6. EDSR 07-10-2006ITEM # 6.
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MEMORANDUM
TO: Economic Development Authority
CC: Lori Stich, Accountant
FROM: Heidi Steinmetz, Assistant Director of Economic Development ~~
DATE: July 10, 2006
SUBJECT: Consider Loan Extension Request: Lake Assault Custom Boats,
LLC
Attachments
• Staff report to EDA Finance Committee, June 14, 2006
• Finance Committee Minutes, June 14, 2006
• Proposed amortization schedule
Background
In March of 2003, the EDA awarded a $50,000, 3.25% Micro Loan to Lake Assault Custom
Boats, LLC. The loan was used to purchase machinery and equipment necessary fox the
company to begin operations in Elk River in 7,500 square feet of space in the Decker building
on East Highway 10. The loan is structured as a participation loan with The Bank of Elk
River.
Issue
The balloon payment on this loan in the amount of X37,596.89 was due June 5, 2006. In
accordance with the City's Micro Loan Policy, the company is eligible to be considered for a
two-year extension at a market rate of interest. The company has fulfilled the goals of their
job performance agreement with the EDA and has made consistent Micro Loan payments
throughout the term of the loan.
Finance Committee Recommendation
The Finance Committee reviewed the extension request per the attached staff report at its
June 14, 2006 meeting and recommended, per the attached minutes, that the EDA consider
approval of a two-year extension with the following terms:
• Prime rate of interest at 8%
Loan repayment schedule to be adjusted retroactive as of the company's June 5, 2006
balloon payment due date
Consider Loan Extension Request Lake Assault Custom Hoats
Mme 14, 2006, IiDA Finance Committee iNecting
Page 2 of 2
Action Requested
Staff requests the EDA consider approval of a two-year extension of the Lake Assault Custom
Boats, LLC Micro Loan per the Finance Committee's recommendation. The proposed
amortization schedule is attached.
ver
MEMORANDUM
TO: EDA Finance Committee
CC: Lori Stich, Accountant
FROM: Heidi Steinmetz, Assistant Director of Economic Development
DATE: June 14, 2006
SUBJECT: Consider Loan Extension Request: Lake Assault Custom Boats,
LLC
Attachments
• Letter from Jerome Atherton of Lake Assault Custom Boats dated February 10, 2006
(received by City on May 23, 2006)
• Lake Assault Custom Boats, LLC Yeax End Financial Statements
o Balance Sheet
o Income Statement
Background
In March of 2003, the EDA awarded a $50,000, 3.25% Micro Loan to Lake Assault Custom
Boats, LLC. The loan was used to purchase machinery and equipment necessary fox the
company to begin operations in Elk River in 7,500 square feet of space in the Decker building
on East Highway 10. In 2003, Lake Assault Custom Boats began manufacturing custom
fishing boats and has a target market of elite fishermen.
The original terms of the loan are as follows:
• Secured by 1" lien position on equipment
• Term: 10-year amortization, 3-year balloon payment @ 3.25%
• Structured as participation loan with The Bank of Elk River
Job pexfoxmance agreement (3 full-time equivalent jobs @ no less than $17.00/hour
within 2 years
The company has fulfilled the goals of the job pexfoxmance agreement. The company has
made consistent Micro Loan payments throughout the term of the loan.
Cous'idcc Loan Hxtcnsioo Rcyucst: Lake Assault Custom Boats
Jme 14, 2006, EDA 1'inanec Committee Mccdng
Page 2 of 2
ISSUe
The balloon payment on this loan in the amount of $37,596.89 was due June 5, 2006. In
accordance with the City's Micro Loan Policy, the company is eligible to be considered for a
two-year extension at a market rate of interest. Pxiox to the due date, Jerry Atheron, President,
provided staff with the attached written request for the EDA's consideration of a two-year
extension. In addition, Mx. Atherton submitted the attached financial statements in order fox
the EDA Finance Committee to review and provide recommendation to the EDA regarding
the extension.
Future Plans
The company would like to double its work force to accommodate an extensive work load.
Their goal is to have three boats in production at all times.
Latex this summer, the company plans to start looking for a new facility with awell-lit lobby to
display two boats; however they like the traffic volume at the current location. The company
currently holds amonth-to-month lease at the Decker building.
Jerry Atherton, Lake Assault Custom Boats President, will be present at the Finance
Committee meeting to answer questions. Following any questions and answers, Mx. Atherton
will be excused during the Finance Committee's discussion and recommendation.
Recommendation
Staff recommends that the Finance Committee consider a recommendation that the EDA
approve the two-year loan extension request to Lake Assault Custom Boats, LLC with the
following terms:
• Market rate of interest
Loan repayment schedule to be adjusted retroactive as of the company's June 5, 2006
balloon payment due date
Next Step
The Finance Committee's recommendation will be brought to the EDA fox final action at its
July 10, 2006 Regular Meeting at 5:30 p.m.
MEETING OF THE EDA FINANCE COMMITTEE
HELD AT THE ELK RIVER CITY HALL
WEDNESDAY, JUNE 14, 2006
Members Present: Chris Carlson, Cliff Lundberg, Tom McNair, Paul Motin, Dave
Rymanowski and Dan Tveite
Staff Present: Director of Economic Development Catherine Mehelich and
Assistant Director of Economic Development Heidi Steinmetz
Accept September 28. 2005 EDA Finance Committee Minutes
The September 28, 2005 EDA Finance Committee Minutes were accepted.
2. Consider Micro Loan Extension Request: Lake Assault Custom Boats. LLC
Assistant Director of Economic Development Heidi Steinmetz provided a summary
(terms, job performance goals achieved, payment history, etc.) of the $50,000 EDA
Micro Loan provided to Lake Assault Custom Boats, LLC in 2003. She indicated
that the company has requested atwo-year extension.
Lake Assault president, Jerry Atherton, summarized the current status of the
company and distributed company brochures. Mx. Atherton indicated his need to
lease more square footage but that he likes his current location in the Decker
building on East Hwy 10.
Committee member Dan Tveite inquired about current sales. Mx. Atherton
indicated that sales have typically doubled each year and that he expects the same fox
this year. Mx. Tveite mentioned that it's good that Lake Assault is modifying their
product line to meet market needs.
Mx. Atherton mentioned that the company has seen difficult times, especially each
November, but that his outlook remains positive. He added that his niche is not
boat dealers who sell in large volumes.
Committee member Tom McNair asked Mr. Atherton if the Rogers Cabelas has
impacted Lake Assault. Mr. Atherton stated that its nearby location is a good thing
and that Cabelas may carry Lake Assault's duck boat.
Committee member Chris Carlson asked if Mr. Atherton is seeing Lake Assault's
margins improve now that the company has transitioned to manufacturing
commodity boats. Mx. Atherton stated "yes."
Finance Committee member Cliff Lundberg inquired about the negative notes
receivable line on the company's 2005 year end financial reports. Mr. Atherton
indicated that the company's software indicates deposits vs. sales, which relates to
EDA Finance Committee 1~linutes
June 14, 2006
Page 2
their 50% down payment requirement fox each boat, so down payments axe counted
as assets rather than liabilities.
Chris Carlson asked if the company will be profitable this year. Mx. Atherton stated
"yes".
At this time, Mx. Atherton was excused from the meeting.
The Committee discussed that the company's interest rate will increase from 3.25%
to 8% and how that would affect the company's monthly loan repayment amount.
The Committee's consensus was that the repayment amount difference is reasonable
because it will only increase from $488.60 to approximately $585 per month.
There was additional discussion regarding changing the loan's amortization schedule
but the Committee's consensus was not to do so because it would set precedence fox
future loan requests.
MOVED BY DAN TVEITE AND SECONDED BY CLIFF LUNDBERG,
THE FINANCE COMMITTEE RECOMMENDS THAT THE EDA
CONSIDER APPROVING THE TWO-YEAR LOAN EXTENSION
REQUEST TO LAKE ASSAULT CUSTOM BOATS, LLC WITH THE
FOLLOWING TERMS:
• PRIME RATE OF INTEREST AT 8%
• LOAN REPAYMENT SCHEDULE TO BE ADJUSTED
RETROACTIVE AS OF THE COMPANY'S JUNE 5, 2006
BALLOON PAYMENT DUE DATE
THE MOTION CARRIED 5-0.
3. Summary of Information Memorandums:
Staff summarized the Information Memos attached to the Committee's meeting
packet, which included the Micro Loan portfolio report and an update on recent
amendments to Micro Loan, Tax Increment Financing, Tax Abatement and Business
Subsidy Policies.
Tom McNair suggested that there axe inconsistencies between the following
sections of the Micro Loan Policy regarding the Downtown Rehabilitation Financing
Program:
Rehabilitation Financing Pxogxam~uxpose statement
"Downtown Rehabilitation Financing Pxogxam is available to business and
property owners in the Downtown District (DD) fox the rehabilitation and
restoration of their buildings."
EDA Finance Committee :Minutes Page 3
June 14, 2006
Section III, 1. Permitted Fund Uses
d. Furniture, fixtures, and equipment
Mx. McNair suggested that a clarification be made within the Policy verbiage regarding
whether the Rehabilitation Financing Pxogxam is specific to building rehabilitation or if
business development items can be included.
The Committee discussed this issue at length and determined that the original and
primary intent of the program was specific to the rehabilitation or restoration of
downtown buildings, which in downtown Elk River's case is geared towards pxopexry
owners since most business owners axe renters within the downtown. Examples raised
included a new business that would lease space in The Bluff r building that would not
need rehabilitation ox a recently rehabbed building with a new owner ox business
locating in it.
The Committee consensus was that business owners should also be allowed access to
the program fox assistance with things such as purchasing fixtures and equipment
necessary fox the real estate and/ox business with the understanding that the project is
required to still have a building rehabilitation component.
4. Added Aeenda Item: Pronosed Enexev Imnrovement Loan Proexam Update
Heidi Steinmetz summarized the EDA's recent discussions regarding exploring the
option of utilizing the Business Incubator Program fund balance ($133,095) towards
developing a new low-interest loan pxogxam, as part of the Micro Loan Fund, fox
businesses to incorporate energy efficient design and/or materials in the
construction of their facility.
Cliff Lundberg stated that this is an interesting idea. Chris Carlson mentioned that
$133,095 is not enough money to start a pxogxam. Director of Economic
Development indicated that in addition to accessing the existing Micro Loan Fund
pool, the pxogxam could also capitalize off of existing environmental assistance low-
intexest loan programs offered by the state to fmance capital equipment upgrades
that meet ox exceed environmental regulations.
Committee member Paul Motin stated his concern, which he expressed at the recent
EDA meeting, regarding the EDA's mission to create jobs and improve Elk River's
tax base, which may not fit with this pxogxam.
Heidi Steinmetz added that the Energy City Commission has expressed interest in
developing a pxogxam such as this.
Catherine Mehelich mentioned that companies who have recently located in the
EDA's Notthstar Business Park indicated an interest in energy savings incentives.
Dan Tveite stated his concern, which he expressed at the recent F,DA meeting, that
he does not want to abandon the idea of a Business Incubator Program. Tom
EDA Finance Committee Minutes
June 14, 2006
Page 4
McNair added that the Incubator fund balance should be used toward a pxogxam of
the same nature and that an "Incubator without walls" may be a good idea, where a
discounted rent can be provided fox a short period of time at various locations
within the City.
Chris Carlson stated his concern that companies will not utilize an energy
improvement incentive pxogxam.
Catherine Mehelich stated her concern that a pxogxam such as this would become an
"automatic" request by companies in addition to other incentive programs such as
Tax Abatement and the Industrial Incentive Program Micro Loan.
It was the consensus of the Committee that the Energy City Commission explore
creating their own incentive program.
5. Other
Catherine Mehelich mentioned that she appreciates the Committee for their
assistance in helping to market the Micro Loan Pxogxam.
Cliff Lundberg inquired about the Badger Ventures line item on the Micro Loan
portfolio report. Catherine Mehelich stated that unlike the other Micro Loans which
have monthly payment schedules, this particular loan is structured as asemi-annual
Micro Loan payment, which is tied to the company's Tax Abatement payment
schedule.
6. Closing
The EDA Finance Committee meeting ended at 7:45 a.m.
Respectfully submitted by,
,.~'~.
Heidi Steinmetz
Assistant Director of Economic Development
LAKE ASSAULT
Payment Calculator
Loan Amount 50,000.00
Annual Interest 8.00%
Term (Months) 120.0
Monthly Payment 606.64
Pay Beginning Interest Principal
Period Principal Paid Paid
Balance
8/5/2006 37,284.79 463.99 142.65
9/5/2006 37,142.14 247.61 359.03
10/5/2006 36,783.11 245.22 361.42
11/5/2006 36,421.70 242.81 363.83
12/5/2006 36,057.87 240.39 366.25
1/5/2007 35,691.62 237.94 368.70
2/5/2007 35,322.92 235.49 371.15
3/5/2007 34,951.77 233.01 373.63
4/5/2007 34,578.15 230.52 376.12
5/5/2007 34,202.03 228.01 378.63
6/5/2007 33,823.40 225.49 381.15
7/5/2007 33,442.25 222.95 383.69
8/5/2007 33,058.56 220.39 386.25
9/5/2007 32,672.32 217.82 388.82
10/5/2007 32,283.50 215.22 391.42
11/5/2007 31,892.08 212.61 394.03
12/5/2007 31,498.05 209.99 396.65
1 /5/2008 31,101.40 207.34 399.30
2/5/2008 30,702.11 204.68 401.96
3/5/2008 30,300.15 202.00 404.64
4/5/2008 29,895.51 199.30 407.34
5/5/2008 29,488.17 196.59 410.05
6/5/2008 29,078.12 193.85 412.79
7/5/2008 28,665.34