5.0. EDSR 03-13-2006ITEM # 5.
MEMORANDUM
TO: Economic Development Authority
FROM: Catherine Mehelich, Director of Economic Development~~
DATE: March 13, 2006
SUBJECT: Discuss Draft Amendments to Micro Loan Fund Policy
Attachment
• 1" Draft Revised Micxo Loan Fund Policy dated February 2006
Background
At its September 28, 2005 meeting, the EDA Finance Committee discussed the level of financial
assistance provided to manufacturing companies entering the City of Elk River. The EDA reviewed
a first draft of the amended Micro Loan Fund Policy at its Februaty 13, 2006 meeting. The EDA
suggested a revision to include "high technology businesses" as an eligible and desired applicant for
the loan funds. In addition, it was suggested that staff request input on the provisions of the
Redevelopment Financing component of the loan program from the Housing and Redevelopment
Authority (HRA) and the Heritage Preservation Commission (HPC).
Update
The following suggestions were provided by the HRA and HPC with regard to the Redevelopment
Financing Program:
• Agreed on limiting the use of the program to the core Downtown District, with the
understanding that it may be expanded to include the Central Business District sometime in
the future.
• Increase the amount of loan funds from $50,000 to $75,000.
• Increase the financing terms from a balloon payment in 3 years to allow up to 5 years.
• Evaluate the minunum percentage of Micro Loan dollars that must be used toward building
fa4ade and rear entrance improvements.
• Directed staff to research the requirements that may be necessary fox compliance with the
Americans with Disabilities Act (ADA) and fire code.
Staff is currently researching the ADA and fire code requirements that may apply to commercial
building rehabilitation projects by having discussions with the Ciry's Building Official and reviewing
the Ciry of Anoka's Central Business District Fire Protection Grant Pxogxam.
Following this research staff anticipates presenting a revised Micxo Loan Fund Policy and
Application for the EDA's adoption at the April regular meeting.
The Light Industrial Hub of the Northwest Metro
Economic Development
Micro Loan Fund Policy & Guidelines
And Application
1s` Draft February 2006
Revised: June 2004
September 1999
Economic Development Authority fox the City of Elk River
13065 Orono Parkway
Elk River, MN 55330
763.635.1040
ELK RIVER ECONOMIC DEVELOPMENT
MICRO LOAN FUND POLICY & GUIDELINES
1~° Draft February 2006
I. 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 pxoductivit5~ and retain existing jobs fox
local residents. Additionally, the need exists to encourage investment in the
expansion and/ox 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 fox 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,
two 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 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 to provide 10% or more of project financing.
Rate: Fixed; 2 points below the lowest prune rate published in
the Wall Street Journal the day the loan is closed, ox 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
Elk River Economic Development Authority Page 2 of 15
Dlicxo Loan Fund Policy & Guidelines
1n0 Draft February 2006
may be extended up to two additional years at a market rate of
interest.
Criteria: 1. Boxxowex must be an industrial firm and create one new
full-time job fox 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 in excess of $75,000 shall meet the attached City of Elk
Rivet Business Subsidy Policy fox new job and wage goals, as well as a
5-yeaz location requirement.
In the case where the multiple sources of public financing axe requested
(e.g. Micro Loan and'I'ax Increment Financing) job creation goals shall
not be double-counted.
2. Boxxowex must comply with the provisions of the city's Industrial
and Business Paxk zoning ordinances as applicable.
Redevelopment Financing Program
Purpose: The Redevelopment Financing Pxogxam is available to business and
property owners in the Downtown District (DD) fox the rehabilitation
and restoration of their buildings.
Amount: Up to $50,000 of secondary financing (not to exceed 40% of the
project cost.
Equity: Must have private-sector commitments fox 50% of the project cost.
Boxxowex tp 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, ox 2%, whichever is
greater.
Term: Financing with a balloon payment in up to 3-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 Boxxowex is unable to obtain conventional
financing to replace the Micro Loan at the end of three years, the
loan may be extended up to two additional years at a market rate of
interest.
Criteria: 1. At a minimum, 20% of Micro Loan dollars must be used fox the
improvement of the building facades.
2. Boxxowex must be located in the Downtown District (DD)
(see attached map).
F„lk Rivec Ewnomic Developmen[ Authority Page 3 of 15
Micro Loan Fund PoLcy & Guidelines
1« Diaft February 2006
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
E Exterior renovation of retail, commercial and industrial buildings
g. Public infrastructure needed fox economic development expansions
h. Investment real estate with a minimum of 50% of the space pre-leased
2. Ineligible Fund Uses:
a. Expenditures fox 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 fox an
Economic Development Micro Loan as further defined herein:
• Business must be a fox-profit corporation, partnership, ox 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.
V. MICRO LOAN FUND TERMS & CONDITIONS
1. Loan Structure
All Economic Development Micro Loans will be structured as participation loans and
will be serviced by the project's primary lending institution. Such an arrangement
allows fox 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 agreement will include the following
provisions, among others:
• If Boxxower does not meet the job and wage goals specified in the Subsidy
Agreement, the interest rate will change to 2 points above the participating
bank's rate, effective from the two year anniversary of the loan closing.
Upon subsequent achievement of the jobs and wage goals, the interest rate
will revert back to the rate when the loan was originated, effective from the
date of attainment of the job and wage goals.
• If Boxxower defaults on the loan, the EDA will collect all further payments
during the default based on a pro-rata basis with the participating bank
Elk Rivet Ewnomic Development Authority Page 4 of 15
'Micro Loan Fund Policy & Guidelines
7"Draft February 2006
excluding the distribution of proceeds resulting from the foreclosure on
collateral.
The EDA may require additional agreements to be signed by the borrower (i.e.
security agreement, personal guarantees, subsidy agreement).
2. Simultaneous Micro Loans
The simultaneous use of different Micro Loan Fund Programs by any one borrower
ox fox any one project is prohibited.
3. 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.
4. Late Payment Charge
A late payment charge of 8% of the installment amount may be enforced.
VI. REGULATION FOR NEW CONSTRUCTION AND IMPROVEMENTS
All buildings which public funds will be used fox construction or renovation axe to
be brought into conformance with city codes and policies. 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
improvements.
c. Hook-up to city services (i.e. water, sewer)
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/ox 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.
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 arc
secured.
The applicant will be responsible fox all legal, recording, and other fees required fox
protection of a security interest in the loan, payable by anon-refundable 1%
processing fee, which is paid at the time of application.
Elk 1&vex Economic Development Authority Page 5 of 15
'~ticxo Loan Fund Policy & Guidelines
1 `~ Draft February 2006
IX. PROCEDURAL GUIDELINES FOR APPLICATION AND APPROVAL
L 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 fox conventional financing from the primary
lending institution.
4. 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 applicabihry of other governmental giants and/ox
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 procidc
funding fox the project.
5. 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. Redevelopment
Loan applications will also be reviewed by an HRA member in conjunction with
the EDA Finance Committee.
They will also 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 Feasibihry -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.
• Business must show a positive net worth.
Elk River Economic Development Authority Page 6 of 15
bticxo Loan Fund Policy & Guidelines
1" Dxah Febmary 2006
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.
c. 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.
e. 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 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.
6. A written request fox an extension shall be accompanied by a copy of current
fmancial statements and a $500 upfront processing fee. The processing fee is
used to cover processing expenses and will be xemmed if request is denied. The
application fox an extension beyond the original term should include a letter of
denial from a conventional lender. Refmancing will not be allowed solely fox the
purpose of reducing the interest rate due to lower market interest rates.
7. The EDA Finance Committee will recommend the approval, denial, ox 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.
Elk River Economic Development Authority Page 7 of 15
tylicxo Loan Fund Policy & Guidelines
1>~ Draft February 2006
XI. COMPLIANCE WITH STATE STATUTES
Each company receiving assistance in excess of $75,000 from the EDA Micro Loan
Fund shall be subject to the provisions and requirements set forth by Minnesota
State Statute 116J.993 and the attached City of Elk River Business Subsidy Policy
summarized below:
Progress Reports
The borrower shall file a report annually fox two years after the closing of the loan or
until all goals set forth in the application have been meet, which ever is latex. Reports
shall be completed using the format drafted by the State of Minnesota and shall be
filed with the City in Mazch of each year fox the previous year.
Maintain Facility
The borrower agrees to maintain and operate its facility at the site where the loan is
used for a period of 5-years after the date the loan is closed.
Goal Attainment
In addition to attaining or exceeding the jobs and wages goals set forth in Section IV
of the application, the borrower agrees to achieve at least one of the goals for
community development set forth in Section IX, part 5, subdivision (e) of the Micro
Loan Fund Policy.
Redevelopment loans in the Central Business District are exempt from job creation
and wage goals stated in Section IX, part 5, subdivision (e) provided the loan amount
does not exceed 50% of the project cost.
Failure to Comply
Businesses failing to comply with the above provisions will be subject to fines,
repayment requirements in accordance with the state statute, and be deemed
ineligible by the State to receive any loans ox grants from public entities fox a period
of 5-years.
XII. 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.
Elk River Economic Development Authority Page 8 of 15
bficxo Loan Fund Policy & Guidelines
1"Draft February 2006
Location Ma
ccy or P N
EI " Case Number: DOWNTOWN DISTRICT (DD)
River
ELK RIVER ECONOMIC DEVELOPMENT
MICRO LOAN FUND APPLICATION
I. CONTACT INFORMATION
Legal Name of Business:
Address:
City /State /Zip
Contact Pexson(s~
Business Phone
Home Phone
Check One:
Social Security No.
Federal ID #
Proprietor Corporation Partnership
State ID #
II. NATURE OF LOAN REQUEST
Which Micro-Loan Program axe you applying fox?
Industrial Incentive Pxogxam
Redevelopment Financing Pxogxam
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
Other
Elk River Economic Development Authority Page 9 of 15
;blicxo Loan Fund Application
Revised June 2004
Please give a brief summary of your business and its products ox service:
Please give a brief summary 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:
Elk River Economic Development Authority Page lU of 15
bhcxo Loan Fund dpplicauon
Revised ]une 2004
Progosed 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 Rebate Financing
Total Financing
Collateral Assignments
Description of Collateral
To Bank 1
To Bank 2
To Private Sources
To Other Sources_
To Federal Govt_
To State
To EDA Micro Loan
TF,RMS
AMOUNT
Lien
Position
Elk River Economic Development Authority Page 11 of 15
:Micro Loan Fund Application
Revised June 2004
Value of Collateral
Book Value
Land $
Buildings $
Machinery & Equip. $
Other $
Other $
Cost Existing Liens
IV. JOB & WAGE GOALS
Present # of Employees Total Payroll
Jobs To Be Created*
Please nrovide the followine information on iobs you expect to create Within 2-pears.
ob Title
Number
of Jobs Average
Hourly
Wage
Annual
Salary Are the Jobs
Permanent ox
Temporary? Expected
Hiring
Date
*If loan is for job retention only, please explain in Business Plan.
Program Objectives
(Check all that apply)
The project contributes to the fulfillment of the city's approved and adopted
economic development and/ox 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.
Elk River Economic Development Authority Page 12 of 15
Micro Loan Fund Application
Revised June 2004
IV. PROJECT CONTACTS
Attorney
Name
Address
Phone
Accountant
Name
Address
Phone
Financing Sources (lenders, partners, etc...
Name
Address
Phone
Name
Address
Phone
Name
Address
Phone_
Name
Address
Phone
Parent Company
Name
Address
Phone
Elk River Economic Development Authority Page 13 of li
bliao Loan Fund Application
Revised June 2004
Others
Name
Address
Phone
Name
Address ___
V. 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 fox Two Years
D) Resume of Owner/Management
E) Personal Financial Statements of Proprietor, Paxmexs,
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)
J) Fee (1% of amount of loan request).
Elk River Economic Development Authority Page 14 of 15
iVficio Loan Fund Application
Revised June 2004
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 Comnuttee
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.
DATE
APPLICANT
BY
BY
Elk River Economic Development Authority Page li of 15
bticro Loan Fund Application
Remsed June 2004