4.9. SR 04-17-2017 EOty1� ,.,�� Request for Action
River
To Item Number
Mayor and City Council 4.9
Agenda Section Meeting Date Prepared by
Consent Aril 17, 2017 Amanda Othoudt,EDD
Item Description Reviewed by
EDA:NEcroloan Policy Annual Review Cal Portner, City Administrator
Reviewed by
Action Requested
Approve,by motion, the EDA NEcroloan Fund Program Policy.
Background/Discussion
Staff,in conjunction with our EDA Finance Committee,Attorney and Financial Advisor,reviewed and
revised the EDA loan program and policy.
Changes to the:NEcroloan Policy include the following:
1. Rename policy for consistency: Elk Diver Economic Development Business Microloan Fund, Guidelines,
Policy &Application
2. Reorganization of the policy and renumbering for clarity
3. Rate is consistent throughout at 3%
4. Added a :NEcroloan for Micro Brewerys
5. Removed Jobs Incentive:NEcroloan Program and created a separate policy that follows the state's
guidelines for use of funds seeded by the State Minnesota Investment Funds.
6. Added scoresheet
The EDA reviewed these changes at their meeting earlier this evening. Staff can provide an update to the
Council if necessary.
Financial Impact
None
Attachments
■ Economic Development Business NEcroloan Fund Program Policy
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Economic Development
Business Microloan Fund
Guidelines, Policy & Application
Amended: May 2011
November 2013
July 2014
November 2014
December 2016
March 2017
Cit\,of Elk River
Economic Development Division
13065 Orono Parkwav
Elk River,MN 55330
763.635.1040
ELK RIVER ECONOMIC DEVELOPMENT
BUSINESS MICROLOAN FUND GUIDELINES, POLICY &
APPLICATION
1. POLICY PURPOSE
The Economic Development Authority for the city of Elk River (EDA) recognizes
the need to stimulate private sector investment into manufacturing and certain
commercial facilities and equipment in order to create new jobs,boost productivity
and retain existing jobs for local residents. Additionally, the need exists to encourage
investment in the expansion and/or rehabilitation of commercial and retail buildings
in order to maintain the economic viability of the city and in the Downtown District.
Subsequently, the purpose of this microloan program is to provide low interest,long-
term (i.e. greater than one year) loans as incentives for new industrial and
commercial development within the city of Elk River and to encourage commercial
and retail business owners in the Downtown District to rehabilitate their existing
buildings.
2. ELIGIBLE BUSINESSES
Any project located or proposed to be located within the city limits of Elk River as
defined by this microloan program,may be eligible for a Microloan as further
defined herein:
• Unless otherwise stated,business must be a for-profit corporation,
partnership, or sole proprietorship.
• Business must be a small business as defined by the Small Business
Administration (SBA).
Religious,political, and pornographic enterprises are not eligible.
3. MICROLOAN FUND TERMS & CONDITIONS
Loan Structure
All Economic Development Microloans shall be structured as direct loans unless
otherwise approved by the EDA Finance Committee. If a participation loan is
requested, an agreement will be signed by the borrower,primary lender and the
EDA.
The EDA may require additional agreements to be signed by the borrower
(i.e. security agreement,personal guarantees,business subsidy agreement).
Simultaneous Microloans
The simultaneous use of different EDA microloan programs by any one borrower or
for any one project is prohibited.
Loan Repayment
Jobs Incentive funds,including principal and interest received may not be used to
support restaurant,retail, casinos, or sports facilities.
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Call of Loan
A loan shall become due and payable in full if a business relocates outside of the city
of Elk River prior to the maturity date of the loan.
Late Payment Charge
A late payment charge of 8% of the installment amount will be enforced following a
grace period of 10 calendar days.
4. REGULATION FOR NEW CONSTRUCTION AND IMPROVEMENTS
All buildings which public funds will be used for construction or renovation are to
be brought into conformance with city ordinances and state building codes.
S. 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
equal to the amount of the loan.
Applicant must demonstrate the financial means to repay the loans, as determined by
the EDA.
Whenever possible,personal, corporate, and/or entity guarantees will be made part
of any loan agreement.
Key person life insurance may be required as determined by the EDA Finance
Committee based on loan amount and company ownership partners.
6. TIMING OF PROJECT EXPENSES
No project should commence until the EDA has approved the loan application.
Any costs incurred prior to the approval of the loan application are 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 $2,000 processing fee,which
is paid at the time of application. In addition to the processing fee, all legal and filing
fees shall be paid by the borrower at loan closing.
Closing of the N icroloan should be simultaneous with the borrower's primary
funding. The EDA should be given two weeks'notice before closing.
7. PROCEDURAL GUIDELINES FOR APPLICATION AND APPROVAL
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1. All applicants shall first contact a primary lending institution to determine if
additional equity is needed, and if so,how much (if applicable).
2. The applicant shall then meet with city staff to obtain information about the
microloan program,discuss the project,and obtain application forms.
3. The applicant shall complete and submit an application form to the city, along
with a$2,000 processing fee. The fee is used to cover processing expenses and
any remaining funds will be returned to the applicant. The applicant must
provide evidence of their ability to meet the 10% equity requirements or provide
a letter of commitment for conventional financing from the primary lending
institution.
4. The EDA is a governmental entity and as such must provide public access to
public data it receives. Data deemed by Applicant to be nonpublic data under
State law should be so designated or marked by Applicant. See Minn. Sat.
Sections 13.59, Subd. 1, respectively.
5. The application will be reviewed by the city staff to determine if it conforms to
all city policies and ordinances and to consider the following:
a. The availability and applicability of other governmental grants and/or
microloan programs.
b. Whether the proposed project will result in conformance with building
and zoning codes.
c. Whether it is desirous and in the best interests of the public to provide
funding for the project.
6. The EDA Finance Committee and EDA Commissioners will review each
application in terms of its consistency with the goals of the city's Comprehensive
Plan and Economic Development Strategic Plan and in relation to the project's
overall impact on the community's economy. Downtown Revitalization Loan
applications will also be reviewed by a Housing&Redevelopment Authority
Commissioner in conjunction with the EDA Finance Committee. Energy
Efficiency Improvement Loan applications will also be reviewed by an Energy
City Commissioner in conjunction with the EDA Finance Committee.
The EDA Finance Committee will evaluate the project application in terms of
the following:
a. Project Design- Evaluation of project design will include review of
proposed activities, time lines and a capacity to implement the project.
b. Financial Feasibility-Availability of funds,private involvement, financial
packaging and cost effectiveness.
• Appropriate ratio of private funds to Microloan funds.
• Sufficient cash flow to cover proposed debt service as demonstrated
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by financial statements and projections.
• 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 staff.
d. Project compliance with all city codes and policies.
e. N icroloan Objectives - In addition to quality job and wage
creation/retention requirements, the applicant must meet all N icroloan
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.
7. 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. The application for an extension beyond the
original term should include a letter of denial from a conventional lender.
8. 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 recommendation of approval, denial to the City
Council for final action.
8. MICROLOAN 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.
9. RIGHT OF REFUSAL
The EDA may deny any application if it is found not consistent with the goals of the
city's Comprehensive Plan and Economic Development Strategic Plan and in
relation to the project's overall impact on the community's economy.
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10. COMPLIANCE WITH MN BUSINESS SUBSIDY LAW
All developers/businesses receiving financial assistance from the City of Elk River
shall be subject to the provisions and requirements set forth by the City's Business
Subsidy Policy as amended and Minnesota Statutes Sections 116J.993 to 116J.995
(the "Minnesota Business Subsidy Law") if applicable.
11. Agreement to Pay Costs of Review
It is the policy of the city of Elk River to require applicants to pay costs incurred by
the city in reviewing and acting upon applications, so that these costs are not borne
by the taxpayers of the city. These costs include all of the city's out-of-pocket costs
for expenses,including the city's costs for review of the application by the city's
Financial Consultant and City Attorney, or other consultants, recording fees, and
necessary publication costs.
The application processing fees cover anticipated costs; costs incurred above the
application fee will be invoiced as they are incurred,and payment will be due within
thirty (30) days. Any unused portion of the application fee will be returned to the
applicant. If payment is not received as required by this agreement,the city may
suspend the application review process and may deny the application for failure to
comply with the requirements for processing the application. Payment for costs will
be required whether the application is granted or denied.
12. Microloan Programs
In order to meet the economic and community development objectives of the EDA,
five distinct microloan programs exist within the Business Microloan Fund.
Industrial Incentive Loan
Purpose: The purpose of the Industrial Incentive Loan is to encourage
industrial and high technology business development that supports
the tax base and brings quality jobs to the city.
Amount: Up to $100,000 of secondary financing not to exceed 20% of the
total project cost.
Remaining
Principal: Must have private-sector commitments for 50% of the project cost.
Borrower must provide 10% or more of project financing.
Rate: Fixed at 3%
Term: Loans must mature within 5 years,but must be amortized over a
longer period of time. The balloon payment must not be longer than
the balloon payment of the participating bank if applicable. Loans
may be amortized up to the following limits:
20 years on real estate uses;
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10 years on equipment uses.
Extension: In the event that the Borrower is unable to payoff the loan or
refinance the Microloan at the end of five years,the loan may be
extended up to two additional years at 3%interest.
Criteria: Borrower must be an industrial or high technology business and create
or retain one new full-time job for each $20,000 loaned within 2 years.
Said jobs must pay a minimum wage of$15.00 per hour excluding
benefits required by law. Loans of$75,000 or more shall meet the city
of Elk River Business Subsidy Policy for the creation of new jobs at a
minimum wage of$15.00 per hour excluding benefits required by law,
as well as a 5-year location requirement.
In the case where multiple sources of public financing are requested
(e.g. Microloan and Tax Increment Financing) job creation goals shall
not be double-counted.
Borrower must comply with the provisions of the city's Industrial and
Business Park zoning ordinances as applicable.
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. Public infrastructure needed for economic development expansions
g. Investment real estate with a minimum of 50% of the space pre-leased
Ineligible Fund Uses:
a. Expenditures for the construction and/or renovation of residential units
b. Inventory
c. Refinancing of existing debt
d. Working capital
Downtown Revitalization Financing Loan
Purpose: The Downtown Revitalization Financing Loan is available to business
and property owners in the Downtown Area primarily for the
rehabilitation and restoration of older buildings, as well as new business
development. Non-profit organizations may be considered. The
Downtown Area shall be described as that area in the attached in
Exhibit A.
Amount: Up to $74,999 of secondary financing not to exceed 20% of the total
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project cost.
Remaining
Principle: Must have private-sector commitments for 50% of the project cost.
Borrower must provide 10% or more of project cost.
Rate: Fixed at 3%.
Term: Financing with a balloon payment in up to 5-years. Loans may be
amortized up to the following limits:
20 years on real estate uses;
10 years on equipment uses.
Extension: In the event that the Borrower is unable to payoff the loan or
refinance the Microloan at the end of five years,the loan may be
extended up to two additional years at 3%interest.
Criteria: At a minimum, 20% of Microloan dollars must be used for the
improvement of the building facade,with exceptions to be considered
when it appears the facade improvements are not necessary. Financing
of leasehold improvements will be considered at a limit of$25,000.
Permitted Fund Uses:
a. Building construction
b. Renovation and modernization of buildings
c. Furniture, fixtures, and equipment (FF&E)
d. Exterior renovation of retail or commercial buildings
e. Financing of leasehold improvements including facade improvements
will be considered at a limit of$25,000
f. Expenditures for the construction and/or renovation of residential
units
Ineligible Fund Uses:
a. Inventory
b. Refinancing of existing debt
c. Working capital
Energy Efficiency Improvement Loan
Purpose: The Energy Efficiency Improvements Loan is available to property
owners of commercial or industrial buildings in Elk River to provide
low interest loans to businesses to invest in energy efficiency and
improve their profitability through reduced energy costs. In addition,
the microloan program helps the city of Elk River use energy
conservation as an economic development tool. Non-profit
organizations may be considered.
Amount: Applicants may apply for the cost of improvements up to $74,999
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Equity: Must have a minimum of 10% equity provided by the borrower.
Rate: Fixed at 3%
Term: The maximum maturity date of the loan will be determined by the
useful life of the improvement and the energy payback achieved as
determined by ERMU.
For projects that have a shorter length of payback (2-5) years as
calculated according to energy savings, the loans will have an initial
maturity of up to 5 years from the date of closing.
Longer life improvements (6-15 years) may apply for a longer
maturity of up to 10 years.
Criteria: Microloan funds shall be spent on energy efficiency improvements
outlined below or related building improvement costs
Applicant must agree to energy audits conducted under the utility
company's Conservation Improvement Program (CIP). If warranted,
engineering studies then are performed on facilities with conservation
opportunities under the utility company's CIP Program.
Energy efficiency is defined as improvements that are rebatable by
the Elk River Municipal Utilities (ERMU) or the utility provider for
the property if not ERMU. Proposed energy efficiency improvements
that do not qualify for the utility's prescriptive rebate program will be
reviewed and approved by the utility company servicing the upgrade
measures (e.g. Elk River Municipal Utilities, Connexus, CenterPoint)
along with a letter indicating eligible utility rebates.
Utility rebates as applicable will be assigned to the Elk River EDA
and applied toward principal repayment of the loan.
An Elk River Energy City Commission member will be asked to
participate in the EDA Finance Committee review.
The loans will be secured by personal and corporate guarantees, and
if applicable alien on equipment financed and subordinate mortgage
on the property.
Installation must be certified through a licensed contractor and
electrician. New construction is eligible when participating with a
utility company rebate program. Eligible costs shall include only
incremental costs over industry design standards.
Permitted Fund Uses:
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a. Energy efficiency measures installed in or on a building include:
b. Facility systems optimization (commissioning/re-commissioning)
c. Facility systems control improvements
d. Process efficiency improvements (CenterPoint Energy)
e. Lighting efficiency improvements
f. Heating,ventilation and air conditioning system modifications
g. Exterior envelope improvements
h. Motor and pump efficiency improvements
i. Ground-source heat pump systems used to heat or cool a facility
j. Installation of equipment or devices that use renewable energy sources to
generate electricity or heat or cool a building including solar electricity
(photovoltaic),wind turbine or solar thermal.
Ineligible Fund Uses:
a. Inventory
b. Refinancing of existing debt
c. Working capital
d. Expenditures for the construction and/or renovation of residential units
Micro-Brewery Loan
Purpose: The Micro-Brewery microloan is available to business and property
owners in the Downtown Area. The Downtown Area shall be
described as that area in the attached Exhibit A.
Amount: Up to $74,999 of secondary financing not to exceed 20% of the
Total project cost.
Equity: Must have private-sector commitments for 50% of the project cost.
Borrower must provide 10% or more of project financing.
Rate: Fixed at 3%.
Term: Financing with a balloon payment in up to 5-years. Loans may be
amortized up to the following limits:
10 years on equipment uses
Extension: In the event that the Borrower is unable to obtain conventional
financing to replace the Microloan at the end of five years, the loan
may be extended up to two additional years at a market rate of
interest.
Criteria: At a minimum, 50% of Microloan dollars must be used for the
purchase of equipment.
Loans must be supported by sufficient collateral,which will include
personal guarantees.
Permitted Fund Uses:
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e. Renovation and modernization of buildings
f. Furniture, fixtures, and equipment (FF&E)
g. Exterior renovation of retail or commercial buildings
h. Financing of leasehold improvements including facade improvements
will be considered at a limit of$25,000
Ineligible Fund Uses:
a. Inventory
b. Refinancing of existing debt
c. Working capital
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Cily
Elly
ELK RIVER ECONOMIC DEVELOPMENT
River MICROLOAN FUND APPLICATION
I . CONTACT INFORMATION
Legal Name of Business:
Project Site Address:
City / State / Zip
Contact Person(s)
Business Phone Fax
Home Phone Email
Check One: Proprietor Corporation Partnership
Federal ID # State ID #
2. NATURE OF LOAN REQUEST
Which NEcroloan Program are you applying for?
Industrial Incentive Loan
Downtown Revitalization Financing Loan
Energy Efficiency Improvement Loan
Jobs Incentive Loan
TNEcro-Brewery Loan
Amount Requested: $ Total Project Cost: $
Type of project:
New construction for a start-up business
New construction for an existing business
On site expansion
Equipment purchase
Remodeling: circle one Commercial / Retail / Industrial
Other
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MATURE
Please give a brief summary of your business and its products or service:
Please give a brief summary of the project:
Please describe how this loan will impact your project:
3. FINANCING
Project Costs
Land $
Site improvements $
Buildings (attach plans & costs) $
Equipment/Machinery/Fixtures
(attach list and estimated costs) $
Remodeling $
Industrial Inventory/Working Capital $
Other (attach description) $
Total Costs $
Comments:
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V
Proposed Sources of Financing
SOURCE NAME TERMS AMOUNT
Bank Loan $
Bank Loan $
Other Private Funds $
Applicant Contribution $
Other $
Fed Grant/Loan $
State Grant/Loan $
EDA Microloan $
Tax Increment Financing $
Tax Abatement $
Total Financing $
Collateral Assignments
Lien
Description of Collateral Position
To Bank 1
To Bank 2
To Private Sources
To Other Sources
To Federal Govt
To State
To EDA Microloan
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rowppEREo er
Value of Collateral
Book Value Cost Existing Liens
Land $ $ $
Buildings $ $ $
Machinery&Equip. $ $ $
Other $ $ $
Other S $ $
4. JOB & WAGE GOALS
Present# of Employees Total Payroll
Jobs To Be Created*
Please provide the followin information on jobs you expect to create within 2-years.
Average Are the Jobs Expected
Number Hourly Annual Permanent or Hiring
job Tide of jobs Wage Sala Temporary? Date
*If loan is for job retention only,please explain in Business Plan.
Microloan Program Objectives
(Check all that apply)
The project contributes to the fulfillment of the city's approved and adopted
economic development and/or redevelopment plans.
The project prevents or eliminates slums and blight.
The project increases the local tax base.
The project brings a structure into compliance with an existing building code
violation.
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S. PROJECT CONTACTS
Attorney
Name
Address
Phone
Accountant
Name
Address
Phone
Financing Sources (lenders,partners, etc...
Name
Address
Phone
Name
Address
Phone
Parent Company
Name
Address
Phone
Others
Name
Address
Phone
Name
Address
Phone
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POWERER 0
6. ATTACHMENTS CHECK LIST
Please attach the following:
A) Written Business Plan:
1. Description of Business
2. Ownership
3. Management
4. Date Established
5. Products/Services
6. Future Plans
B) Financial Statements for Past Three Years and Year to Date
1. Profit&Loss Statements
2. Balance Sheets
C) Financial Projections for up to Three Years
D) A Project Proforma to include:
1. Projected revenues,
2. Operating expenses,
3. Net Operating Income, and
4. Annual Debt Service and Loan Payments.
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) Processing Fee of$2,000
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V
7. AGREEMENT
I / We certify that all information provided in this application is true and correct to the best
of my/our knowledge. I / We authorize the city of Elk River and the Finance Committee to
check credit references and verify financial and other information. I /We agree to provide
any additional information as may be requested by the city and the Finance Committee.
The undersigned has received the city's policy regarding the payment of costs of review,
understands that reimbursement to the city of costs incurred in reviewing the application will
be required, agrees to reimburse the city as required in the policy and make payment when
billed by the city,and agrees that the application may be denied for failure to reimburse the
city for costs as provided in the policy.
APPLICANT SIGNATURE
BY
DATE
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Exhibit A: Downtown Area
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POWERER 0
NAWRE
MICROLOAN APPLICATION SCORING WORKSHEET
TO BE COMPLETED BY CITY STAFF
1. The project meets the criteria set forth in the appropriate the Microloan policy.
a) Meets at least one of the microloan objectives in Section 7; 6(e).
c) Consistent with all city plans and ordinances.
d) Meets the wage requirements as defined in the city's business subsidy policy.
2. Ratio of Private to All Public Investment in Project: Points:
$ Private Investment 5:1 5
$ Public Investment 4:1 4
Ratio Private: Public Financing 3:1 3
2:1 2
Less than 2:1 1
3.Job Creation in the City of Elk River: Points:
Number of new jobs as a result of the project. 25+ 5
Number of existing/retained jobs 20+ 4
Total 15+ 3
10+ 2
Less than 10 1
4. Ratio of Public Investment to Job Creation: Points:
$ Public Investment $8,000 or less 5
Number of new jobs created/retained $10,000 or less 4
$ of Public Investment per new job $12,000 or less 3
$15,000 or less 2
Over $15,000 1
5. Wage Level of jobs created/retained or relocated Points:
Minimum hourly wage Over $21/ hour 5
of jobs created/retained: $18-21 / hour 4
$15 / hour 3
6. Project size: Points:
The project will result in the construction 40,000+ 5
of square feet 30,000+ 4
20,000+ 3
10,000+ 2
10,000 or less 1
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P O W E R E D 6 1
7. Market Value/Tax Base Generation: Points:
The project will result in a per square foot Industrial Commercial
estimated market value(land and building) $80/sf+ $110/sf+ 5
of $70/sf+ $100/sf+ 4
$60/sf+ $90/sf+ 3
$50/sf+ $80/sf+ 2
$40/sf+ $70/sf+ 1
8. Type of Project: Points:
100% Owner Occupied 5
Mix Owner Occupied&Investment 4
Investment Property 3
9. Use: Points:
Industrial or Business Park Project 5
Commercial/Retail Rehabilitation/Redevelopment 4
Downtown Revitalization or Microbrew 3
10. Likelihood that the project will result in Points:
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
Sub -Total Points: of a possible 45 points.
11. Point Adjustments Point Adjustments:
The project contributes to the goals of Energy City. 5 points
• Product promotes sensible use of energy, OR
• Project utilizes significant energy efficient design&/or
materials in construction.
Total Points:
Overall project desirability: High 50-35 points
Moderate 34-29 points
Low 28-20 points
Not Eligible 19-0 points
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