6.1 EDSR 11-17-2014 hi _ Request for Action
River
To Item Number
Economic Development Authority 6.1
Agenda Section Meeting Date Prepared by
General Business November 17, 2014 Jeremy Barnhart,Deputy Director, CODD
Item Description Reviewed by
Jobs Incentive Program-Microloan
Reviewed by
Action Requested
Approve by motion the Jobs Incentive Program,incorporating changes required of the Department of
Employment and Economic Development (DEED).
Background/Discussion
In July, the EDA submitted a Jobs Incentive program to be funded by State Minnesota Investment Funds
(MIF). DEED required two changes to the program, clarifying that the funds now, or funds to be
received in the form on interest payments in the future,may not be used to support restaurants,retail,
casinos, and sports facilities. The Jobs Incentive program will be the 4th Microloan offered by the EDA.
The City Council will consider approving the final policy once recommended by the EDA.
No other changes to the program are proposed. A brief summary: The proposed 4th microloan Gobs
Incentive Program) will allow more flexibility and increase the dollar amount up to $200,000 of
secondary financing not to exceed 20% of the project cost,while requiring wages at a minimum of$15.00
per hour and job goals. Terms will be set with a 5-year balloon and may be amortized up to 20 years on
real estate uses and 5 years on equipment.The borrower must create one new full-time job for each
$20,000 loaned, or retain one existing full-time job for each$10,000 loaned within 2 years. Creation and
retention may be combined to reach the requested loan amount. (e.g.Two full time jobs,plus one
retained could receive a $50,000 loan). There is a 5-year location requirement and job creation goals shall
not be double-counted in the case where multiple sources of public financing are requested. (e.g.
Microloan and Tax Increment Financing). Reimbursable costs may include actual incurred city fees
associated with the construction and/or development costs of the project,outstanding or pending
assessments where a business is to be located,and relocation costs with the greater of$25,000 or 20% of
total project costs.
The microloan program is being funded through leftover State DEED monies of approximately
$407,083.95.
This 4th microloan, though funded from a secondary source,will be incorporated administratively into the
existing microloan policies. This is intended to ease administrative effort and increase clarity for the
ultimate end user.
INAJUREI ititl 11
Financial Impact
None.
Attachments
• Microloan Policy and Application as Recommended with changes.
N•\Departments\Commwnty Development\Economic Development\EDA\Admunstrative\Agenda\EDA Agenda Packets\Year2014\11-17-
2014\6.1 sr 4th Microloan Jobs Incentive Program.docx
city of
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Economic Development
Microloan Fund Policy & Guidelines
And Application
Amended: May 2011
Amended: November 18, 2013
Amended: July 2014
November 17, 2014
City of Elk River
Economic Development Division
13065 Orono Parkway
Elk River,MN 55330
763.635.1040
www clkrivcrmn goy, cconomicdcvclopmeni tool.
ELK RIVER ECONOMIC DEVELOPMENT
MICROLOAN 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 and certain
commercial 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 the City and in the 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 new industrial and
commercial development within the city of Elk River and to encourage commercial
and retail business owners in the Downtown District to rehabilitate their existing
buildings.
2. LOAN PROGRAMS
In order to meet the economic and community development objectives of the EDA,
four distinct loan programs exist within the Microloan 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 Microloan at the end of five years, the loan
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may be extended up to two additional years at a market rate of
interest.
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 multiple sources of public financing are requested
(e.g. Microloan 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 Area primarily for the
rehabilitation and restoration of older buildings, as well as new business
development. Non-profit organizations may be considered. The
Downtown Area shall be described as that area in the attached Exhibit
A.
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 Microloan 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 Microloan dollars must be used for the
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improvement of the building facades,with exceptions to be
considered when it appears the facade improvements are not
necessary. Financing of leasehold improvements will be considered at a
limit of$25,000.
Borrower must be located in the Downtown Area.
Loans must be supported by sufficient collateral,which may include
personal assets and guarantees.
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. Non-profit organizations may be considered.
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
Street 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.
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Criteria: At least 50% of microloan funds should be spent on energy
efficiency improvements.
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.
Energy efficiency is defined as improvements that are rebatable by
the Elk River Municipal Utilities (ERMU) or the utility provider for
the property if not ERMU. 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.
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.
Jobs Incentive Program
Purpose: To assist existing businesses with expansion and attract new
businesses to the City whose local operations will help expand the
City's economy through job retention and creation and
maintain/grow the City's tax base. The purpose of the Jobs Incentive
Program is to encourage the creation of high paying and quality jobs
to the city.
Amount: Up to $200,000 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 at 2%.
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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;
5 years on equipment uses.
Extension: The loan term of 5 years may be extended by up to two additional
years with approval from the EDA and City Council.
Criteria: Borrower must create one new full-time job for each $20,000 loaned,
retain one new full-time job for each $10,000 loaned, or combination
of retainage and creation to meet the requirements. All new jobs must
be created within 2 years and retained for the period of the loan. Said
jobs must pay greater of$15.00 per hour or 150% of state or federal
minimum wage,whichever is greater, exclusive of benefits required by
law. Any loans shall meet the city of Elk River Business Subsidy Policy
for the creation of new jobs, as well as a 5-year location requirement.
In the case where multiple sources of public financing are requested
(e.g. Microloan and Tax Increment Financing) job creation goals shall
not be double-counted.
Eligible Costs: Funds may be used by the borrower for costs related to job creation
and retention as a result of the project as defined in the City's
Microloan Fund Policy. Eligible costs may include relocation costs that
equal the lesser of$25,000 or 20% of total loan amount. Costs may
also include actual incurred City fees associated with construction
and/or development costs of the project and outstanding or pending
assessments on properties where a business is to be located. In no
circumstance may Jobs Incentive funds be used for restaurants, retail
businesses, casinos, or sports facilities.
3. 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
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d. Inventory
4. 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 Microloan as further defined herein:
• Unless otherwise stated,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 Microloan Fund.
5. MICROLOAN FUND TERMS & CONDITIONS
Loan Structure
All Economic Development Microloans 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 Microloans
The simultaneous use of different Microloan Fund Programs by any one borrower or
for any one project is prohibited.
Loan Repayment
Jobs Incentive funds,including principal and interest received may not he used to
support restaurant, retail, casinos, or sports facilities.
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.
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6. 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
7. 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.
8. 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.
9. 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 Microloan program, discuss the project, and obtain
application forms.
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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. To make an appointment
with the SBDC, call 320.308.4842.
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 Microloan funds.
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• 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 Microloan
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.
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.
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.
I0. 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.
I I. 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.
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12. COMPLIANCE WITH MN BUSINESS SUBSIDY LAW
All developers/businesses receiving financial assistance from the City of Elk River
shall be subject to the provisions and requirements set forth by the City's Business
Subsidy Policy as amended and Minnesota Statutes Sections 116J.993 to 116J.995
(the "Minnesota Business Subsidy Law")
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ELK RIVER ECONOMIC DEVELOPMENT
MICROLOAN 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 #
2. NATURE OF LOAN REQUEST
Which Micro-Loan Program are you applying for?
Industrial Incentive Program
Downtown Revitalization Financing Program
Energy Efficiency Improvement Program
Jobs Incentive 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
Other
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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:
3. 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:
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Proposed Sources of Financing
SOURCE NAME TERMS AMOUNT
Bank Loan $
Bank Loan $
Other Private Funds $
Applicant Contribution $
Other $
Fed Grant/Loan $
State Grant/Loan $
EDA Microloan $
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 Microloan
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Value of Collateral
Book Value Cost Existing Liens
Land $ $ $
Buildings $ $ $
Machinery& Equip. $ $ $
Other $ $ $
Other $ $ $
4. 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.
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5. 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
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6. 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
7. 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
Page 17of18 INATURE 0WEBED 01
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