by the EDA Finance Committee.
BACKGROUND/DISCUSSION
Consistent with direction from the EDA, the EDA Finance Committee has reviewed and considered a
number of amendments to the Economic Development Micro Loan Fund Policy.
The following entities have also provided input on the amended policy:
• Utilities -Elk River Municipal Utilities, Connexus, CenterPoint Energy
• Small Business Development Centex
• Elk River Energy City Commission
A substantial change in the policy was the creation of a new loan program to finance Energy Efficiency
Improvements in commercial/industrial buildings. The other amendments were primarily administrative
and not substantial in the nature of the loan program. Please contact staff if you wish to review a redline
copy of the tracked changes.
FINANCIAL IMPACT
As of March 31, 2011 the EDA Micro Loan Fund has a cash balance of $1,043,096.
ATTACHMENTS
^ Economic Development Micro Loan Fund Policy, Amended May 2011
Action Motion by Second by Vote
Follow Up
N:\Departments\Community Development\Economic Development\Micro Loan Fund\POLICY & APPLICATION\2011 Amendments\5.9.11
EDA Action Requested.doc
City of
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The Light Industrial Hub of the Northwest Metro
Economic Development
Micro Loan Fund Policy & Guidelines
And Application
Amended: May 2011
City of Elk River
Economic Development Division
13065 Orono Parkway
Elk River, NIN 55330
763.635.1040
Rnvw ci elk-river mn us'economicdevelonment
ELK RIVER ECONOMIC DEVELOPMENT
MICRO LOAN FUND POLICY & GUIDELINES
1. PURPOSE
The Economic Development Authority for the City of Elk River (EDA) recognizes
the need to stimulate private sector investment into manufacturing facilities and
equipment in order to create new jobs, boost productivity and retain existing jobs for
local residents. Additionally, the need exists to encourage investment in the
expansion and/or rehabilitation of commercial and retail buildings in order to
maintain the economic viability of Elk River's Downtown District. Subsequently,
the purpose of this program is to provide low interest, long-term (i.e. greater than
one year) loans as incentives for industrial development within the City of Elk River
and to encourage commercial and retail business owners in the Downtown District
to rehabilitate their existing buildings.
II. LOAN PROGRAMS
In order to meet the economic and community development objectives of the EDA,
three distinct loan programs exist within the Micro Loan Fund to promote business
growth in Elk River.
Industrial Incentive Program
Purpose: The purpose of the Industrial Incentive Program is to encourage
industrial and high technology business development that supports
the tax base and brings quality jobs to the city.
Amount: Up to $100,000 of secondary financing not to exceed 20% of the
project cost.
Equity: Must have private-sector commitments fox 50% of the project cost.
Borrower must provide 10% or more of project financing.
Rate: Fixed; 2 points below the lowest prime rate published in
the Wall Street Journal the day the loan is closed, or 3%, whichever is
greater.
Term: Financing with a balloon payment in 5-years. The balloon payment
must not be longer than the balloon payment of the participating
bank. Loans may be amortized up to the following limits:
20-years on real estate uses;
10-years on equipment uses.
Extension: In the event that the Borrower is unable to obtain conventional
financing to replace the Micro Loan at the end of five years, the loan
maybe extended up to two additional years at a market rate of
interest.
Micro Loan Fund Policy & Guidelines Page 2 of 15
Amended May 2011
Criteria: Borrower must be an industrial or high technology firm and create or
retain one new full-time job for each $20,000 loaned within 2 years.
Said jobs must pay a minimum wage of $10.00 per hour excluding
benefits required by law. Loans of $75,000 or more shall meet the City
of Elk River Business Subsidy Policy for the creation of new jobs at a
minimum wage of $15.00 per hour excluding benefits required by law,
as well as a 5-year location requirement.
In the case where the multiple sources of public financing are requested
(e.g. Micro Loan and Tax Increment Financing) job creation goals shall
not be double-counted.
Borrower must comply with the provisions of the city's Industrial and
Business Park zoning ordinances as applicable.
Downtown Revitalization Financing Program
Purpose: The Downtown Revitalization Financing Program is available to
business and property owners in the Downtown District (DD)
primarily for the rehabilitation and restoration of older buildings, as
well as new business development.
Amount: Up to $74,999 of secondary financing not to exceed 40% of the
project cost.
Equity: Must have private-sector commitments for 50% of the project cost.
Borrower must provide 10% or more of project financing.
Rate: Fixed at 2%.
Term: Financing with a balloon payment in up to 5-years. Loans may be
amortized up to the following limits:
20-years on real estate uses;
10-years on equipment uses.
Extension: In the event that the Borrower is unable to obtain conventional
financing to replace the Micro Loan at the end of five years, the loan
may be extended up to two additional years at a market rate of
interest.
Criteria: At a minimum, 20% of Micro Loan dollars must be used for the
improvement of the building facades, with exceptions to be
considered by the Finance Committee. Financing of leasehold
improvements will be considered at a limit of $25,000.
Borrower must be located in the Downtown District (DD).
Loans must be supported by sufficient collateral, which may include
personal assets and guarantees.
Micro Loan Fund Policy & Guidelines Page 3 of 15
Amended May 2011
Energy Efficiency Improvement Program
Purpose: The Energy Efficiency Improvements Program is available to
property owners of commercial or industrial buildings in Elk River to
provide capital to businesses to invest in energy efficiency and
improve their profitability through reduced energy costs and enhance
their ability to retain and create jobs. In addition, the program helps
the City of Elk River use energy conservation as an economic
development tool.
Amount: Applicants may apply for the cost of improvements up to $74,999
Eligible Uses: Energy efficiency measures installed in or on a building include:
• Facility systems optimization (commissioning/re-commissioning)
• Facility systems control improvements
• Process efficiency improvements (CenterPoint Energy)
• Lighting efficiency improvements
• Heating, ventilation and air conditioning system modifications
• Exterior envelope improvements
• Motor and pump efficiency improvements
• Ground-source heat pump systems used to heat or cool a facility
• Installation of equipment or devices that use renewable energy
sources to generate electricity or heat or cool a building including
solar electricity (photovoltaic), wind turbine or solar thermal.
Equity: Must have a minimum of 10% equity provided by the borrower.
Rate: Fixed; 2 points below the lowest prime rate published in the Wall S
treet Journal the day the loan is closed, or 3%, whichever is greater.
Term: The maximum maturity date will be determined by the useful life of
the improvement and the energy payback achieved. For projects that
have a shorter length of payback (2-5) years as calculated according
to energy savings, the loans will have an initial maturity of up to 5
years from the date of closing. Longer life improvements (6-15
years) may apply for a longer maturity of up to 10 years.
Criteria: Applicant must agree to energy audits conducted under the utility
company's Conservation Improvement Program (CIP). If warranted,
engineering studies then are performed on facilities with conservation
opportunities under the utility company's CIP Program.
Proposed energy efficiency improvements that do not qualify for the
utility's prescriptive rebate program will be reviewed and approved by
the utility company servicing the upgrade measures (e.g. Elk River
Municipal Utilities, Connexus, CenterPoint) along with a letter
indicating eligible utility rebates.
Micro Loan Fund Policy & Guidelines Page 4 of 15
Amended May 2011
Utility rebates as applicable will be assigned to the Elk River EDA
and applied toward principal repayment of the loan.
An Elk River Energy City Commission member will be asked to
participate in the EDA Finance Committee review and
recommendation of the application.
The loans will be secured by personal and corporate guarantees, and
if applicable a lien on equipment financed and subordinate mortgage
on the property. Loans are not transferrable.
Installation must be certified through a licensed contractor and
electrician. New construction is eligible when participating with a
utility company rebate program. Eligible costs shall include only
incremental costs over industry design standards.
III. USES
1. Permitted Fund Uses:
a. Building construction
b. Land acquisition
c. Machinery
d. Furniture, fixtures, and equipment (FF&E)
e. Renovation and modernization of buildings
£ Exterior renovation of retail, commercial and industrial buildings
g. Public infrastructure needed for economic development expansions
h. Investment real estate with a minimum of 50% of the space pre-leased
2. Ineligible Fund Uses:
a. Expenditures for the construction and/or renovation of residential units
b. Working capital
c. Refinancing of existing debt
d. Inventory
IV. BUSINESSES ELIGIBILITY
Any project meeting the above criteria, and located or proposed to be located within
the city limits of Elk River as defined by this program, may be eligible for an
Economic Development Micro Loan as further defined herein:
• Business must be afor-profit corporation, partnership, or sole
proprietorship.
• Business must be a small business as defined by the Small Business
Administration (SBA).
• Business must have a positive net worth.
• Religious, political, and pornographic enterprises are not eligible to use
the Economic Development Micro Loan Fund.
Micro Loan Fund Policy & Guidelines Page 5 of 15
Amended May 2011
V. MICRO LOAN FUND TERMS & CONDITIONS
Loan Structure
All Economic Development Micro Loans shall be structured as participation loans
and serviced by the project's primary lending institution, rather than as a direct loan,
unless otherwise approved by the EDA Finance Committee. Such an arrangement
allows for the central distribution and collection of funds and simplifies the financing
process for all parties involved. A participation agreement will be signed by the
borrower, primary lender and the EDA.
The EDA may require additional agreements to be signed by the borrower
(i.e. security agreement, personal guarantees, business subsidy agreement).
Simultaneous Micro Loans
The simultaneous use of different Micro Loan Fund Programs by any one borrower
or for any one project is prohibited.
Call of Loan
A loan shall become due and payable in full if a business relocates outside of the city
of Elk River prior to the maturity date of the loan.
Late Payment Charge
A late payment charge of 8% of the installment amount maybe enforced.
VI. REGULATION FOR NEW CONSTRUCTION AND IMPROVEMENTS
All buildings which public funds will be used for construction or renovation axe to
be brought into conformance with city ordinances and state building codes. Repairs
may include the following systems and portions of real property:
a. Mechanical heating, plumbing, and electrical
b. Structural; including the facade of the structure and energy related
unprovements.
c. Hook-up to city services (i.e. water, sewer)
d. ADA (Americans with Disabilities Act) improvements
VII. LOAN SECURITY AND GUARANTEES
Applicant must be able to secure the loan by providing the EDA with a minimum of
a subordinate mortgage upon the building and/or assets or other approved collateral.
Applicant must demonstrate the financial means to repay the loans, as determined by
the Economic Development Authority.
Whenever possible, personal guarantees will be made part of any loan agreement.
Key person life insurance maybe required as determined by the EDA Finance
Committee based on loan amount and company ownership partners.
Micro Loan Fund Policy & Guidelines Page 6 of 15
Amended May 2011
VIII. TIMING OF PROJECT EXPENSES
No project should commence until the Elk River Economic Development Authority
has approved the loan application. Any costs incurred prior to the approval of the
loan application are generally not eligible expenditures.
No building construction should commence until the required City permits axe
secured.
The applicant will be responsible for all legal, recording, and other fees required for
protection of a security interest in the loan, payable by anon-refundable 1%
processing fee, which is paid at the time of application. In addition to the
non-refundable 1% processing fee, all legal and filing fees shall be paid by the
borrower at loan closing.
IX. PROCEDURAL GUIDELINES FOR APPLICATION AND APPROVAL
1. All applicants shall first contact a primary lending institution to determine if
additional equity is needed, and if so, how much.
2. The applicant and the primary lender shall then meet with City Staff to obtain
information about the Micro Loan program, discuss the project, and obtain
application forms.
3. The applicant shall complete and submit an application form to the City, along
with a processing fee of 1% of the loan request. (The fee is used to cover
processing expenses and will be returned only if application is denied.) The
applicant must provide evidence of their ability to meet the equity requirements
or provide a letter of commitment for conventional financing from the primary
lending institution.
4. The EDA is a governmental entity and as such must provide public access to
public data it receives. Data deemed by Applicant to be nonpublic data under
State law should be so designated or marked by Applicant. See Minn. Sat.
Sections 13.59, Subd. 1, respectively.
The application will be reviewed by the City staff to determine if it conforms to
all City policies and ordinances and to consider the following:
a. The availability and applicability of other governmental grants and/or
loan programs.
b. Whether the proposed project will result in conformance with building
and zoning codes.
c. Whether it is desirous and in the best interests of the public to provide
funding for the project.
6. With written permission granted by the applicant, the application will be
submitted by City Staff to the Small Business Development Center (SBDC) as
advisory consult for staff and EDA Finance Committee. Applicant will be asked
to execute a Release of Information form with SBDC.
Micro Loan Fund Policy & Guidelines Page 7 of 15
Amended May 2011
7. The EDA Finance Committee and EDA Commissioners will review each
application in terms of its consistency with the goals of the City's
Comprehensive Plan and Economic Development Strategic Plan and in relation
to the project's overall impact on the community's economy. Downtown
Revitalization Program applications will also be reviewed by a Housing &
Redevelopment Authority Commissioner in conjunction with the EDA Finance
Committee. Energy Efficiency Improvement Program applications will also be
reviewed by an Energy City Commissioner in conjunction with the EDA Finance
Committee.
The EDA Finance Committee will evaluate the project application in terms of
the following:
a. Project Design -Evaluation of project design will include
review of proposed activities, time lines and a capacity to implement.
b. Financial Feasibility -Availability of funds, private involvement, financial
packaging and cost effectiveness.
• Appropriate ratio of private funds to Micro Loan funds.
• Sufficient cash flow to cover proposed debt service as demonstrated
by financial statements and projections.
• Ability to demonstrate a positive net worth.
• Letter of Commitment from applicant pledging to complete the
project during proposed project duration, if the loan application is
approved.
• Letter of Commitment from other financing sources stating terms
and conditions of their participation in the project if applicable.
• Sufficient collateral.
All other information as required in the application and/or additional
information as may be requested by the Economic Development
Authority.
d. Project compliance with all city codes and policies.
Program Objectives - In addition to quality job and wage
creation/retention requirements, the applicant must meet all Micro Loan
Fund criteria and demonstrate how the proposed activities will meet at
least one of the following objectives:
• The project contributes to the fulfillment of the city's approved and
adopted economic development and/or redevelopment plans.
• The project prevents or eliminates slums and blight.
• The project increases the local tax base.
• The project brings a structure into compliance with an existing
building code violation.
Micro Loan Fund Policy & Guidelines Page 8 of 15
Amended May 2011
8. A written request for an extension shall be accompanied by a copy of current
financial statements and a $500 upfront processing fee. The processing fee is
used to cover processing expenses and will be returned if request is denied. The
application for an extension beyond the original term should include a letter of
denial from a conventional lender. Refinancing will not be allowed solely for the
purpose of reducing the interest rate due to lower market interest rates.
9. The EDA Finance Committee will recommend the approval, denial, or request a
resubmission. A recommendation from the Finance Committee will be
forwarded to the EDA for final action.
X. LOAN POLICY REVIEW
The above criteria will be reviewed on an annual basis to ensure that the policies
reflected in this document are consistent with the economic development goals set
forth by the City.
XI. RIGHT OF REFUSAL
The Elk River Economic Development Authority may deny any project which it
deems inappropriate according to the guidelines established in this document.
XII. COMPLIANCE WITH MN BUSINESS SUBSIDY LAW
Each company receiving assistance in the principal amount of $75,000 or more from
the EDA Micro Loan Fund shall be subject to the provisions and requirements set
forth by Minnesota Business Subsidy Law Statute 116J.993 and the City of Elk River
Business Subsidy Policy.
Micro Loan Fund Policy & Guidelines Page 9 of 15
Amended May 2011
ELK RIVER ECONOMIC DEVELOPMENT
MICRO LOAN FUND APPLICATION
I. CONTACT INFORMATION
Legal Name of Business:
Project Site Address:
City /State /Zip
Contact Person(s)
Business Phone
Home Phone
Check One:
Social Security No.
Federal ID #
Email
Proprietor Corporation Partnership
State ID #
II. NATURE OF LOAN REQUEST
Which Micro-Loan Program are you applying for?
Industrial Incentive Program
Downtown Revitalization Financing Program
Energy Efficiency Improvement Program
Amount Requested: $ Total Project Cost: $
Type of project:
New construction fox a start up business.
New construction fox an existing business.
On site expansion
Equipment purchase
Remodeling: (circle one) Commercial /Retail /Industrial
Refinancing existing debt
Other
Fax
Micro Loan Fund Applicarion Page 9 of 15
Amended March 2011 DI~1FT
Please give a brief summary of your business and its products or service:
Please give a brief suininary of the project:
Please describe how this loan will impact your project:
III. FINANCING
Project Costs
Land
Site improvements
Buildings (attach plans & costs)
Equipment/Machinery/Fixtures
(attach list and estimated costs)
Remodeling
Industrial Inventory/Working Capital
Other (attach description)
Total Costs
Comments:
Micro Loan Fund Application
Amended March 207 7 DEAF 1'
Page 10 of 15
Proposed Sources of Financing
SOURCE NAME
Bank Loan
Bank Loan
Other Private Funds
Applicant Contribution
Other
Fed Grant/Loan
State Grant/Loan
EDA Micro Loan
Tax Increment Financing
Tax Abatement
Total Financing
Collateral Assignments
To Bank 1
Description of Collateral
TERMS
To Bank 2
To Private Sources
To Other Sources_
To Federal Govt
To State
To EDA Micro Loan
Micro Loan Fund Application
Amended March 2077 DKAFT
AMOUNT
Lien
Position
Page 11 of 15
Value of Collateral
Book Value Cost Existing Liens
Land $ $ $
Buildings $ $ $
Machinery & Equip. $ $ $
Other $ $ $
Other $ $ $
IV. JOB & WAGE GOALS
Present # of Employees Total Payroll
Jobs To Be Created*
PIPACP nY(lVl(jP t11P, fnll~win¢ inf~rmati~n nn iobs you extiect to create Within 2-years.
Job Title
Number
of obs Average
Hourly
Wa e
Annual
Sala Are the Jobs
Permanent or
Tem ora ? Expected
Hiring
Date
*If loan is for job retention only, please explain ui Business flan.
Program Objectives
(Check all that apply)
The project contributes to the fulfillment of the city's approved and adopted
economic development and/or redevelopment plans.
The project prevents ox eliminates slums and blight.
The project increases the local tax base.
The project brings a structure into compliance with an existing building code
violation.
Micro Loan Fund Application Page 12 of 15
Amended March 2091 DBAFI'
V. PROJECT CONTACTS
Attorney
Name
Address
Phone
Accountant
Name
Address
Phone
Financing Sources (lenders,~artners, etc...l
Name
Address
Phone
Name
Address
Phone
Parent CompanX
Name
Address
Others
Name
Address
Phone
Name
Address
Micro Loan Fund Application Page 13 of 15
Amended March 2011 DF~9 FT
V1. ATTACHMENTS CHECK LIST
Please attach the following:
A) Written Business Plan:
1. Description of Business
2. Ownership
3. Management
4. Date Established
5. Products/Services
6. Future Plans
B) Financial Statements fox Past Two Years
C) Financial Projections for Two Years
D) Resume of Owner/Management
E) Personal Financial Statements of Proprietor, Partners,
Guarantors
F) Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Duration
G) Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
H) Fee of 1% of amount of loan request
VI. AGREEMENT
I / We certify that all information provided in this application is true and correct to the best
of my/our knowledge. I / We authorize the City of Elk River and the Finance Committee
to check credit references and verify financial and other information. I / We agree to
provide any additional information as may be requested by the City and the Finance
Committee.
APPLICANT SIGNA
BY
DA
Micro Loan Fund Application Page 14 of 15
Amended March 2019 DBA.FT