7.0. EDSR 08-12-1996 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
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Item 7.
MEMORANDUM
TO: Economic Development Authority
V.(4,,FROM: Paul T. Steinman, Director of Economic
Development
DATE: August 8, 1996
SUBJECT: Consider$50,000 Micro Loan for
Jimichaeleen Mufflers, Inc.
Introduction
41, On Tuesday, August 6, 1996, the EDA Finance Committee met to discuss a
$50,000 micro loan request from Jimichaeleen Mufflers, Inc. The Finance
Committee voted 4-0 to deny the applicants loan request after further
discussion of the applicant's compliance with the loan fund guidelines. A full
discussion of this item is included in the minutes of the EDA Finance
Committee meeting as attached to this memo.
Background
Attached for your review is the micro loan fund application and supporting
information from Jimichaeleen Mufflers, Inca
The requested terms of the loan are as follows:
• $50,000 principal
• 10 year term
• Interest rate equal to 8.25 percent, which is prime rate at this time.
• Collaterallized with a third mortgage position on building and
business assets.
1111
13065 Orono Parkway • P. O. Box 490 • Elk River, MN 55330-1743.• (612) 441-7420 • Fax (612)441-7425
Equal Opportunity Housing and Equal Opportunity Employment
• Financing
Projected use of funds as identified in the application are as follows:
• Land $210,000
• Buildings $365,000
• Other $209,000
• Total Costs $784,000
Projected sources of funds as identified in the application are as follows:
• Bank Loan 1st mortgage position on all assets $332,000
• SBA $275,000
• Cash $ 67,000
• Bank $ 60,000
• Elk River Micro Loan Fund $ 50,000
• Total Funding Sources $784,000
Action Requested
Staff is recommending that the EDA deny the $50,000 loan request from
. Jimichaeleen Mufflers, Inc. The recommendation is based upon the EDA
Finance Committee's action and the following issues regarding compliance
with the city's loan fund policy guidelines:
• Applicant's "need" for this micro loan.
• Retail uses are third priority.
• Limited funds at this time $125,000 after the LeFebvre loan is
processed.
After very serious consideration of the applicant's request, the Finance
Committee voted to deny based upon the aforementioned items. The decision
was made primarily based upon the fact that the Finance Committee felt the
project would proceed without the use of the micro loan fund.
The EDA Finance Committee minutes are attached to this memo and include
a full discussion of the details of this issue.
s:eda\meetings\jimiloan.doc
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• MEETING OF THE ELK RIVER ECONOMIC DEVELOPMENT
AUTHORITY FINANCE COMMITTEE
HELD AT THE ELK RIVER CITY HALL
TUESDAY,AUGUST 6, 1996
Members Present: Jim Simpson, Bud Houlton,Tom McNair,Tom Bender
Members Absent: Lloyd Brutlag
Staff Present: Paul Steinman, Director of Economic Development
Others Present: Mike Mulrooney, Advance Resources; Jim Taylor, Jimichaeleen
Mufflers, Inc.
The purpose of the EDA Finance Committee meeting was to review a $50,000 micro loan
request from Jimichaeleen Mufflers, Inc. Mr. Mulrooney provided a brief overview of the
project,which is a franchise operation of the Midas Muffler shops. Jim Taylor's most
recent project was completed in Coon Rapids.
Mr. Mulrooney indicated that a SBA 504 loan was approved by the Central Minnesota
Development Corporation and that several banks have also committed to project
financing. The micro loan would be used to cover non-eligible 504 costs such as
• franchise fees, FF&E, and working capital.
Jim Taylor provided brief background information on his past experience in the muffler
franchise business. His first year in Elk River he indicated he projects sales to be in the
neighborhood of$400,000-500,000.
Collateral for this loan would be a third position mortgage on the building and other
assets of the business. Mr.Taylor indicated he is paying approximately$210,000 for the
36,000 square foot site, plus approximately$50,000-$60,000 for special assessments.
Mr. Mulrooney discussed an interest rate on the micro loan of 8.25 percent,which is prime
rate at this time, and a ten year term.
Several questions were asked of the applicants regarding use of the micro loan funds
and past history of Mr.Taylor and his other muffler franchise businesses. The applicants
left the meeting at approximately 3:30 p.m.
Discussion continued among the EDA Finance Committee members. Such discussion
revolved primarily around Mr.Taylor's need for the$50,000 micro loan. EDA Finance
Committee member Tom Bender had asked Mr. Taylor if he would pursue his project if a
decision were made to deny this loan request. Mr.Taylor indicated he would likely
pursue his project, but that it would require him to assume a greater degree of risk and
up front financial involvement. Given this information, the EDA Finance Committee
discussed the overall purpose of the micro loan in this case, given that the project would
likely proceed without the loan.
•
• The Committee continued its discussions about the general guidelines of the micro loan
fund and how this loan request adheres to such guidelines. It was indicated that on the
list of loan priorities, this request would rank last in that it is a retail type of use. The two
top priority uses are manufacturing/industrial, and research/development/technology
projects.
After further discussion it was determined that Mr.Taylor's business would be welcome
and should be greatly encouraged in Elk River, however, it was not felt to have met the
eligibility requirements of the micro loan fund, in that the project would most likely
proceed even without approval of the$50,000 loan.
JIM SIMPSON MOVED TO DENY THE LOAN REQUEST FOR JIMICHAELEEN MUFFLERS, INC.
TOM MCNAIR SECONDED THE MOTION. THE MOTION CARRIED 4-0.
The meeting of the Elk River EDA Finance Committee adjourned at 4:10 p.m.
Respectfully submitted,
Paul T. Steinman
Director of Economic Development
s:\minutes\fc080696.doc
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p
JUL 23 1991
-_' D1fANCE
Resources for Development,Inc.
July 10, 1996
Paul Steinman
Economic Development Coordinator
City of Elk River
P.O. Box 490
Elk River, MN 55330
Dear Paul:
Attached is an application for financing from Jimichaeleen Mufflers, Inc. The
purpose of the loan request is to secure funds to construct a new Midas Muffler store
in the City of Elk River. The location of the new store will be at the Elk Park Center
site.
• The project will generate 8 new job opportunities for Elk River residents. Medical
coverage is provided for the employees in addition to competitive salaries. Mr. Jim
Taylor, the owner of the project, has had a long and successful track record with
Midas and last year received the national Midas franchisee of the year award due to
the exceptional service he provides to his customers.
We are on a fast track to get this project completed this year. Your prompt review
and approval of this loan request would be appreciated. If you have any questions,
please feel free to contact me directly at 755-7741.
Sincerely,
lir
Michael J. Mulrooney
Development Consultant
4
Development CORPORATE.OFFICES P.O. Box 48269 P.O. Box 3027
and Finance Mpls.,MN 55448-0269 Mankato,MN 56002-3027
Phone: (612)755-7741 Phone: (507)387-7117
Specialists Fax: (612)755-5393 Fax: (507)387-6115
ECONOMIC DEVELOPMENT MICRO LOAN FUND
ELK RIVER, MINNESOTA
APPLICATION
• APPLICANT JIMICHAELEEN MUFFLERS, INC.
ADDRESS XXXX ELK PARK CENa;R
CITY ELK RIVER STATE MN ZIP CODE %%H)
CONTACT PERSON(S) JAMES TAYLOR
BUSINESS PHONE 420-4696 HOME PHONE ''",7-],399
AMOUNT REQUESTED $50,000
TERMS REQUESTED 10 YEARS
SOCIAL SECURITY NUMBER 358-46-7217 FED ID # 41-1379440
STATE ID #
1 . Type of Project:
X Construction/New Building Expansion/Existing
Building
Equipment/Machinery Purchase Remodel/Commercial
• Retail/Industrial
Industrial Inventory Working Capital
Other
2 . Describe Project:
(SEE ATTACHED)
•
3 . Purpose of Loan:
TO PROVIDE ENOUGH CAPITAL TO COMPLETE THE CONSTRUCTION OF THE BUILDING
AND PURCHASE NEEDED INVENTORY
411
4 . Cost of Project:
A) Land $ 210,000
B) Buildings (attach plans & costs) $ 365,000
C) Equipment/Machinery/Fixtures (attach list
and estimated costs) $
D) Remodeling $
E) Industrial Inventory/Working Capital $
F) Other (attach description) $ 208,860
TOTAL COSTS $ 783,860
5 . Proposed Financing:
SOURCE NAME TERMS AMOUNT
A) Bank Loan (see attached) $
B) Bank Loan $
C) Other Private Funds $
D) Applicant Contribution $
E) Other $
F) Fed Grant/Loan $
G) State Grant/Loan $
H) This Loan $
TOTAL FINANCING $
-2-
6 . Collateral to be assigned (Describe and show lien position) :
A) To Bank: FIRST LIEN POSITION ON ALL ASSETS
B) To Bank:
• C) To Private Funding Source:
D) To Other Source:
E) To Federal Govt: 2nd Mortgage to SBA
F) To State:
G) To This Loan: 3rd position on building and other assets
7 . Value of Collateral:
COST BOOK VALUE EXISTING
LIENS
(see summary of project costs)
A) Land $ $ $
B) Buildings $ $ $
C) Mach. & Equip. $ $ $ •
D) Other $ $ $
E) Other $ $ $
8 . Employment* :
• Present: # of Employees Total Payroll
After Project: # of Employees 8 Total Payroll $240,000
*If Loan is for Job Retention Only, Explain in Business Plan.
9 . Attorney, Accountant (Names, addresses, phone) :
William K Goodrich, Attorney
Randall, Dehn & Goodrich
2140 Fourth Ave. North Anoka, MN 55303
10 . Bank and Other Credit References (Names, addresses, phone) :
Greg Wittnebel First Bank 647-15.31
2383 University Ave.
Saint Paul, M►l 55114
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-3-
11 . Attach and include the following:
X A) Written Business Plan:
1 . Description of Business
2 . Ownership
• 3 . Management
4 . Date established
5 . Products/Services
6 . Future Plans
X B) Financial Statements for past two years
C) Financial Projections for two years
X D) Resume of Owner/Management
X E) Personal Financial Statements of proprietor, partners,
guarantors
F) Letter of commitment from applicant pledging to complete
during the proposed project duration
X 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)
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CITY OF ELK RIVER
REQUEST FOR FINANCING
JAMES I. TAYLOR
and
JIMICHAELEEN MUFFLERS, INC.
PROJECT OVERVIEW
• Loan purpose and amount of request
Jimichaeleen Mufflers, Inc. (dba. Midas)is a Midas Muffler franchisee currently operating stores located
in Fridley, Maple Grove and two in Coon Rapids. The first franchise started in 1979 when the initial
Coon Rapids location opened. The business began to grow and needed to expand to service a rapidly
growing market. The Fridley location opened in 1984 and the Maple Grove location opened in 1989. A
second Coon Rapids store opened in 1992.
The northwest metropolitan area has continued to grow with a substantial amount of this growth occurring
in or near the City of Elk River. The company is currently planning to open a fifth store in this community
and is seeking financing to accomplish the project. The plan is to obtain financing through the SBA 504
Loan Program. This program requires a first mortgage lender to provide 50% of the project financing.
• This amount is complemented by financing provided by a certified development company in the form of a
40% second mortgage. The loan from the certified development company is fully guaranteed by the
Small Business Administration.
The company is currently negotiating with lenders to provide first mortgage financing in the amount of
$339,500. Construction financing for the entire project is also needed. The project is estimated to cost
approximately $674,000. In addition, the company will require financing for inventory and other non
eligible SBA 504 project costs in the amount of$60,000 from a lender. Financing provided by the City of
Elk River RLF will balance out the remainder of the project costs. Detail on the anticipated sources and
uses of funds is provided below.
PROJECT COSTS / USES OF FUNDS
Land Acquisition $210,000
Land Improvements $53,760
New Construction $365,000
Soft Costs and Contingencies $35.900
Subtotal $664,660
SBA 504 Debenture Pricing $9.200
Total 504 Eligible Project Costs $673,860
Franchise Fee $20,000
Inventory $30,000
Furniture/Fixtures/Equipment $60.000
Total Project Costs $783,860
Advance-Resources for Development,Inc.
Request for Financing
gftlames I.Taylor(dba)Jimichaeleen Mufflers, Inc.
'age Two
PROJECT FINANCING / SOURCES OF FUNDS
Bank $332,350
SBA $275,000
Cash $66510
Subtotal $673,860
Bank $60,000
Elk River RLF $50,000
Total Funding Sources $783,860
• Source, amount and quality of equity contribution
The source of the equity injection will be from Jimichaeleen Mufflers, Inc. The amount of equity required
is estimated to be$66,510. The company's current cash balance as of 4/30/96 was $223,007.
• Structure of the entity/management
In 1991 the company changed its structure from a C Corporation to an S Corporation. The company
currently operates under this format. The company is owned solely by James I.Taylor who will be the
borrower for the project. Mr. Taylor has owner and managed the company since its inception in 1979.
• Prior to opening his first Mdas Muffler franchise Jim was in charge of store operations at the Midas
Corporation Training Center in Illinois. Prior to that he worked as an auto mechanic and service manager
for a Midas franchisee in Illinois.
• Characteristics of the property/facilities
The proposed project involves the construction of a Midas shop on Highway 169 in Elk River. The site
for the project is a prime location and is within an overall development called Elk Park Center. The center
is home to major retailers including Target and Cub Foods. The proposed building is 4,542 sq. ft. and
has six service bays. Eight jobs are expected to be created from the project in the next two years.
• Financial Analysis
A financial analysis has been completed on the company. A spread of the historical financial statements is
contained in the pages that follow. In addition, a personal financial statement for Mr. Taylor is provided.
•
Advance-Resources for Development,Inc.
Jimichaeleen Mufflers, Inc. 6/5/96
SBA 504 Debenture Pricing
Itet Debenture Proceeds 265,800.00
Reserve (.5%) 1,329.00
Funding Fee (.25%) 664.50
CDC Processing Fee (1.5%) 3.987.00
CDC Closing Costs 1,250.00
Subtotal 7,230.50
Underwriters Fee (.625% of Gross) 1,718.75 274,748
Balance to Borrower (250.75)
Gross Debenture Amount 275,000.00
Project Costs:
Land Cost 210,000
Construction 365,000
Professional Fees 16,900
Contingency/Soft Costs 19,000
Site Improvements/Assessments 53,760
Subtotal 664,660
SBA 504 Debenture Pricing 9,200
tel 504 Eligible Cost 673,860
Franchise Fee 10,000
Inventory 30,000
Furniture/Fixtures/Equipment 60.000
Total Project Costs 773,860
Monthly Interest Interest Annual
Financing Structure Amount Term Rate Debt Svc Year 1 Year 2 Debt Svc
Bank 332,350 20/15 9.50 3,098 31,323 30,742 37,175
SBA ($265,800 Net Proceeas; 275.000 20/20 8.50 2,387 23,165 22,681 28,638
Cash 66,510
Subtotal (504 Sources) 673,860 5,484 54.488 53,423 65,813
Bank 50,000 7/7 9.50 817 4,524 4,000 9,806
Elk River RLF 50.000 10/10 8.25 613 4,000 3,712 7,359
Total Funding Sources 773,860 6,915 63,012 61,135 82,979
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