6.0. EDSR 05-10-2004 ITEM # 6.
•
City of
Elk
River
MEMORANDUM
TO: Economic Development Authority
FROM: Catherine Mehelich, Director of Economic Development
DATE: May 10, 2004
SUBJECT: Tax Rebate Financing Request - Badger Ventures, LLC (Gradient
Technology)
Attachments
• City of Elk River Micro Loan Policy
Background
At its March 8, 2004 meeting the Economic Development Authority and City Council approved the
attached Revised Preliminary Expansion Siting Proposal and that Gradient Technology be
considered for receiving Tax Rebate (Abatement) Financing. At its April meeting the City Council
held a public hearing on the tax abatement request and business subsidy. The EDA and Council
took no action on the request due to several unresolved issues related to the abatement application.
The unresolved issues included:
• Identification of a bank lender and proposed project financing terms
• The possibility of an EDA Micro Loan request of up to $100,000
• Identification of the amount and source of eligible equity
• Completion and review of a but for analysis
Project Description
Gradient Technology (G.D.O., Inc.) demilitarizes munitions for various branches of the military.
None of the demilitarization is performed at the company's Minnesota facility, but rather at Crane
Naval Service Warfare Center in Crane, Indiana. The Minnesota facility will be used for Gradient
Technology's business office and for providing chemical engineering design services and equipment
fabrication. The company will also have a lab for conducting research and development.
The company currently employs 13 full-time staff,including 7 based in Minnesota and 6 in Indiana
and elsewhere. The positions have an hourly wage between $16-75.00 per hour. The company
anticipates creating up to 5 new positions at the Minnesota facility within 2-years. The new
positions will likely consist of management and engineers.
•
Tax Abatement Request—Badger Ventures,LLC
May 10,2004 EDA Meeting
Page 2 of 2
• Staff has been in contact over the past one and a half years with Eric Haehn,Vice President/CFO
of Gradient Technology. The company currently leases space in Blaine, MN and is seeking a
suitable location within the northwest metro area to relocate.
Badger Ventures,LLC proposes to construct a 13,000-square foot light industrial/business park
building for lease to Gradient Technology's office,research&development, and equipment
fabrication operation. Badger Ventures proposes to purchase 2.05-acres within the Elk River
Business Park and has requested that the city and county consider a write down of the land cost
($143,770) to $0 through a pay-as-you-go note to the limited liability company.
Status
At this time the company has selected a bank lender and proposed financing terms. The financing
proposal includes that the company apply for an EDA Micro Loan in the amount of$100,000 to
supplement sources of private and public financing. The company is currently completing the Micro
Loan application for consideration by the EDA Finance Committee, and recommendation to the
EDA at its June meeting.
The attached Micro Loan Policy describes that loan amounts up to $100,000 through the Industrial
Incentive Program is for the purpose of encouraging industrial development that supports the tax
base and brings quality jobs to the city. The loan is provides at a rate of 4 points below prime, or a
2% floor,whichever is greater. The criteria includes that the borrower must locate in the West
Business Park. Gradient Technology's site proposal is for the Elk River Business Park, located on
• northeast Highway 169. Staff requests the EDA's feedback on the concept to amend the criteria for
the Industrial Incentive loan program to industrial businesses located at any location in the city.
•
•
cityof
Elk ....,,,),
Ri. ,
• The Light Industrial Hub of the Northwest Metro
Economic Development
Micro Loan Fund Policy & Guidelines
And Application
Revised: April 2003
September 1999
• City of Elk River Economic Development Authority
13065 Orono Parkway,P.O. Box 490
Elk River,MN 55330
(763) 441-7420
ELK RIVER ECONOMIC DEVELOPMENT
MICRO LOAN FUND POLICY & GUIDELINES
•
Revised April 2003
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 central business 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 central
business 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.
Supplemental Financing Program
Purpose: The Supplemental Financing Program is designed for industrial firms
who have maximized their conventional financing and equity
resources and subsequently would be unable to complete a project
without EDA assistance.
Amount: Up to $50,000 of secondary financing (not to exceed 40% of the
project cost.
Equity: Must have private-sector commitments for 50% of the project cost.
Borrower to provide 10% or more of project financing.
Rate: Fixed; 1 point below the lowest prime rate published in the
Wall Street Journal the day the loan is closed, or 2%,whichever is
greater.
Term: Financing with a balloon payment in up to 3-years. Loans may be
amortized up to the following limits:
15-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 three years, the
• loan may be extended up to two additional years at a market rate of
interest.
Elk River Economic Development Authority
Micro Loan Fund Policy&Guidelines Page 2 of 8
Criteria: 1. Borrower must create one new full-time job for each$20,000 loaned
within two years. Said jobs must pay a minimum wage of$9.00 per
• hour plus benefits. Borrower will also be required to meet certain
provisions of the City's Business Subsidy Policy.
2. Borrower must be an industrial firm and comply with the provisions
of the city's industrial and business park zoning ordinances.
Redevelopment Financing Program
Purpose: The Redevelopment Financing Program is available to business and
property owners in the central business district (CBD) for 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 for 50%.of the project cost.
Borrower to 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 2%,whichever is
greater.
Term: Financing with a balloon payment in up to 3-years. Loans may be
• amortized up to the following limits:
15-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 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 for the
improvement of the building's facade.
2. Borrower must be located in the Central Business District
(see attached map).
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 40% of the
• project cost.
Elk River Economic Development Authority
Micro Loan Fund Policy&Guidelines Page 3 of 8
Equity: Must have private-sector commitments for 50% of the project cost.
Borrower to provide 10% or more of project financing.
• Rate: Fixed;4 points below the lowest prime rate published in
the Wall Street Journal the day the loan is closed, or 2%,whichever is
greater.
Term: Financing with a balloon payment in up to 5-years. Loans may be
amortized up to the following limits:
15-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: 1. Borrower must be an industrial firm and create 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 plus benefits. Loans in excess
of$75,000 shall meet the City's Business Subsidy Policy for new job
and wage goals, as well as location requirements.
2. Borrower must locate in the West Business Park (see attached
411 map)and comply with the provisions of the city's industrial and
business park zoning ordinances.
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
iAny 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:
Elk River Economic Development Authority •
Micro Loan Fund Policy&Guidelines Page 4 of 8
• 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.
V. MICRO LOAN FUND TERMS & CONDITIONS
1. Loan Structure
All EDA Micro Loans will be structured as participation loans and will be serviced by
the project's primary lending institution. 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,job performance
agreement).
2. Simultaneous Micro Loans
The simultaneous use of different Micro Loan Fund Programs by any one borrower
or for 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 EDA loan.
4. Late Payment Charge
A late payment charge of up to 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 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/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.
Elk River Economic Development Authority
Micro Loan Fund Policy&Guidelines Page 5 of 8
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 1%processing fee,which is
paid at the time of application.
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 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 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.
5. The EDA Finance Committee and EDA Commissioners will review each
application in terms of its consistency with the goals of the Growth
Management, Strategic, and Economic Development Plans 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.
Elk River Economic Development Authority
Micro Loan Fund Policy&Guidelines Page 6 of 8
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.
• Business must show 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.
6. 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.
Elk River Economic Development Authority
Micro Loan Fund Policy&Guidelines Page 7 of 8
7. 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. 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 1161993 and the City's Business Subsidy Policy summarized below:
Progress Reports
The borrower shall file a report annually for two years after the closing of the loan or
until all goals set forth in the application have been meet,which ever is later. Reports
shall be completed using the format drafted by the State of Minnesota and shall be
filed with the City in March of each year for 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 Iii,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 Iii,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 or grants from public entities for 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
Micro Loan Fund Policy&Guidelines Page 8 of 8
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ELK RIVER ECONOMIC DEVELOPMENT
• MICRO LOAN FUND APPLICATION
I. CONTACT INFORMATION
Company:
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 #
1110
II. NATURE OF LOAN REQUEST
Which Micro-Loan Program are you applying for?
Supplemental Financing Program
Redevelopment Financing Program
Industrial 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
Please give a brief summary of your business and its products or service:
S
Please give a brief summary of the project:
I
Please describe how this loan will impact your project:
III. FINANCING
Project Costs
Land $
Site improvements $
4110
Buildings (attach plans & costs)
Equipment/Machinery/Fixtures
(attach list and estimated costs) $
Remodeling $
Industrial Inventory/Working Capital $
Other (attach description) $
Total Costs $
Comments:
S
Elk River Economic Development Authority
Micro Loan Fund Application Page 2 of 7
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 Micro Loan $
Total Financing $
Comments:
•
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
Comments:
S
Elk River Economic Development Authority
Micro Loan Fund Application Page 3 of 7
Value of Collateral
• Existing
Book Value Cost Liens
Land $ $ $
Buildings $ $ $
Machinery& Equip. $ $ $
Other $ $ $
Other $ $ $
Comments:
IV. JOB & WAGE GOALS
Present # of Employees Total Payroll
Jobs To Be Created*
• Please provide the following information on jobs you expect to create.
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.
Job Creation Timetable
Please indicate on the table below when individual jobs will be added to the firm.
Number Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
Job Title of Jobs 1 2 3 4 5 6 7 8
O
Elk River Economic Development Authority
Micro Loan Fund Application Page 4 of 7
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
Others
Name
Address
Phone
Name
Address
Phone
•
Elk River Economic Development Authority
Micro Loan Fund Application Page 5 of 7
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 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
11111 G) Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
H) Other
I) Other
J) Fee (1% of amount of loan request)
i
Elk River Economic Development Authority
Micro Loan Fund Application Page 6 of 7
VI. AGREEMENT
110 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.
DATE
APPLICANT NAME
BY
BY
•
Elk River Economic Development Authority
Micro Loan Fund Application Page 7 of 7