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9.0. EDSR 04-14-2003 Item /f 9 • �' cty of Elk -�-� River MEMORANDUM TO: Economic Development Authority FROM: Catherine Mehelich, Director of Economic Development�3 DATE: April 14, 2003 C'' SUBJECT: Consider Amendments to the Micro Loan Policy Attachments • Micro Loan Fund Policy, Revised Sept. 1999 • City of Elk River Business Subsidy Policy • Draft-Micro Loan Fund Policy, Revised April 2003 • • Finance Committee Meeting Notes and Minutes • Note from Kermit Bode, Custom Cutter Grinding—Feb. 2003 Issue Over the past several months staff has been working with the EDA Finance Committee to revisit the Micro Loan Policy for any amendment issues. Minutes from the Finance Committee meeting discussions are attached. A final draft of the revised Micro Loan Policy, as well as the original version,is attached for the EDA's consideration. Following the EDA's review and discussion,if there aren't any revisions, staff recommends the EDA consider adoption of the amended Micro Loan Policy. Primary Amendment Issues The following items are the primary amendment issues reflected in the attached revised policy: ❑ Clarification of lending amount, equity requirements, terms and extensions for each financing program (II. Loan Programs). ❑ Established an interest rate floor of 2% for each financing program (II. Loan Programs). ❑ Revised wage goal for the Supplemental Financing Program from a minimum wage of$8/hour to $9/hour (II. Loan Programs). • Micro Loan Policy Amendments April 14,2003—EDA Page 2 of 2 • ❑ Addition of"Investment real estate" as a permitted fund use,with a 50%pre-lease requirement (III. Uses). ❑ Addition of a late payment charge of up to 8% (V. Micro Loan Fund Terms & Conditions). ❑ Addition of hook-up to city services as a repair that may be required for the request of public funds for building projects (VI. Regulation For New Construction and Improvements). ❑ Addition of procedures for extension requests (IX. Procedural Guidelines for Application and Approval). It is the committee's understanding that these requests will go through a review by the Finance Committee for recommendation to the EDA for formal action. ❑ Reference to the City's Business Subsidy Policy for projects receiving assistance over $75,000 (XI. Compliance with State Statutes). ❑ Several issues were also discussed by the Finance Committee but ultimately received consensus for not revising, such as the limitation of the Industrial Incentive Program to projects in the West Business Park. The minutes of the Finance Committee meetings should reflect these issues of discussion. • Recommendation Staff recommends that the EDA review the revised Micro Loan Policy,provide comment, and adopt the amended Micro Loan Policy with recommendations to be incorporated into the final version. Related Note On related note, the following Micro Loans have recently been paid in full: • Carpe Kairos (Custom Cutter Grinding) • Sportech, Inc. • ProTech Engineering 4110 • City of Elk • Economic Development Micro Loan Fund Policy & Guidelines And Application Revised: 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 September 1999 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 Equity: Must match EDA loan with 1:1 ratio. Total loans not to exceed 90% of project value. Rate: Fixed; 1 point below the lowest prime rate published in the Wall Street Journal the day the loan is closed. Term: Financing up to 3-years. Loans may be amortized up to 15-years with a balloon payment. Refinancing: The loan may be refinanced up to 2 additional years at a market rate of interest. Criteria: 1. Borrower must create one new full-time job for each $20,000 loaned within two years. Said jobs must pay a minimum average wage of$8 per hour plus benefits. • 2. Borrower must be an industrial firm and comply with the provisions of the city's industrial and business park zoning ordinances. Elk River Economic Development Authority Micro Loan Fund Policy&Guidelines Page 2 of 8 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 Equity: Must match EDA loan with 1:1 ratio. Total loans not to exceed 90% of project value. Rate: Fixed; 2 points below the lowest prime rate published in the Wall Street Journal the day the loan is closed. Term: Financing up to 3-years. Loans may be amortized up to 15-years with a balloon payment. Refinancing: The loan may be refinanced up to 2 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 Equity: Must match EDA loan with a 3:1 ratio. Total loans not to exceed 90% of project value. Rate: Fixed; 4 points below the lowest prime rate published in the Wall Street Journal the day the loan is closed. Term: Financing up to 5 years. Loans may be amortized up to 15-years with a balloon payment. Refinancing: The loan may be refinanced up to 2 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 average wage of$10 per hour plus benefits. Elk River Economic Development Authority Micro Loan Fund Policy&Guidelines Page 3 of 8 2. Borrower must locate in the West Business Park (see attached 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 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. 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. 2. Simultaneous Micro Loans The simultaneous use of different Micro Loan Fund Programs by any one borrower or for any one project is prohibited. • Elk River Economic Development Authority Micro Loan Fund Policy&Guidelines Page 4 of 8 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. VI. REGULATION FOR NEW CONSTRUCTION AND IMPROVEMENTS All buildings within 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. 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. 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. 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 foams. 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. Elk River Economic Development Authority Micro Loan Fund Policy&Guidelines Page 5 of 8 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. b. Financial Feasibility -Availability of funds, private involvement, financial packaging and cost effectiveness. 410 • 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. Elk River Economic Development Authority Micro Loan Fund Policy&Guidelines Page 6 of 8 e. Program Objectives - In addition to job and wage 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. 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$25,000 from the EDA Micro Loan Fund shall be subject to the provisions and requirements set forth by Minnesota State Statute 116J.993 and 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 no later than March 1 of each year for the previous year. Businesses fulfilling job creation requirements must file a report with the city no later than 30 days after the deadline. Maintain Facility The borrower agrees to maintain and operate its facility at the site where the loan is used for a period of five years after the date the loan is closed. Goal Attainment In addition to attaining or exceeding the jobs and wages goals set forth in Section IV of the Application, the borrower agrees to achieve at least one of the goals for community development set forth in Section IX, part 5, subdivision (e) of the Micro . Loan Fund policy. Elk River Economic Development Authority Micro Loan Fund Policy&Guidelines Page 7 of 8 Redevelopment loans in the central business district are exempt from job creation and wage goals stated in Section IX, part 5, subdivision (e) provided the loan amount does • not exceed 50% of the project cost. Failure to Comply Businesses failing to comply with the above provisions will be subject to fines, repayment requirements, and be deemed ineligible by the State to receive any loans or grants from public entities for a period of five 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. • • 1 Elk River Economic Development Authority Micro Loan Fund Policy&Guidelines Page 8 of 8 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 # 11. 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: • Please give a brief summary of the project: • Please describe how this loan will impact your project: III. FINANCING Project Costs Land $ Site improvements $ i Buildings (attach plans & costs) Equipment/Machinery/Fixtures (attach list and estimated costs) $ Remodeling $ Industrial Inventory/Working Capital $ Other (attach description) $ Total Costs $ Comments: Elk River Economic Development Authority 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: • 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 infounadon 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 Tide of Jobs 1 2 3 4 5 6 7 8 • 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 • 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) • Elk River Economic Development Authority Micro Loan Fund Application Page 6 of 7 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. DATE APPLICANT NAME BY BY S • Elk River Economic Development Authority Micro Loan Fund Application Page 7 of 7 • Cityof aft•••'- Business Subsidies Policy Adopted: Economic Development Authority November 12,2002 Housing&Redevelopment Authority November 25, 2002 City Council November 25, 2002 Amended: Economic Development Authority December 9,2002 City of Elk River 13065 Orono Parkway Elk River,MN 55330 11111 (763) 441-7420 CITY OF ELK RIVER POLICY AND PROCEDURES RELATING TO THE USE OF BUSINESS SUBSIDIES 1. PURPOSE For the purposes of this document, the term "City"shall include the Elk RiverCity Council,Economic Development Authority, and Housing and Redevelopment Authority. The purpose of this policy is to establish guidelines and criteria regarding the use of business subsidies, such as tax increment financing (TIF), tax abatement, and other business subsidies for private development projects within the City of Elk River and shall be in addition to the requirements and limitations set forth by provisions of Minnesota State Statute 116J.993 (MN Business Subsidy Law), and by the City's policy and guidelines of the particular form of subsidy. These-guidelines shall be used in processing and reviewing applications requesting business subsidies assistance. The fundamental purpose of business subsidies in the City is to encourage desirable development or redevelopment that would not otherwise occur "but for" the assistance provided through business subsidies. It is the intent of the City to provide business subsidies, as well as other incentives that the City may deem appropriate, at the shortest term required for the project to proceed. The City reserves the right to approve or reject projects on a case-by-case basis, taking into 411 account established policies, specific project criteria, and demand on city services in relation to the potential benefits to be received from a proposed project. Meeting policy guidelines or other criteria does not guarantee the award of business subsidies. Furthermore, the approval or denial of one project is not intended to set precedent for approval or denial of another project. Whenever possible it is the City's intent to coordinate the use of business subsidies with other applicable taxing jurisdictions. II. DEFINITION OF "BUSINESS SUBSIDY" The following types of assistance having a value in excess of$25,000 are defined as a "business subsidy"within the MN Business Subsidy Law: • State and local government agency grants; • Contributions of personal property, real property, or infrastructure; • The principal amount of a loan that exceeds $75,000 at rates below those commercially available; • Reductions or deferrals of taxes or fees; • Guarantees of any payment under any loan,lease, or other obligation; and, • Preferential use of government facilities. • City of Elk River Business Subsidies Policy 2 • III. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES In accordance with the MN Business Subsidy Law, the City will consider using business subsidies to assist private development projects to achieve one or more of the following public purpose objectives: • To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits. • To enhance and diversify the City of Elk River's tax base. • To encourage additional unsubsidi7ed private development in the area, either directly or indirectly through "spin off" development. • To achieve development on sites which would not be developed without business subsidies assistance. • To remove blight and/or encourage development of commercial and industrial areas in the city that result in higher quality development or redevelopment and private investment. • To offset increased costs of development of specific properties when the unique physical characteristics of the site may otherwise preclude private investment. • To create opportunities for the construction, operation and maintenance of affordable housing. IV. GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES 110 A. Business subsidy assistance will be provided from the City,by a "pay-as-you-go" note method, to the developer if the business subsidy is tax increment financing or tax abatement. Requests for up front financing will be considered on a case-by-case basis. B. A developer requesting business subsidy assistance must demonstrate, to the satisfaction of the City, sufficient cash equity investment in the project as required within the City's policy for the particular form of subsidy. C. Business subsidy will not be provided in circumstances where land and /or property price is demonstrated by the County Assessor to be in excess of fair market value. This would normally be where the acquisition price is more than 10% in excess of market value. D. A developer must be able to demonstrate to the City, or,if applicable, to the underwriting authority, a market-demand for a proposed project. E. Business subsidy will not be used in cases where the subsidy would create an unfair and significant competitive financial advantage over other similar projects in the area. F. Business subsidy will not be used for projects that would place extraordinary • demands on city infrastructure and services. City of Elk River Business Subsidies Policy 3 • G. If requested by the City, the developer shall provide adequate financial guarantees to ensure completion of the project,including, but not limited to: assessment agreements,letters of credit, cash escrows, and personal guaranties. H. Each developer must be able to demonstrate to the City's satisfaction, an ability to construct, operate, and maintain the proposed project based on past experience, general reputation, and credit history. I. If requested by the City, or its consultants, the developer shall provide sufficient market, financial, environmental, or other data relative to the successful operation of the project. J. Projects receiving business subsidy approval from other affected taxing jurisdictions will be more favorably received by the City. V. GUIDELINES FOR COMMERCIAL/INDUSTRIAL BUSINESS SUBSIDIES A. Business subsidies will not be used for on-site retail or service businesses unless it is a redevelopment project that demonstrates that it will result in a substantial increase in tax base and a significant improvement in quality employment. • B. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. C. The project must result in the retention of existing jobs that would be lost"but for" the proposed development or result an increase and diversification in local jobs. Business retention jobs will be considered on a one-for-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the MN Business Subsidy Law. D. Specific wage and job goals will be determined by the City giving consideration to the particular form of the subsidy, nature of the development, the purpose of the subsidy, local economic conditions and similar factors. The recipient will have up to two years to meet the job and wage goals established by the City. The minimum wage for a job to be considered a new or retained job shall be $15.00 per hour exclusive of benefits. Deviations less than the wage floor will be considered on a case-by-case basis and in accordance with the requirements of the MN Business Subsidy Law. E. Business subsidies will not be used for commercial/industrial projects that have a history of inconsistent compliance with applicable environmental rules and regulations. S City of Elk River Business Subsidies Policy 4 • VI. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS Each company receiving a business subsidy shall be subject to the subsidy agreement and reporting provisions and requirements set forth by the MN Business Subsidy Law and summarized below: A. Progress Reports The recipient shall file a report annually for two years after the receiving the subsidy or until all goals set forth in the subsidy agreement have been met,which ever is later. Reports shall be completed using the format drafted by the State of Minnesota and shall be filed with the City no later than March 1 of each year for the progress made the previous year. B. Maintain Facility The recipient agrees to maintain and operate its facility at the site where the subsidy is used for a period of five years after the date the subsidy is provided. C. Failure to Comply Businesses failing to comply with the subsidy agreement will be subject to fines, repayment requirements, and be deemed ineligible by the State to receive any loans or grants from public entities for a period of five years. • VII. SUBSIDY APPLICATION PROCESS AND PROCEDURE A. Application for business subsidies shall be made on forms for the particular form of assistance provided by the City of Elk River Director of Economic Development, or designee. A fee of$ 5,000.00 shall accompany any Tax Increment Finance,Tax Abatement, or grant request application to cover the City's initial legal, administrative, and planning costs. Micro-Loan applications shall include a fee in the amount of 1% of the loan requested. Following a review by appropriate City Staff the application shall be referred to the either the Economic Development Authority, or Housing and Redevelopment Authority, for recommendation to the City Council for further action. B. The application for business subsidies shall request information required within the City's policies on the particular form of subsidy including but not limited to; a detailed description of the project; a preliminary site plan; the amount of business subsidy requested; the public purpose of the project; the number and types of jobs to be created; the wages and benefits to be paid new employees; and verifiable funding sources and uses. • City of Elk River Business Subsidies Policy 5 City of Elk River Micro Loan Proposed Amendments to the Policy & Application Issues Discussed at Finance Committee Meeting (I 0-7-02) and Staff Issues for Discussion: Finance Committee Recommendations from 2-18-03 meeting are highlighted in bold&italics. I. Interest Rate (Page 2 & 3): The Finance Committee proposed establishing an interest rate floor for all programs at 2%. Committee consensus on interest rate floor of2% on all programs. 2. Job & Wage Goals (Page 2 & 7): Staff recommends the Committee consider revising the loan amount-to-job ratio and wage rate for the two industrial loan programs. Staff recommends the Committee consider using the State economic development finance loan amount-to-job ratio, as follows: $ 6,000 per job paying$9-12.00 per hour, exclusive of benefits $10,000 per job paying over $12.00 per hour, exclusive of benefits Note: Loans less than$75,000 do not require compliance with the statutory Business Subsidy Law for job and wage goals. However, the Finance Committee discussed that perhaps the minimum criteria still be applied for loans amounts less than $75,000. Loan amounts over$75,000 must meet the City's Business Subsidy Policy. Committee consensus to keep loan amount-to-job ratio the same at$20,000/job. Recommended removing "average"wage language. Amend Supplemental program to require minimum wage of$9.00 per hour. Industrial Incentive program minimum wage to remain at$10.00 per hour. What penalty is applied if job/wage goals are not met? Should be consistent with Business Subsidy Policy requirements. Should the 5-year location requirement be included as well? Requires call of loan anyway. 3. Term (Page 2 & 3): Staff recommends including language specifying the following: Real estate uses: Maximum amortization of 20 years Machinery&Equipment uses: Maximum amortization of 10 years Staff recommends that the maturity date remain fixed upon refinancing. • Committee consensus to include staff recommendations stated above. Micro Loan Policy Amendment Issues Updated from Feb. 18,2003 Committee Meeting Page 2 of 3 • 4. Equity (Page 2 & 3): Staff recommends including language specifying the following: At least 50% of the total project cost must be privately financed through owner equity and other lending sources. Committee suggested using SBA504loan requirements for language. Consensus was that at least 10% of the project must be from the owner's equity and that at least 50% of the project be privately financed through owner equity and other lending sources. See SBA information attached as provided by committee member McNair. 5. Refinancing (Page 2 & 3): Staff questions for discussion: Should refinancing be allowed just to take advantage of lower rates? No Should a market rate be continued or stated as prime plus x ? Market Rate What criteria should be considered for refinancing/extensions, same application form? Written request and current financial statements should be submitted for consideration. Staff recommends a processing fee be applied to cover legal and filing expenses. Typically staff is seeing these expenses range from $500 - $1,000 total. $500 upfront processing fee should be required on refinancing requests. Staff recommends that the Finance Committee review all refinancing applications. Yes Staff recommends adding language that allows the EDA to require automatic payment be structured with the applicant's lender. Yes Discussion on remaining issues tabled until the next Committee meeting. 6. Eligible Uses (Page 4): The EDA Board directed the Finance Committee to review and provide recommendation if "investment property development" be considered an eligible use of the Micro Loan. See page 4 of EDA 1-13-03 meeting minutes attached. Issue: If Micro Loan was used for building improvement/development but the business relocates or business is sold to different owner, should the loan be called due? Should all loans agreements be in the name of the business applicant to avoid such issues? 7. Industrial Incentive Program (Page 2): The Finance Committee discussed opening this program up to city-wide locations rather than targeting the West Business Park areas. See attached industrial business park sites and a copy of the Committee discussion notes from 6-20-99 and 8-21-97. Micro Loan Policy Amendment Issues Updated from Feb. 18,2003 Committee Meeting Page 3 of 3 • 8. Program Objectives (Page 7): Staff recommends adding the following program objective: "The project results in new job creation in the City of Elk River." 9. Compliance with the Business Subsidy State Statute (Page 7 & 8): Staff recommends the section be revised to include the following language: "Each company receiving a loan amount in excess of$75,000 from the EDA Micro Loan Fund shall be subject to the provisions and requirements set forth by the City of Elk River Business Subsidy Policy and Minnesota State Statute 116J.993." Staff would follow the statement to include a summary of general requirements from the City policy. S • EDA Finance Committee Meeting Minutes • Tuesday, March 4, 2003, 5:00 PM Elk River City Hall Present: Jerry Atherton,President,Lake Assault Custom Boats Patrick Pelstring,President,Pelstring Capital Corporation Committee Members/Staff x Cliff Lundberg x Jim Simpson _Dan Tveite x Chris Carlson Jeff Gongoll x Tom McNair x Paul Motin x Catherine Mehelich-Staff x Heidi Hall-Staff Micro Loan Portfolio Report Catherine Mehelich presented a summary of the Micro Loan balance sheet. Ms. Mehelich stated that Carpe Kairos (Custom Cutter Grinding) and Sportech have recently paid their balances in full. Ms. Mehelich also stated that Riverside Manufacturing has verbally requested a loan extension but has not provided staff with the requested information to process the request. Due to staffs repeated attempts to obtain the information, and due to consistent delinquencies, the Finance Committee directed staff to consult with the City's attorney regarding the issue. Presentation by Jerry Atherton of Lake Assault Custom Boats • Staff provided the Finance Committee with the following information prior to the meeting. Issue Staff has received a request by Jerry Atherton, President of Lake Assault Custom Boats for a Supplemental Micro Loan in the amount of$50,000 to be used for equipment purchase. The loan is proposed to be structured as a participation loan with M & I Bank of Coon Rapids. Background Lake Assault Custom Boats is a start-up manufacturer of custom fishing boats. The company has identified a very targeted market of elite fishermen. The company has identified 7,500 square feet of lease space in the Decker building for its manufacturing operation. The company owner,Jerry Atherton, has extensive experience in the sheet-metal industry. The applicant proposes to use the micro loan funds to purchase equipment necessary to initiate production and sales of the boats. The company has financing commitments for equity investment and a bank line of credit. In addition, the company has submitted an application for financing from the Initiative Foundation. The sources and uses of the project are as follows: Bank Line of Credit $100,000 Working Capital Private Equity $ 80,000 Working Capital • Initiative Foundation $ 75,000 Working Capital EDA Loan $ 50,000 Equipment EDA Finance Committee Meeting March 4,2003 Page 2 of 3 Total Project $305,000 The applicant has proposed that the EDA take a first position on the equipment. The preliminary equipment list is attached. The applicant proposes to create 7 to 12 full-time jobs within the first two-years of the project. Proposed wages are not less than $17.00 per hour. Mr.Atherton presented the following information to the Finance Committee: • Boat Design Concepts • Customer Experience • Market Niche • Existing Marketing Materials • Similar Boat Designs • Operational Milestones • Equipment Shortlist • Owner Background Pat Pelstring provided background information on the project's financial sources and future commitments. Finance Committee Discussion The Finance Committee asked Mr. Atherton several questions regarding boat design, • employees, suppliers and marketing. Most of the discussion reflected marketing issues. The Finance Committee expressed that Mr. Atherton should consider additional marketing efforts that may ultimately increase his estimated$10,000 marketing budget. Finance Committee Recommendation Jim Simpson moved to recommend to the EDA to approve the $50,000 Supplemental Financing Loan to Lake Assault Custom Boats subject to the following items: • Personal guarantee from Mr. and Mrs. Atherton • Confirmation that additional financing is in place • The loan is to be secured by a 15`lien position on the machinery and equipment. The loan is proposed to be structured as a participation loan with M &I Bank. Tom McNair seconded the motion. The motion carried 5-0. Paul Motin departed at this time. Continue Discussions on Proposed Amendments to the Micro Loan Policy The Finance Committee continued their discussion from the February 18, 2003 Finance Committee meeting regarding the proposed amendments to the Micro Loan Policy. The Finance Committee suggested the following amendments to the respective sections of the Micro Loan Policy: • Eligible Uses: Investment property development should be an eligible use of the • Micro Loan with the requirement that speculative projects are 50%pre-leased and that relocation of the business would require review by the Finance Committee. EDA Finance Committee Meeting March 4,2003 Page 3 of 3 • Industrial Incentive Program: Continue to target only the West Business Park for this program in conjunction with the City Strategic Economic Development Plan. • Program Objectives: Add"The project results in new quality job creation/retention in the City of Elk River" as an objective. • Compliance with the Business Subsidy State Statute: Include "Each company receiving a loan amount in excess of$75,000 from the EDA Micro Loan Fund shall be subject to the provisions and requirements set forth by the City of Elk River Business Subsidy Policy and Minnesota State Statute 116J.993." as new verbiage in this section. • 1.41/ City of Elk Ri' ver 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. 11. 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 fmancing 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 fmancing (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 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 410 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: 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°/0 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 11110 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 116J.993 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 IX,part 5, subdivision (e) of the Micro Loan Fund Policy. Redevelopment loans in the central business district are exempt from job creation and wage goals stated in Section IX,part 5, subdivision (e) provided the loan amount does not exceed 50% of the project cost. Failure to Comply Businesses failing to comply with the above provisions will be subject to fines, repayment requirements in accordance with the state statute, and be deemed ineligible by the State to receive any loans 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 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 # 11. 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: • Please give a brief summary of the project: • Please describe how this loan will impact your project: III. FINANCING Project Costs Land $ Site improvements $ • Buildings (attach plans & costs) $ Equipment/Machinery/Fixtures (attach list and estimated costs) $ Remodeling $ Industrial Inventory/Working Capital $ Other (attach description) $ Total Costs $ Comments: • Elk River Economic Development Authority 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: • 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 • 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 . 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) S Elk River Economic Development Authority Micro Loan Fund Application Page 6 of 7 VI. AGREEMENT . /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 • 7475 /0e4- '-‘ 7 w e �, Z G✓tee. S c h / c•-• (-7 (-2-c-,`a_71e) hei ( y t Co „ l c cc_S e d/ 71-c ti i-lo 7L���- • • • res h _./ • Aje 72" e- • • ,e0 t,,.iFOREVIATIO February/March • 2003 .t nti C14 el- ' • ' 1111M0 Peer-to-Peer Education & Resources At EFso Tool and Plastics, Agents for Confidence Plus Competence Change Congratulations! Top management Breeds Success has just selected you to lead a task force for the implementation of a Confidence is an interesting quality in a manufacturer.It relies upon but tran- new corporate initiative. As euph.o- scends competence. Competence speaks to the present—to the ability to ria becomes reality,you now realize execute. Confidence hints at clair- that the challenge ahead is a E & 0 voyance—the ability to see, or at significant one. The initiative will least the willingness to look into the require major change in a company future. E&O Tool & Plastics, Inc. that is known for its resistance to • TOOL & PLASTICS, INC. has confidence without the distract- change. Educating and motivating ing baggage of egotism. the entire corporate population will What does the future look like to a become a way of life. confident plastics-injection molder?Obviously,it's fast.But,it's also efficient. In my career, I had the good for- For E&O, efficiency will include turning to Asia to help with tooling. At the tune to lead and to also select lead- same time, it just hired a director of ers for change-oriented task forces. engineering to oversee a reorganiza- These "agents for change" play a tion of its own tooling department. Member Profile key, pivotal role in the successful These solutions are meant to aug- implementation of any new strategy. ment,rather than replace,the other; E&O Tool & Plastics, Inc. A solid change agent remains crucial that's confidence. to any disciplined change. It is my In the go-go 90s, E&O found itself A Founded: 1986 • Employees: 120 intent to simply provide a short list having to resort at times to tempo- of attributes, based on my experi- rary staffing agencies. Its efficien- ♦ Products: Injection molding, ence, that most effective change cies suffered. Since then, while mold making. assembly, and special agents possess. other plastics molders have cut Credibility: Effective change back, E&O has added staff to pre- packaging. A Location: 19178 agents possess credibility through- pare for the future.Another example out the organization. Management of confidence. Industrial Boulevard, Elk River, MN respects these individuals for their For E&O, quality is job number 55330-2429 A Contact: Rob Clarno, business acumen, knowledge of the one, and it has even been willing toinitiative to be implemented and "guarantee" quality standards. Director of Sales A Phone: success in managing a key company Several of its clients have become so 763-441-6100 ♦ Fax: 763-441-6452 A function. Management is confident comfortable with E&O's quality con- of their ability to manage and imple- trol that they receive its parts Web:www.eoplastics.com A General ment this change. By the same "dock-to-stock."Again, confidence. token, the change agents must be III Continued on page 3 email:Sales veoplastics.com respected by their peers, their sub- Continued on page 2 -�- �') x �N 4 Compliance News 6. Leaders Insights , '-'- Legal Corner Z0 A Book Review it E&O Tool and Plastics E&O began in 1986,when two long- range of injection presses, horizon- • time friends (Don Erdman and Jim tal and vertical, which give it great Continued from page 1 Osterman)decided to start their own manufacturing flexibility. Among Finally, confidence is not just company. Each had a long history in other things, this means that it can being willing to subassemble its plastics molding, Don in sales and overmold plastic. Its markets cur- parts; it also involves actively Jim as a toolmaker. Each was also rently include sporting goods, med- encouraging its clients to ask for frustrated by his inability to control ical, window hardware, appliance, this service. To that end, E&O will the quality of the end product. Don computer housings, home improve- sonic-weld metal fittings into its had no control over tool design, and ment, automotive after-market, elec- parts, decorate, paint and package Jim had no control over the parts- tronics components and agriculture. its client's products. production process. Combining their E&O's successes indicate good What gives E&O such confidence? self-analysis with confidence to be Like so many other Manufacturers self-critical. "We know this is a jour- Alliance members, it points to itsney and not a destination,"says CFO employees.A prime illustration is its i Jay Caswell. "We know that we need fully staffed and equipped quality- to constantly measure ourselves. In control department.Its tools include 7301 tienecks fact, that's a big part about why we optical comparators to measure joined the Alliance. We are intensely radiuses and arcs; coordinate-meas- f are a f c-t of interested in peer review One of our uring machines to measure length, • own customers, an Alliance member, height and width; testers of tensile , suggested that we investigate the strength and density; and spectrom- " ire• tJUG( so1vt Manufacturers Alliance. We were eters to monitor batch coloring. already looking for a resource for The quality-control departmentUNC and lean manufacturing advice." not only monitors manufacturing Director of Operations Steve consistencies but also gives E&O a '' another one Durant echoes Jay's feelings. "The competitive advantage. Each toolAlliance is a good fit and we became • E&O builds is delivered with a First aware of them at the right time.E&O Article Report and a Statistical 9SO Ss up. already has a culture that promotes Process Control (SPC) capability education. For instance,we sponsor study. Think about what this means a work-for-credit program at the to the customer: Not only do they Buffalo Technical Institute.So,for us get a finished tool, but they also get the Manufacturers Alliance is a good to see what kind of parts will result olfr extension of that." from its use. This postengineering Like all manufacturers, E&O has analysis can be critical. Not infre- experiences, they believed, would its own set of problems.As Jay says, quently, the customer's own part result in a superior product. Among `Bottlenecks are a fact of life. You design creates problems in molding. their contacts they found an impres- solve one and another one pops up. By up-front engineering, E&O's sive list of companies looking for the They require our constant attention. clients can minimize reengineering solution that they were proposing. We look forward to hearing from fel- of their tools prior to full production. So, with a ready demand, they low members on this subject.In par- The savings can be enormous. launched their E&O endeavor and ticular, we look forward to partici- E&O's expertise in molding also have never looked back. In August pating in the member tours." provides its clients the opportunity 2001,E&O was sold to a key manage- In E&O, the Alliance has once to develop plastic parts to compete ment group consisting of Jay Caswell, again attracted into its ranks a com- with traditional metals. While plas- Tim Osterman,and Gary Pearson. pany of the highest caliber. tics cost less than metals, their real Today, E&O leases its 75,000 By Justin Dorsey, appeal is that part consolidation in square-foot facility in Elk River, Alliance Board Advisor plastic produces fewer parts and Minn. Of its 120 employees, 105 are and Principal,Advanced less assembly cost than with metals. in production. Its facility operates tr, Capital Group—"We In fact, its SPC program is such an four rotating shifts, 24 hours a day, Design,Benchmark and integral part of its manufacturing seven days a week.Its niche is quick- Manage Retirement processes that it even provides its turn, lower-to-medium volume runs , Plans.,,Reach him at machine operators with incentives (500-1,000,000) on dynamic projects 763-425-0613 or • to take on-site statistics courses. in nonmature markets. It has a full jdorsey@acgbiz.com. ` ma@mfrall.com February/March 2003 A Manufacturers Alliance 2 Med tech demand boosts manufacturers - 2003-04-07 - The Business Journal (Minneapoli... Page 1 of 3 The Business Journal(Minneapolis/St. Paul) -April 7, 2003 • http //twiucities.b..izjournals coni/twincities/stories/2003/04/ 7/focus2ht .l THE kST.PAUL J t:74 Printable Version I El Email Story i qa Want a Reprint? i -> More Print Edition Stories From the April 4,2003 print edition Med tech demand boosts manufacturers Sam Black Staff reporter After resisting the trend to outsource manufacturing jobs, which became the rule in the telecom and computer industries in the 1990s, the medical device sector is following suit. Increased business from med tech companies is giving a boost to small plastic and machining shops. Other manufacturers who once were tied to the ailing technology industry are changing strategy to get in on the act. For example, last month Rochester-based Pemstar Inc. created a new medical device business unit. • The fire is being stoked by companies such as Fridley-based Medtronic Inc.,which announced at a plastics industry trade show last month that it is aggressively moving to outsource more of its manufacturing. Medtronic's Cardiac Surgery division has sold off a number of its company-owned manufacturing plants to contract manufacturers, said Christopher Oleksy, director of strategic sourcing and business development for the Spring Lake Park-based unit. The division has gone from 16 plants in 1998 to just eight today. In the future, the number of plants could drop to just three or four, Oleksy said. Industry sources expect Medtronic this week to announce the sale of a manufacturing plant in Michigan to A-Tek Manufacturing,based in Brainerd. Since Oleksy joined Medtronic about five years ago, he has been pushing his division to take a step back to ask if its manufacturing has been distracting the company from its goals. If the answer was "yes," he turned to outsourcing. Other local medical technology companies that outsource work to different degrees are St. Jude Medical Inc.,based in Little Canada.; the Scimed division of Boston Scientific Corp.,based in Maple Grove; St. Paul-based Urologix Inc. and CNS Inc., Eden Prairie. Growing together • A long line of smaller companies are eager to take on outsourcing contracts from Medtronic and other medical device companies. One such company is S&W Plastics Inc., a 100-employee custom molding plastics firm in Eden Prairie. http://twincities.bizjournals.com/twincities/stories/2003/04/07/focus2.html?t=printable 4/9/2003 Med tech demand boosts manufacturers - 2003-04-07 - The Business Journal (Minneapoli... Page 2 of 3 S&W has increased its portion of medical technology-related sales from 20 percent two years ago to • about 45 percent today. S&W is in the midst of spending about $100,000 to build a new 10,000-square-foot "cleanroom" in its facility that will meet FDA guidelines for cleanliness, so it can go after even more medical technology business, said Dave Presler, chief operations officer for S&W. A "fundamental shift" is happening at Medtronic and other companies, which are concentrating more on research and development of products, Presler said. They are letting outsourcers concentrate on making products faster and cheaper. "It's quite expensive for our customers to keep up with new manufacturing technologies," said Tom Kleist, vice president of manufacturing for 35-year-old Lake Region Manufacturing Inc. Despite the recession that slammed contract manufacturers in other industries, Lake Region continues to grow. The Chaska-based manufacturer of guide wires for catheters and other medical devices had $88.6 million in revenue in 2002, a jump of 7.5 percent. Some contract manufacturers try to be all things to all customers,but the key to steady growth is doing one thing and doing it well, Kleist said. Lake Region focuses on jobs that use its specialized and highly automated wiring and machining operations. Why now? • According to research by New York-based Standard&Poor's, the $117 billion worldwide market for all medical devices is expected to grow 12 percent to 15 percent annually for the next three years,partly due to the aging baby boomer population. At the same time, the technology slowdown and a generally weak economy have created a lot of excess manufacturing capacity around the world. As a result, several big firms that supply the computer, telecom and other electronic markets have looked to medical devices for a source of revenue. At Pemstar, that's exactly what happened. The contract manufacturer,which has always had a big presence supplying components and producing parts for IBM, announced in February that it was launching a new Medical Business unit. The company has an internal goal to build its medical device business from 6 percent today to about 20 or 25 percent of the company's sales, said the new manager of the unit, Larry Czapla, a former Medtronic executive. "We could make this huge." Since the announcement, Pemstar has been focusing on hiring more expertise in the medical field and building cleanrooms in some of its facilities. The costs associated with making cleanroom manufacturing space vary depending on the type of devices being made. The more invasive the device being made, the more clean the air should be in the manufacturing space. The FDA, independent consultants and the bigger device companies themselves oversee the cleanroom quality of contract manufacturers. • The demand for high quality is the biggest difference between supplying a medical device and other products, Czapla said. http://twincities.bizjournals.com/twincities/stories/2003/04/07/focus2.html?t=printable 4/9/2003 Med tech demand boosts manufacturers - 2003-04-07 - The Business Journal (Minneapoli... Page 3 of 3 If someone has a damaged cell phone, it may just cost money for a repair or replacement,he said. But if there's a problem with a medical device, it could be a life or death issue, he said. • "In the medical industry, having a failed product is not acceptable," Czapla said. Potential is there Only about 5 percent of all medical devices are made by contract manufacturers today, said Kevin Johnson, director of client development at a Milaca plant owned by TriVirix Inc.,based in Chapel Hill, N.C. He estimated that saturation will grow to 70 percent by 2010. "Medical device companies, like every other industry, have figured out that if they've got scarce dollars, they're not going to invest in bricks-and-mortar manufacturing type things," Johnson said. TriVirix was founded in 1999 to capitalize on the outsourcing trend. Its first big acquisition was in 2002 when it bought a Medtronic electronics plant in Milaca that had about 70 employees. Business has been great for the Milaca plant, and TriVirix plans to double capacity, from 20,000 square feet to 40,000 square feet, in the second half of this year. TriVirix landed$25 million in venture capital funding in December that it plans to use to fuel its growth. In a story from the Triangle Business Journal, our sister publication, Andrew Jay, an analyst with Boston-based First Union Securities, said the market opportunity for outsourcing medical devices is $40 billion to $45 billion, with potential growth of 3 percent to 5 percent per year. SDisappointing IPO Despite the fact that the market for contract manufacturing is still being talked up by industry experts, it has been a rough time lately for the largest medical device contract manufacturer in the Twin Cities, Minnetonka-based MedSource Technologies Inc. MedSource, which raised slightly more than$100 million in its April 2002 initial public offering, was launched to take advantage of the trend toward outsourcing medical technology. The company didn't perform to early expectations and once it missed its numbers, investors started to flee, said Sanjiv Arora, an analyst with UBS Warburg in Minneapolis. Investors have had no reason to come back yet, he said. Company sales rose 24 percent in fiscal 2002 from 2001; however, the company lost $7.6 million, a 60 percent drop from the year before period. sblack@bizjournals.com I (612) 288-2103 CO 2003 American City Business Journals Inc. • ••›Web reprint information All contents of this site©American City Business Journals Inc.All rights reserved. http://twincities.bizjournals.com/twincities/stories/2003/04/07/focus2.html?t=printable 4/9/2003 , a' o =UiI ! U iy .3 " s ,r 0 0 °"` i'' ro me ❑ p .o , tti 0u o ,, N - {' z�o • G x Ta t::' ..,4_,,, _,, h ,° Ero . w .o •U , tkoW a r�:to roa� o u c7 H ° ° n I x' o [. a ro p c p 8" w _ C O y• puawCb '' ' ,, >. 3 'q ov ' y pG, n ym ,. Yg .0 °, U c o ro � N y. �A4A C u ,4 4a. y ro jj ! 1 • if1f1} il to ... ' :^ sa w '� > o >u :I" 3.3:';''' .3;sE d a b U ao uro ° ° v 0 A c U ° o 0, v ro � C ,r, pY ,� O OC .0 kya oA OGti w C a >, ,A:. y aw 0 - A OA o c ',..`4;t1 .`4;. N O C N `pAG oq 'ro � dya ❑ .fl .. R. P4 ro + tiAOo0 . . w 8 ,n o { �t , •:C�. 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Background In December 1999 the EDA awarded a direct Micro Loan in the amount of$50,000 at 7.25% to Riverside Manufacturing, Inc. to support moving expenses and leasehold improvements. The company occupies approximately 10,000 square feet in the Decker building, located on east Hwy 10/169. Sheldon Mayer and Leo Lund own the company. • The EDA's security on the loan includes personal guarantee of the owners and UCC-1 filing on the company's accounts,inventory and a specific piece of equipment. Issue The balloon payment on this loan in the amount of$43, 779.52 was due December 1, 2002. In February the company provided a written request to extend the due date and indicated that a final payment could be expected by March 10, 2003. The company has had a history of consistent delinquencies during the payment of the city's Micro Loan. In addition to not receiving any payment, there has a lack of acknowledgement to repeated communications. Staff has discussed the issue with the city's attorney,who recommends that the EDA authorize him to prepare the necessary documents and serve the company with a summons and complaint. Staff understands from the attorney that this would give the company 20 days to respond prior to proceeding with additional actions. Action Requested Staff requests the EDA authorize staff and the attorney to proceed with necessary actions to obtain repayment of the city's Micro Loan,including incurred late fees and attorney expenses. • r\acc,151,4 q/143 • E1kk -�-, River MEMORANDUM TO: Economic Development Authority FROM: Catherine Mehelich, Director of Economic Developmen DATE: April 14, 2003 SUBJECT: Consider Temporary Extension of Micro Loan — M &A Investments, LLC Attachments • Correspondence from M&A Investments,L.L.C. dated January 31,2003. Background • In March 2000 the EDA awarded a $50,000 at 7.75%Micro Loan to Mark&Alma Rothfork, owners of Ultra Image Powder Coating. The Rothforks own a multi-tenant building in the McChesney Industrial Park, of which the company occupies 5,000 square feet. The Micro Loan was used to expand the building by 6,000 square feet. The loan was structured as a participation loan with First National Bank of Elk River. Issue The balloon payment on this loan in the amount of$44,227.21 was due March 15,2003. Prior to the due date Mr. Rothfork provided staff the attached written request for the EDA's consideration of a two-year extension. In addition,Mr. Rothfork's lender has submitted a letter regarding its inability to refinance the micro loan portion at this time based on the loan to value. Staff is awaiting Mr. Rothfork's submission of current financial statements in order for the EDA Finance Committee to review and provide recommendation to the EDA regarding the extension. Mr. Rothfork's lender, First National Bank of Elk River,requests that the EDA consider approving a temporary extension of three months to allow the loan to remain current. Action Requested Staff requests the EDA consider approval of a temporary extension of three months on the Micro Loan to M &A Investments,L.L.C. • n 31 03 10: 59a ULTRA IMAGE 612-441 -5822 p. l ■ • • M&A Investments, LLC 4985135"Ave Clear Lake, MN 55319 January 31.2003 Catherine Mehelich Director of Economic Development • 13065 Orono Parkway Elk River, MN 55330 Dear Catherine, This letter is to request an extension to the Micro Loan given to M&A Investments, LLC in March 2000 that ends March 15,2003. As I explained the intent of Ultra Image Powder Coating, Inc. is to relocate to a larger facility. I have met and exceeded all requirements this loan has requested and would like to repeat the same goals again but with multiple tenants. At this time we have 4 prospects interested. The location and diversified space and accommodation should suit most tenants. Therefore, I would like the EDA Committee to consider extending my loan. SirRely, lG l =fes Mark G Rothfork M&A Investments, LLC •