Loading...
6. EDSR 08-13-2012 El REQUEST FOR ACTION River To ITEM NUMBER Economic Development Authority 6. AGENDA SECTION MEETING DATE PREPARED BY August 13, 2012 Annie Deckert, Director of Economic Development ITEM DESCRIPTION REVIEWED By Energy Efficiency Improvement Micro Loan Application for Cal Portner, City Administrator P.S...Dance Studio REVIEWED BY ACTION REQUESTED Consider and approve Energy Efficiency Improvement Micro Loan Application for P.S...Dance Studio BACKGROUND/DISCUSSION The attached staff report to the EDA Finance Committee dated August 2, 2012, and committee meeting minutes provide background regarding the Micro Loan request. This is the first Energy Efficiency Improvement Micro Loan application received since the program's conception in April 2011. The Energy Efficiency Improvements Micro Loan Program is available to property owners of commercial or industrial buildings in Elk River to invest in energy efficiency,improve 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. Relocating to 251 8th St. NW will save the applicant,Pamela Sitts,nearly$1,800 per month on lease payments. Additionally, the lighting improvements will save roughly 16,000 kWh annually,which results in nearly$2,000 per year in utility costs. Because the applicant has not yet closed on the building, the exact HVAC improvements have not been identified;therefore the Finance Committee recommended increasing the loan amount to $30,000. The applicant plans to attend the EDA meeting to respond to any questions about the proposed project. The EDA Finance Committee recommends the EDA approve the Energy Efficiency Micro Loan request for P.S...Dance Studio with the following terms and conditions: • Up to $30,000 at 3%interest, 7-year amortization/5-year balloon • Motion sensors shall be installed for lighting • EDA to use commercially reasonable efforts to obtain a clean security position lien position • EDA to obtain a personal and corporate guarantee Paul Heinen, owner of 251 8`"St. NW,indicated he is not willing to allow the EDA to obtain a first position on the mortgage of the property. While this was a condition of the recommendation for approval by the Finance Committee, there was an understanding that this may not be possible. iERE ® et NATURE FINANCIAL IMPACT The Micro Loan Fund has a current cash balance of approximately$1,319,451,with$276,223 in notes receivable. The EDA is asked to approve the Energy Efficiency Micro Loan request for P.S...Dance Studio with the following terms and conditions: • Up to $30,000 at 3%interest, 7-year amortization/5-year balloon • Motion sensors shall be installed for lighting • EDA to use commercially reasonable efforts to obtain a clean security position lien position • EDA to obtain a personal and corporate guarantee ATTACHMENTS • EDA Finance Committee Meeting Minutes dated August 2,2012 • EDA Micro Loan Fund Policy and Guidelines • Staff report to EDA Finance Committee re: P.S...Dance Studio Micro Loan Application dated August 2, 2012 Action Motion by Second by Vote Follow Up N:\Departments\Community Development\Economic Development\Micro Loan Fund\LOANS\PS...Dance Studio\Action Requested-EDA S-16- 12 FINAL.docx MEETING OF THE EDA FINANCE COMMITTEE HELD AT THE ELK RIVER CITY HALL THURSDAY, AUGUST 1, 2012 Members Present: Cliff Lundberg,Nate Ova11,Dan Tveite,Larry Toth and Chad Vitzthum Members Absent: Paul Motin Staff Present: Director of Economic Development Annie Deckert, Assistant Director of Economic Development Clay Wilfahrt,Environmental Administrator Rebecca Haug,Building Official Bob Ruprecht, Conservation and Key Accounts Manager Tom Sagstetter,and Accountant Lori Stich Others Present: Pamela Sitts,Micro Loan applicant,owner of P.S. .Dance Studio 1. Call Meeting to Order Director of Economic Development Annie Deckert called the meeting to order at 8:30am 2. Consider Energy Efficiency Improvement Microloan Application from P.S. Dance Studio—Pamela Sitts Ms.Deckert reviewed the staff report. She noted that Pamela Sins, CEO of P.S. Dance Studio,has been operating P.S. Dance studio for 15 years.P.S. Dance Studio's current location is 11110 Industrial Circle, and Ms. Sitts would like to move to 251 8th Street NW. Pamela's loan request is for$28,000,$12,000 of which will cover electrical costs and$16,000 of which will pay for HVAC improvements. Ms.Deckert explained that the EDA would obtain a second position on the mortgage. She explained the applicant would save approximately$1,800 per month on lease payments and would be utilizing approximately 3,800 square feet of the facility for her businesses,and would market the remaining 2,200 square feet of the facility for office space for lease. Ms. Sitts introduced herself and provided background on her experience as a dance instructor. She stated she is excited to be the first applicant for the Energy Efficiency Microloan. Ms.Sitts also stated that her current location has issues with limited parking and low visibility. Ms. Sitts stated that her proposed location would have much better visibility and better parking. Committee member Cliff Lundberg asked Pamela who will own the building located at 251 8th Street NW. Pamela informed the committee that she is creating a single member LLC that will own it Committee member Dan Tveite recommended that Pamela consider what signage could be used at the potential new location and discuss with city staff what is permissible. The seller of 251 8th Street NW is Paul Heinen from Osseo. Committee members discussed the origination and legal fees charged by the seller and noted that the charges were unusual. Committee member Nate Ovall noted that the new location would reduce Ms. Sitts facility cost by about $21,000 per year. Mr. Ovall also noted that revenues for the business dropped significantly from 2011 to 2012,which Ms. Sitts stated was due to the poor economy and poor visibility at her current location. Committee members discussed the intent of the loan program,which is to focus on energy efficiency. Ms. Deckert stated that there are no job requirements of the loan since it is less than $75,000. Energy efficiency improvements to be made to the proposed new facility would include high efficiency lighting and improvements to the existing heating system. EDIT Finance Committee Minutes Page 2 November,4,2010 Page 2 of 3 The Committee discussed the challenges of obtaining a valid security interest when the Borrower is technically not in title to the property(cannot grant a mortgage). EDA staff has Legal reviewing the title work and the proper method getting a security interest in the property. Committee's position was that the Fee Title Owner should pledge a mortgage against the property since the improvements to be made are to the Fee Title Owner's benefit in the event Ms. Sitts defaults under the terms of her contract for deed arrangement. While the committee does not expect a first position mortgage, they would like a valid security interest in the property that would allow the building owner to step in upon an event of a default by Ms. Sitts. Ms. Sitts commented that she is currently working on getting an inspection done on 251 8th St NW. She has also had several inquiries by potential renters of the future office space,but would like to wait to market the space until the build out is complete. She has not explored the option of a traditional mortgage due to a lack of money to use as a down payment. She had not considered installing motion sensors for lighting. The committee recommended that she consider installing motion sensors. Ms. Sitts was excused from the meeting. The committee discussed the terms of the loan and determined that it should be a clean security position that transcends to the current owner in the event of a default. The owner shouldn't be able to raise the contract price and charge Ms. Sitts a higher interest rate. The EDA's position would be the most secure by the loan with the debt obligation on Ms. Sitts and a third-party pledge provided by the owner of the building. Tom Sagstetter mentioned that he has had numerous conversations with Ms. Sitts and they have discussed the energy efficiency of the lighting and HVAC. Mt Sagstetter stated that he is uncertain of the overall efficiency improvements because he has not received detailed plans of the improvements. Mr. Sagstetter noted that the contingency for the improvements should be raised to account for the additional cost of the improvements to the heating system. Mr. Sagstetter recommended raising the contingency to $3,000. The committee members agreed. Ms. Deckert indicated there was already a $1,500 contingency built in,therefore the loan amount could be raised to $30,000 to include the increase which would include an additional$500 for motion sensors. The Committee discussed the structure of payments for the loan and determined that it will be structured such that Ms. Sitts will submit invoices for the improvement to the city and;city staff will review the invoices and disburse the loan dollars for qualifying costs. Mr. Sagstetter explained that the improvements will be reviewed,and energy efficiency of the improvements will be measured and documented both before and after construction to determine what rebates apply for the improvements. Any rebates received will be directly applied to the principal balance of the loan. MOVED BY TVIETE AND SECONDED BY LUNDBERG,THE FINANCE COMMITTEE RECOMMENDS THAT THE EDA CONSIDER APPROVING THE ENERGY EFFICIENCY MICRO LOAN REQUEST FOR P.S. DANCE STUDIO WITH THE FOLLOWING TERMS AND CONDITIONS: • UP TO $30,000 N:\Departments\Community Development\Economic Development\Micro Loan Fund\Finance Committee\2012\8.1.2012.doc EDA Finance Committee Minutes Page 3 November,4,2010 Page 3 of 3 • 3% FIXED INTEREST RATE FOR 7 YEARS WITH A 5 YEAR BALLOON • MOTION SENSORS SHALL BE INSTALLED FOR LIGHTING • EDA TO USE COMMERCIALLY REASONABLE EFFORTS TO OBTAIN A CLEAN SECURITY POSITION LIEN POSITION • EDA TO OBTAIN A PERSONAL AND CORPORATE GUARANTY THE MOTION CARRIED 5-0. 3. Executive Director's Update Ms. Deckert reviewed the staff report which outlined the status of the outstanding Microloans and Microloan fund balance. Ms. Deckert informed the group that Chris Carlson resigned from his position on the EDA Finance Committee and requested that committee members inform her of anybody they would consider a potential candidate to fill Mr. Carlson's vacant position. 4. Closing The EDA Finance Committee meeting ended at 8:28 a.m. Respectfully submitted by, Clay Wilfahrt Assistant Director of Economic Development N:\Departments\Community Development\Economic Development\Micro Loan Fund\Finance Committee\2012\8.1.2012.doc \i/04 City of Elk400,0016_00.....0-1404-040ftoftiL RiL ve 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,MN 55330 763.635.1040 www.ctelk-river.mn.us/economicdevelopment ELK RIVER ECONOMIC DEVELOPMENT MICRO LOAN FUND POLICY & GUIDELINES 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 for 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 may be 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 façades,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 f. 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 a for-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 may be enforced. VI. REGULATION FOR NEW CONSTRUCTION AND IMPROVEMENTS All buildings which public funds will be used for construction or renovation are 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 improvements. 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 may be 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 are 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 a non-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. 5. 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. 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 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 Fax Home Phone Email Check One: Proprietor Corporation Partnership Social Security No. Federal ID # 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 for a start up business. New construction for an existing business. On site expansion Equipment purchase Remodeling: (circle one)Commercial/ Retail/ Industrial Refinancing existing debt Other Micro Loan Fund Application Page 9 of 15 Amended March 2011 DRAFT Please give a brief summary of your business and its products or 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: Micro Loan Fund Application Page 10 of 15 Amended March 2011 DRAFT Proposed Sources of Financing SOURCE NAME "PERMS AMOUNT 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 Lien Description of Collateral Position To Bank 1 To Bank 2 To Private Sources To Other Sources To Federal Govt To State To EDA Micro Loan Micro Loan Fund Application Page 11 of 15 Amended March 2011 DRAFT 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* Please provide the following information on jobs you expect to create Within 2-years. Average Are the Jobs Expected Number Hourly Annual Permanent or Hiring Job Title of Jobs Wage Salary Temporary? 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/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 Application Page 12 of 15 Amended March 2011 DRAFT V. PROJECT CONTACTS Attorney Name Address Phone Accountant Name Address Phone Financing Sources (lenders.partners. etc...) Name Address Phone Name Address Phone Parent Company Name Address Phone Others Name Address Phone Name Address Phone Micro Loan Fund Application Page 13 of 15 Amended March 2011 DRAFT VI. 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 for 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 SIGNATURE BY DATE Micro Loan Fund Application Page 14 of 15 Amended March 2011 DRAFT Elk REQUEST FOR ACTION River TO ITEM NUMBER Finance Committee AGENDA SECTION MEETING DATE PREPARED BY August 2,2012 Annie Deckert,Director of Economic Development ITEM DESCRIPTION REVIEWED By Energy Efficiency Improvement Program Micro Loan Cal Portner, City Administrator Application,P.S...Dance Studio REVIEWED BY ACTION REQUESTED Consider Energy Efficiency Improvement Program Micro Loan application for PS...Dance Studio and make recommendation to the EDA with conditions as outlined in staff report BACKGROUND/DISCUSSION P.S...Dance Studio is an existing business which has operated in the Elk River for 15 years. They provide various dance classes to children ages 3 to adult in classes that include ballet, tap and jazz and vary from recreational to competition team. The studio's CEO,Pamela Sitts,is also a certified teacher. She and her six instructors have access to continuous training with some of the nation's top professional coaches which enables P.S...Dance Studio to provide students with up-to-date dance steps and techniques. Currently located at 11110 Industrial Circle, the applicant would like to purchase the building at 251 8th Street NW. The space is ready for occupancy but requires minor renovations including an electrical system update and new HVAC unit. Ms. Sitts has met with Tom Sagstetter of Elk River Municipal Utilities to tour the property. Mr. Sagstetter has verified the electrical system upgrade and new HVAC unit as eligible improvements under the Energy Efficiency Improvement Micro Loan Program. Per the loan guidelines,an Elk River Energy City Commission member will participate in the review and recommendation of the application. Ms. Sitts requests an Energy Efficiency Improvement Micro Loan of$28,000 to make the necessary improvements ($12,000 electrical and$16,000 HVAC improvements). She is purchasing the building on a contract for deed and the EDA would obtain a second position mortgage on the property and secure a personal guaranty. Per staff recommendation,Ms. Sitts worked with Jack Gabler from the Small Business Development Center to put together her business plan narrative (attached) and financial plan (provided at meeting). Mr. Gabler supports Ms. Sitts' plan and indicates she has demonstrated a solid business plan and will improve her financial position by relocating to the new facility. In addition to the financial criteria that must be considered, the Finance Committee must also consider to what degree the applicant satisfies the criteria set forth in the Micro Loan Fund policies outlined below: IQIEREn BE [NATURE Micro Loan Criteria- Energy Efficiency Improvement Program • Max. Loan Amount: $74,999 • Interest rate: Fixed at 3% or 2 below prime,whichever is greater • Equity: 10% or more of project • 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. • Improvements must be eligible as outlined in Micro Loan Policy or as approved by applicable utility provider • Utility rebates as applicable will be assigned to the Elk River EDA and applied toward principal repayment of the loan • The loans will be secured by personal and corporate guarantees, and if applicable a lien on equipment financed and subordinate mortgage on the property • Exempt from job creation and wage goals because the loan amount does not exceed$150,000 and does not qualify as a business subsidy by state law P.S...Dance Studio • Amount requested: $28,000 ($12,000 electrical, $16,000 HVAC) • Rate requested: Fixed at 3% • Equity proposed: $35,000 • Term: 7-year amortization/5-year balloon • Improvements include electrical system upgrading and HVAC improvements • Improvements for lighting and HVAC system improvements are eligible for rebates. Rebates will be applied to principle of loan • The EDA will obtain a second position on the mortgage of 251 8th St NW and secure a personal guaranty The EDA will consider the Finance Committee's recommendation at their August 13 meeting. If recommending approval, the following terms and conditions will apply: Participation Loan: Not Applicable Loan Amount: $28,000 Interest Rate: 3% fixed Term: 7-year amortization/5-year balloon Security: Second position mortgage on 251 8th ST NW,personal guaranty ATTACHMENTS • Site map • Micro Loan Application • Business Plan Action Motion by Second by Vote Follow Up Sherburne County, MN ��� beaconhM Date Created:8/6/2012 ti i . G :, .. r .4;.1Overview '75-627-0105 -75-422-012 ' of , , "1 '_0f r ? ' It--- ■■■iii ELK HILLS n , i`Y" sf ➢ 75-134f200 75-422 0220 `. '°°`,,P IL 7 5-422-0210 4 • _', < .2 - x 1.,..',d-. s r w :' G . \ 75.445-0010 F r Legend �' Le end � F" y 75-422 0260 ❑Townships .. MM ` r - .f . 75-445-0110. Roads „" „ - r ' .ty �' . Plats o I Parcels G ` too r ,�, 75=445-0120 V ' , , t ".75-422-0270 - . ` / 4 8tH ST , � £.i fK 4. \- . ''"°4;.!:* '''''' — ' ' . . I. •E .0 - 4 _. , \ ,- 75=4354)690 o • J v • p r" 75-435-0630 V.....W :>3 .4 , r ' 75-530-0010 Cc .:;, ;757640-01 10 :' • Yo w s it ,�>✓rt' �� �'t= 75-435 0670 ' 1'..., ...226 ft 1 ,y 11. Parcel ID 75-445-0130 Alternate ID n/a Owner Address n/a Sec/Twp/Rng 34-33-26 Class 233-Commercial Preferred Property Address 251 8TH ST NW Acreage 0.76 ELK RIVER District ELK RIVER CITY Brief Tax Description n/a (Note:Not to be used on legal documents) Last Data Upload:8/6/2012 7:26:34 AM Disclaimer:Every attempt has been made to ensure that the information contained on this web site is valid at the time of publication.Sherburne County developed by reserves the right to make additions,changes,or corrections at any time and without notice.Additionally,Sherbume County disclaims any and all liability for The Schneider Corporation damages incurred directly or indirectly as a result of errors,omissions or discrepancies and is not responsible for misuse or misinterpretation.Data is P updated periodically.For the most current information contact the appropriate county department. Schneider www.schneidercorp.com 2.. • • . • Thance Sl P.S...Dance Studio Business Plan Business Plan Prepared By Pamela Sitts CEO 11110 Industrial Circle Suite & Elk River, MN SS330 763-633-2623 psdance @charter.net Date Prepared May 2012 Executive Summary P.S...Dance Studio is an existing company that has been in business for 15 years in the Elk River community. We provide the proper knowledge and dance technique in a positive, fun,warm environment. Teaching ballet,tap and ja7Z to children ages 3 through adult. We offer a variety of classes(recreational,pre-competition and competition team)to fit a dancers ability and dedication level at an affordable rate. Dance is an expression sport which allows a performer to build strength,poise, self-confidence as well as help maintain good physical shape. Pamela Sitts has grown up in the world of dance taking classes since the age of 3 . With taking many dance conventions nation wide and becoming a certified teacher in 2001 through Dance Educators of America. Has taught in many areas of dance, from assisting at studio where she took lessons,to choreographer of high school dance team.Teaching for community education program,as well beginning her first 12 week program 1997 for P.S...Dance Studio. With a strong dance background,education and sheer determination to provide the gift of dance to people at an affordable rate, is what will make this next step for P.S...Dance studio a successful venture. Sources of Funds: Equity: $40,000 Loans: EDA 35,000 Contract For Deed: 300,000 Uses: Leasehold Improvements: 40,000 Land and Building 335,000 375,000 1.1 Objectives The following are goals and objectives of P.S...Dance Studio for Year 1 through Year 3 : Create a dance studio with a warm, supportive atmosphere,which is based on satisfying customers. Provide dance training for students at all levels of dance, from beginner to advanced. Provide continual training, benefits and incentives for staff to encourage a long-term commitment of employees. Increase sales to reach$107,865 by end of Year 1 and maintain an annual growth of 10%per year. 1.2 Mission P.S...Dance Studio offers a place where people can learn to dance,meet new people, have fun and feel comfortable. We offer a variety of dance programs with price options for all levels of interest, with greater emphasis on group classes. Our instructors have access to continual training with some of the nation's top professional coaches.This provides our students with up-to-date steps and technique and access to the latest dance trends. P.S...Dance Studio welcomes a diversity of people and maintains a positive, fun place to take dance lessons. Company Summary P.S...Dance Studio is located at 11110 Industrial Circle, Elk River. We would like to purchase the building at 251 - 8th Street NW, Elk River.Will continue to provide the community with a comfortable, friendly environment in which to learn the art of dance. P.S...Dance Studio will offer dance instruction in group classes,Daddy and Me,as well as 12 week Hip Hop programs. Dance,as a sport,as well as an art, has become increasingly popular worldwide.As a result,the studio can expect to attract a wide cross section of customers from Elk River and its surrounding cities of Rogers, Big Lake, Otsego and Zimmerman. P.S...Dance will appeal to people of all ages, abilities and backgrounds, looking for creative self expression, exercise and/or social opportunities through dance. 2.1 Relocating Summary P.S...Dance Studio is an existing business.The costs involved are based on the assumption that it will purchase the building at 251 - 8th St NW,Elk River. This space is ready for occupancy but will need a few minor renovations. The renovations include building out 2 dance floors,reception area, break/storage room. 2.2 Company Ownership P.S...Dance studio is a S-Corporation owned and operated by Pamela Sitts as CEO. Services P.S...Dance Studio is dedicated to bringing the fun and challenge of dancing to Sherburne and Wright County at an affordable cost. We will offer group dance instruction for social through competitive level dancers. P.S...Dance will also provide a place for dancers to use the skills they have learned,by participating at local dance competitions as well as year-end recital at local High School. P.S...Dance will offer its students a variety of instructional choices. By offering them several options,we can best serve their individual needs and financial limitations. 5.1 Competitive Edge As previously mentioned,there are currently 2 other dance studios in Elk River. We plan to keep our prices in line with the lower cost of living expenses of the Elk River area. We will offer a wide variety of very competitive packages. Our teachers will be trained in the latest trends and with up-to-date styling of today's dances. 5.2 Marketing Strategy Our marketing plan will be very simple. Satisfy our customers and provide them with the desire to continue dancing.A happy customer will not only keep coming back, but they will tell other people about P.S...Dance. We will offer family discount as an incentive to have the whole family dance-moms too. We will market fun! What better product could we possibly have than that?! Our biggest challenge will be getting people who have never been in a dance studio before to come and try us out. Many people have never considered taking dance lessons before. Our marketing message will emphasize the opportunity to meet people, to gain health benefits and gain life-long skills that will last a lifetime. We will advertise in the yellow pages,local newspapers, fliers, and signs around town. 53 Sales Strategy One of our marketing strategies is to advertise discount specials or introductory offers. 5.3.1 Sales Forecast This sales forecast is an estimation on the number of customers we currently have.And increased based on new visibility from McDonald's and Hwy 169. We have kept our estimates low,knowing that we are not the only dance studio in this county. 5.4 Milestones The following milestones reflect an approximate time frame and cost for beginning and completing actions that will be needed to continue the success of PS...Dance Studio. Our goal is to move from our current location to new location and be up and running begin of dance season September 10th,2012 We realize this date is subject to the time frame for renovation completion,permits, etc. and may need to be adjusted. Web Plan Summary P.S...Dance Studio has a Web page,wwwpsdancestudio.com,that is designed to provide a convenient way for people to discover our studio. For marketing purposes the Web page will be linked to other dance Web sites and,since it has dance in the title, it will show up on different search engines. Our students will be able to use the Web site to look up group class schedules,upcoming events, studio news, and lesson prices. Students and prospective students will also be able to contact teachers via e-mail. And it will appear on our ads to offer people a chance to look at the space,meet the teachers and check prices, and ask questions before they enter the studio. 6.1 Website Marketing Strategy We plan to link our Web site with some prominent Seattle area dance Web sites as well as the city Web sites, and local recreational sites. We will also link with some national Web sites in order to increase the possibility of people reaching us on the Web. By having the word dance in our title we should show up easily on different search engines,which will increase our potential to be seen by our own market. Our Web site has been designed to offer looks into our prices,lesson outlines and definitions, our staff and pictures of the studio. We will provide pages that explore upcoming events at the studio as well as community dance events. We will keep people posted on the national news of dance as well as local. We will always have a current calendar of events for the convenience of our students. We will also have a show board to show off different pictures of events from our studio. 6.2 Development Requirements We have created and maintained our Web page ourselves. We will continue to do so in the future. Management Summary P.S...Dance Studio is an S-corporation. With one owner,Pamela Mitts,responsible for managing and directing all activities. Pamela Mitts, owner and dance director,will primarily be responsible for the following: Teaching advanced students. Hiring,training and supervision of new instructors. Scheduling and planning the dance group lessons and special events. Creating dance lesson programs and packages. Studio events. Pamela Mitts brings with her 20 years of experience as a dance instructor,as well as certification as a dance instructor from the Dance Educators Of America. She has knowledge of the operation of dance studios from her training with previous studio managers, and experience of management herself. She also brings with her,knowledge of the dance industry,the competitions,the styles, and experience with previous students. Her 20 years of teaching have brought her many connections that can benefit P.S...Dance Studio. Financial Plan The following has been included in the Appendix: Three year income statement comparison Three year monthly cash flow analysis Three year balance sheet comparison Source and application of funds