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6.1 EDSR 04-17-2017Request for Action ToItem Number Economic Development Authority6.1 Agenda Section Meeting DatePrepared by General BusinessApril 17, 2017Amanda Othoudt, EDD Item Description Reviewed by EDA MicroloanPolicy Annual ReviewCal Portner, City Administrator Reviewed by Action Requested Approve, by motion,the EDA Microloan 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 Microloan Policy include the following: 1.Rename policy for consistency: Elk River Economic Development Business Microloan Fund, Guidelines, Policy & Application 2.Reorganizationof the policyand renumberingfor clarity 3.Rate is consistent throughout at 3% Microloan for Micro Brewerys 4.Added a 5.Removed Jobs Incentive Microloan Program and created a separate guidelines for use of funds seeded by the State Minnesota Invest 6.Added scoresheet Financial Impact None Attachments Economic DevelopmentBusiness Microloan Fund Program Policy Powered by Nature Economic Development Business Microloan Fund Guidelines, Policy & Application Amended: May 2011 November 2013 July 2014 November 2014 December 2016 March 2017 City of Elk River Economic Development Division 13065 Orono Parkway Elk River, MN 55330 763.635.1040 Page 2 of 22 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 prod and retain existing jobs for local residents. Additionally, the investment in the expansion and/or rehabilitation of commercial and retail buildings in order to maintain the economic viability of the city and in theDowntown 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 lim 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 noteligible. 3. MICROLOAN FUND TERMS & CONDITIONS Loan Structure AllEconomic DevelopmentMicroloans shallbe structured as direct loansunless 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 support restaurant, retail, casinos, or sports facilities. Page 3 of 22 Call of Loan A loan shall become due and payable in full if a business reloca 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 o be brought into conformance with city ordinances and state building codes. 5. 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 equal to the amount of the loan. Applicant must demonstrate the financial means to repay the loan 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 E 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 expenditures. No building construction should commence until the required city permits are secured. The applicant will be responsible for all legal, recording, and 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 Microloan should be simultaneous with the borrowe funding. The EDA should be given two weeks notice before closin 7. PROCEDURAL GUIDELINES FOR APPLICATION AND APPROVAL Page 4 of 22 1.All applicants shall first contact a primary lending institution 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 microloanprogram, discuss the project, and obtain application forms. 3.The applicant shall complete and submit an application form to tcity, 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 prima 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 nonpubl State law should be so designated or marked by Applicant. See M 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 gr 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 pub 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 citys Comprehensive Plan and Economic Development Strategic Plan and in relation to the projects overall impact on the communitys 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 demonstra Page 5 of 22 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 applicab Sufficient collateral. c. All other information as required in the application and/or addition information as may be requested by the Economic Development staff. . d. Project compliance with all city codes and policies e. Microloan Objectives -In addition to quality job and wage creation/retention requirements, the applicant must meet all Microloan Fund criteria and demonstrate how the proposed activities will m least oneof the following objectives: The project contributes to the fulfillment of the citys 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 codeviolation. 7.A written request for an extension shall be accompanied by a cop financial statements and a $500 upfront processing fee. The pro used to cover processing expenses. The application for an exten original term should include a letter of denial from a conventional len 8.The EDA Finance Committee will recommend the approval, denial, o resubmission. A recommendation from the Finance Committee will 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 reflected in this document are consistent with the economic deve 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 citys Comprehensive Plan and Economic Development Strategic Pla relation to the projects overall impact on the communitys economy. Page 6 of 22 10. COMPLIANCE WITH MN BUSINESS SUBSIDY LAW All developers/businesses receiving financial assistance from th shall be subject to the provisions and requirements set forth by 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 citys out-of-pocket costs for expenses, including the citys costs for review of the application by the citys Financial Consultant and City Attorney, or other consultants, recording fees, and necessary publication costs. The application processing fees cover anticipated costs; costs i application fee will be invoiced as they are incurred, and paymein thirty (30) days. Any unused portion of the application fee will bereturnedto the applicant. If payment is not received as required by this agreement, the city may suspend the application review process and may deny the applicat comply with the requirements for processing the application. Paym be required whether the application is granted or denied. 12.Microloan Programs In order to meet the economic and community development objectiv fivedistinct microloan programs exist within the Business MicroloanFund. Industrial Incentive Loan Purpose:The purpose of the Industrial Incentive Loanis 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; Page 7 of 22 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 $15.00per 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 l 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 citys 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 residenti b.Inventory c.Refinancingof 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 Page 8 of 22 project cost. Remaining Principle: Must have private-sector commitments for 50% of the project cost. Borrower mustprovide 10% or more of project cost. Rate:Fixedat 3%. Term:Financing with a balloon payment in up to 5-years. Loans may be amortized up to the following limits: 20years 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 Microloanat the end of fiveyears, 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 façade, with exceptions to be considered when it appears the façade improvementsare 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 façade improvements will be considered at a limit of $25,000 f.Expenditures for the construction and/or renovation of residenti 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 pro 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 Page 9 of 22 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 i 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 companys Conservation Improvement Program (CIP). If warranted, engineering studies then are performed on facilities with conserv opportunities under the utility companys CIP Program. Energy efficiency is defined as improvements that are rebatable the Elk River Municipal Utilities (ERMU) or the utilityprovider for the property if not ERMU. Proposed energy efficiency improvements that do not qualify for the utilitys prescriptive rebate progra reviewed and approved by the utility company servicing the upgra 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 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, if applicable a lien 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 on incremental costs over industry design standards. Permitted Fund Uses: Page 10 of 22 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 s 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 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 inc personal guarantees. Permitted Fund Uses: Page 11 of 22 e.Renovation and modernization of buildings f.Furniture, fixtures, and equipment (FF&E) g.Exterior renovation of retail orcommercial buildings h.Financing of leasehold improvements including façade improvement will be considered at a limit of $25,000 Ineligible Fund Uses: a. Inventory b. Refinancing of existing debt c. Working capital Page 12 of 22 ELK RIVER ECONOMIC DEVELOPMENT MICROLOAN FUND APPLICATION 1. CONTACT INFORMATION Legal Name of Business: Project Site Address: City / State / Zip Contact Person(s) Business PhoneFax Home PhoneEmail Check One:Proprietor CorporationPartnership Federal ID #State ID # 2. NATURE OF LOAN REQUEST Which Microloan Program are you applying for? Industrial Incentive Loan Downtown Revitalization Financing Loan Energy Efficiency Improvement Loan Jobs Incentive Loan Micro-BreweryLoan 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 Page 13 of 22 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: Page 14 of 22 Proposed Sources of Financing SOURCE NAMETERMS 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 Page 15 of 22 Value of Collateral Book Value Cost Existing Liens Land $_________ $___________ $__________ Buildings $_________ $___________ $__________ Machinery & Equip. $_________ $___________ $__________ Other__________ $_________ $___________ $__________ Other__________ $_________ $___________ $__________ 4. JOB & WAGE GOALS Present # of Employees_____________ Total Payroll_____________ Jobs To Be Created* Please provide the following information on jobs you expect to create within 2-years. Average Are the Jobs Expected Number Hourly Annual Permanent or Hiring Job Titleof Jobs WageSalaryTemporary? 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 citys 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 ex violation. Page 16 of 22 5. PROJECT CONTACTS Attorney Name Address Phone ______ Accountant Name ______ Address Phone Financing Sources (lenders, partners, etc&) Name ______ Address Phone Name ______ Address Phone Parent Company Name ______ Address Phone Others Name ______ Address Phone ______ Name Address Phone Page 17 of 22 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 ThreeYearsand Year toDate 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 Compl 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 Page 18 of 22 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 cityof Elk River and the Finance Committee to check credit references and verify financial and other informati any additional information as may be requested by the city and the Finance Committee. The undersigned has received the citys 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 t city for costs as provided in the policy. _______ APPLICANT SIGNATURE BY DATE Page 19 of 22 Exhibit A: Downtown Area Page 20 of 22 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 citysbusiness subsidy policy. 2. Ratio of Private to All Public Investment in Project: Points: _____ $Private Investment5:15 $Public Investment4:14 Ratio Private: Public Financing 3:1 3 2:1 2 Less than 2:11 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 newjob $12,000 or less 3 $15,000 or less 2 Over $15,000 1 5. Wage Level of jobs created/retainedor relocated Points: _____ Minimum hourly wage Over $21/ hour 5 of jobs created/retained: $18-21 / hour 4 $15/ hour3 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 Page 21 of 22 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 AdjustmentsPoint 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 Page 22 of 22