4.1. JFC SR 06-26-2018 ��i
Eof
lk — - Request for Action
River
To Item Number
joint Finance Committee 4.1
Agenda Section Fimune
eeting Date Prepared by
General Business 26, 2018 Amanda Othoudt,EDD
Item Description Reviewed by
Review Jobs Incentive Microloan Application for Cal Portner, City Administrator
Orluck Industries, Inc. Reviewed by
Action Requested
Consider and provide a recommendation regarding a Jobs Incentive Microloan application for Orluck
Industries, Inc.
The Finance Committee may recommend approval, approval with conditions, or denial of the request.
Background/Discussion
The city received an application from Orluck Industries, Inc. for a $200,000 Industrial Incentive
Microloan.
Orluck Industries, Inc. is an aerospace manufacturer of seating, cargo, sensors,propulsion, and engine
parts. They also provide medical,locomotive, and manufacturing industry services.
Orluck was awarded $15 million in long-term agreements. Their annual income is $3 million and
engineering and prototype costs are $500,000. The requested loan is to fund the initial investment to
bring the new parts into production.
The company currently employs 54 people with a total payroll of$115,000 bi-weekly.
Analysis
Microloan Purpose:To assist existing business expansion and attract new businesses whose operations
will expand the local economy through job retention/creation and maintain/grow the tax base.
Orluck Industries, Inc. has committed to retaining 54 jobs and creating 70 new positions over the next tnroyears with an
average mage of$24.65/hr.
Loan Amount: Up to $200,000 of secondary financing not to exceed 20% of the project cost.
The totalproject cost equals,$500,000. The applicant requested~$200,000 from the city representing 40% of the total
project costs. The Initiative Foundation has committed to providing$200,000 in project financing representing 40% of the
total project costs. The applicant indicated they mill provide,$100,000 as an equity contribution to the project representing
the remaining 20%.
Total secondary funding exceeds the threshold of 20% of the project costs per the polio
The Elk River Vision
A nrelcoming community nrith revolutionary and spirited resourcefulness, exceptional p o w E e E o s r
service, and community engagement that encourages and inspires prosperity /` UR
The Finance Committee should consider the type of request and whether the applicant meets the
fundamental goals of the policy.
Equity: Must have private-sector commitments for 50% of the project cost. Borrower must provide 10%
or more of project financing.
The Initiative Foundation has committed to 50% of the project financing. The borron�er mill contribute,$100,000 or 20%
of the project financing.
Criteria: Borrower must create one new full-time job for each$20,000 loaned, retain one new full-time
job for each $10,000 loaned, or combination of retainage and creation to meet the requirements. All new
jobs must be created within two years and retained for the period of the loan. Said jobs must pay greater
of$15.00 per hour or 150% of state or federal minimum wage exclusive of benefits required by law. Any
loans shall meet the city of Elk River Business Subsidy Policy for the creation of new jobs, as well as a 5-
year location requirement.
By retaining 54 jobs and creating 10 nen jobs n�ith an average mage of$24.651 hr. the applicant is eligible to receive the
maximum loan amount of,$200,000.
Summary
The applicant is eligible for a loan of$200,000 meeting the equity,wage, and job criteria requirements
and the proposed fund uses are eligible expenses.
Financial Impact
The balance of the Jobs Incentive Microloan Fund account is $224,100.
The Initiative Foundation has agreed to partner with the city to leverage funds for the project through an
SBA guarantee loan of$200,000. A direct loan from the EDA of$200,000 could cover the remaining
$400,000 request.
Orluck is proposing to give the EDA collateral positions in two pieces of equipment and pay the
remaining balance of their loan with US Bank Equipment Financing for the Ziess Contura G2.This is a
piece of inspection equipment with a fair market value of$100,000. EDA can place a UCC Filing for this
equipment taking the first collateral position.
Orluck has asked Canadian lender Ibex to release their 2nd priority status on the Okuma Genos M560V
financed by the Bank of America. This piece of equipment has a fair market value of$145,000 and EDA
would have a second position on this collateral.
Attachments
■ Microloan Application& Supporting Materials
■ Corporate and Personal Financial Information (distributed at the meeting)
■ Equipment Appraisal (distributed at the meeting)