5. EDSR 11-10-2008.''~ ~i
City of
Elk. ~ REQUEST FO R ACTIO N
River
ITEM # 5.
To Item Number
Economic Development Authority
Agenda Section Meeting Date Prepared by
November 10, 2008 Catherine Mehelich, Director of
Economic Develo ment
Item Description Reviewed by
Consider EDA Micro Loan Extension
- Lake Assault Custom Boats, LLC Reviewed by
Action Requested
The EDA is asked to consider the EDA Finance Committee's recommendation fox approval of a 2-year
extension on the Lake Assault micro loan at a 6.5% market interest rate.
Background/Discussion
The attached staff report to the EDA Finance Committee and November 3, 2008 committee meeting
minutes provide background regarding the extension request. In addition, EDA Commissioners Motin
and Tveite both serve on the EDA Finance Committee and may provide additional comments regarding
the committee's review and recommendation.
Financial Impact
The EDA Micro Loan Fund has a current cash balance of approximately $712,477. The principal balance
due on the Lake Assault Custom Boats micro loan is $26,810.97.
Attachments
• EDA Finance Committee Meeting Minutes dated November 3, 2008.
• EDA Micro Loan Fund Policy and Guidelines
• Staff report to EDA Finance Committee re: Lake Assault Custom Boats Micro Loan Extension
Request, November 3, 2008.
Action Motion by Second by Vote
Follow Up
S:\EDA\Micro Loan Fund\LOANS\Lake Assault Custom Boats\11.10.08 BDA Action Requested.doc
MEETING OF THE EDA FINANCE COMMITTEE
HELD AT THE ELK RIVER CITY HALL
MONDAY, NOVEMBER 3, 2008
Members Present: Cliff Lundberg, Paul Motin, Tom McNair, Larry Toth, Dave Rymanowski, Dan
Tveite and Chris Carlson
Members Absent: None
Staff Present: Director of Economic Development Catherine Mehelich, Economic Development
Assistant Annie Deckert
Accept EDA Finance Committee Minutes
Motion by Motin, second by Toth to accept the August C>, 2008,_EDA Fuiance Committee Minutes
as presented. The motion carried 7-0.
2. Consider Micro Loan Extension Reduest: Lake Assault Custom Boats LLC
Ms. Mehelich summarized the Micro Loan extension request from Lake Assault Custom Boats. As
application described in the staff report. Mr. Jerry Atherton, President of Lake Assault Custom
Boats, distributed a presentation and provided an update on the status and future plans for the
business. Mr. Atherton indicated that the business was originally established in 2003 for custom
fishing boats. Since 2004 he has been focusing his efforts on commercial fire boats and patrol
boats. This has allowed him a narrowed market niche where he has been able to compete well.
Recent sales include Chicago Fire Dept, I=Iennepiii Counn-, and St. Louis County among many
others. He indicated that while he is able to ccnnpete well in this market, he is finding that it is
much more capital intensive than the fishing boats. His goal is to be at $4-million in sales, stay and
grow in Elk River. He currently has 5 boats on order. Mr. Atherton was excused from the
meeting following this discussion.
Discussion by the committee included a request for confirmation whether the collateral is
subordinate to the bank letter of credit, and confirmation of a personal guarantee and recent
personal financial statements. It was the consensus of the committee that the extension request is
reasonable given the micro loan policy change on the maximum loan term since Lake Assault's
original application (from 3-year to 5-year balloon). The committee discussed the concept of
establishing a local business advisory group from various backgrounds that could provide
suggestions and advice to micro loan applicants, particularly new and small businesses. The group
could be facilitated by Enterprise Minnesota (formerly MN Technology) and it could be among a
list of various resources, including MN Workforce Center and SCORE, that the city could refer
businesses. Chris Carlson offered to assist in organizing the advisory group with the help of
Enterprise Minnesota and indicated willingness to serve on it.
MOVED BY MCNAIR AND SECONDED BY TVEITE, THE FINANCE
COMMITTEE RECOMMENDS THAT THE EDA CONSIDER APPROVING A 2-
YEAR EXTENSION ON THE LAKE ASSAULT CUSTOM BOATS LOAN AT A 6.5%
MARKET RATE INTEREST AND FIXED MONTHLY PAYMENTS OF $606.64 SET
UP ON AUTOMATIC WITHDRAWALS. THE MOTION CARRIED 7-0.
Cl-°s~ng
The EDA Finance Committee meeting ended at 8:00 a.m.
EDA Finance Committee Minutes
November 3, 2008
Page 2 of 2
Respectfully submitted by,
Catherine Mehelich
Director of Economic Development
Page 2
S:\EDA\Micro Loan Fund\Finance Committee\2008\11.10.08 minutes.doc
City of
El:
The Light Industrial Hub of the Northwest Metro
Economic Development
Micro Loan Fund Policy & Guidelines
And Application
Amended: November 2006
Amended: May 2006
Amended: June 2004
Adopted: September 1999
Ciry of Elk River
Economic Development Division
13065 Orono Parkway
Elk River, MN 55330
763.635.1040
ELK RIVER ECONOMIC DEVELOPMENT
MICRO LOAN FUND POLICY & GUIDELINES
I. 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 Downtown 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 12iver
and to encourage commercial and retail business owners in the Downtown District
to rehabilitate their existing buildings.
II. LOAN PROGRAMS
In order to meet the economic and community development objectives of the EDA,
two distinct loan programs exist within the Micro Loan Fund to promote business
growth in Elk River.
Industrial Incentive Program
Purpose: The purpose of the Industrial Incentive Program 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
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; 2 points below the lowest prime rate published in
the Wall Street Journal the day the loan is closed, or 3%, whichever is
greater.
Term: Financing with a balloon payment in 5-years. The balloon payment
must not be longer than the balloon payment of the participating
bank. 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 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.
Micro Loan Fund Policy & Guidelines Page 2 of 14
Amended November 2006
Criteria: 1. Borrower must be an industrial or high technology 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 excluding benefits
required by law. Loans in excess of $75,000 shall meet the attached
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 the multiple sources of public financing are requested
(e.g. Micro Loan and Tax Increment Financing) job creation goals shall
not be double-counted.
2. Borrower must comply with the provisions of the city's Industrial
and Business Park zoning ordinances as applicable.
Downtown Rehabilitation Financing Pro_ rq am
Purpose: The Downtown Rehabilitation Financing Program is available to
business and property owners in the Downtown District (DD) for the
rehabilitation and restoration of their buildings.
Amount: Up to $75,000 of secondary financing (not to exceed 40% of the
project cost.
Equity: Must have private-sector commitments for 50% of the project cost.
Borrower must provide 10% or more of project financing.
Rate: Fixed at 2%.
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 obtain conventional
financing to replace the Micro Loan at the end of five years, the loan
maybe 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 facades.
2. Rehabilitation loans in the Downtown District are exempt from
job creation and wage goals since the loan amount does not exceed
$75,000 and does not qualify as a business subsidy by state law.
3. Borrower must be located in the Downtown District (DD)
(see attached map).
Micro Loan Fund Policy & Guidelines Page 3 of 14
Amended November 2006
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
£ 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
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 afor-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 Economic Development 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 agreement will include the following
provisions, among others:
If Borrower does not meet the job and wage goals specified in the Subsidy
Agreement, the interest rate will change to 2 points above the participating
bank's rate, effective from the two year anniversary of the loan closing.
Upon subsequent achievement of the jobs and wage goals, the interest rate
will revert back to the rate when the loan was originated, effective from the
date of attainment of the job and wage goals.
Micro Loan Fund Policy & Guidelines Page 4 of 14
Amended November 2006
• If Borrower defaults on the loan, the EDA will collect all further payments
during the default based on a pro-rata basis with the participating bank
excluding the distribution of proceeds resulting from the foreclosure on
collateral.
The EDA may require additional agreements to be signed by the borrower (i.e.
security agreement, personal guarantees, subsidy 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 loan.
4. Late Payment Charge
A late payment charge of 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 ordinances and state building codes. 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)
d. ADA (Americans with Disabilities Act) 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 Ciry permits are
secured.
Micro Loan Fund Policy & Guidelines Page 5 of 14
Amended November 2006
The applicant will be responsible for all legal, recording, and other fees required for
protection of a security interest in the loan, payable by anon-refundable 1
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.
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 only 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.
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.
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. Rehabilitation
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.
• Appropriate ratio of private funds to Micro Loan funds.
• Sufficient cash flow to cover proposed debt service as
demonstrated by financial statements and projections.
Micro Loan Fund Policy & Guidelines Page 6 of 14
Amended November 2006
• 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 eluninates 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.
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.
Micro Loan Fund Policy & Guidelines Page 7 of 14
.-lmended November 2006
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 Ciry.
XI. 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.
XII. COMPLIANCE WITH MN BUSINESS SUBSIDY LAW
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 attached City of Elk River Business Subsidy Policy.
1~licro Loan Fund Policy & Guidelines Page 8 of 14
Amended November 2006
fiver
MEMORANDUM
TO: EDA Finance Committee
FROM: Catherine Mehelich, Director of Economic Development
DATE: November 3, 2008
SUBJECT: Consider Loan Extension Request -Lake Assault Custom Boats
Attachments
• Letter from Jerry Atherton of Lake Assault Custom Boats, dated October 10, 2008.
• Micro Loan Extension Application and Current Financial Statements
• Lake Assault Custom Boats -Amortization Schedule
• Micro Loan Policy & Guidelines
Requested Action
The Finance Committee is asked to review and provide a recommendation to the EDA
regarding the Micro Loan extension request from Lake Assault Custom Boats for an
additional 2-years at a market rate of interest.
Issue
Mr. Jerry Atherton of Lake Assault Custom Boats, LLC has submitted a request and
application for the EDA's consideration of a second extension of 2-years on its micro loan
at a market rate of interest. The principal balance due on the loan is $26,810.97.
Mr. Atherton submitted the attached current financial statements for the Finance
Committee's consideration. Mr. Atherton has been invited to attend the Finance Committee
meeting to provide an update on the current status and future plans of the company.
Following any questions and answers with the applicant, he will be excused during the
Finance Committee's discussion and recommendation. The Finance Committee's
recommendation will be considered for final action by the EDA at its November 10, 2008
regular meeting.
Background
In March 2003 the EDA awarded a $50,000 Micro Loan at 3.25% interest to Lake Assault
Custom Boats, LLC. The loan was used to purchase machinery & equipment necessary for
the company to begin operations in 7,500 square feet of space on East Hwy 10 in Elk River.
Consider Micro Loan Extension Request -Lake Assault Custom Boats
November 3, 2008 EDA Finance Committee
Page 2 of 2
The original terms of the loan were as follows:
Term: 10 year amortization at 3.25% interest, 3-yr balloon payment
Structure: Participation loan with The Bank of Elk River
Security: 1y` position lien on equipment
Job Goals: Create 3 full-time equivalent jobs at no less than $17.00/hour within 2 years
In June 2006 the EDA, upon recommendation of the Finance Committee, approved the
company's request fora 2-year extension on the micro loan. The extension was provided at
a market rate of interest (8%) per the City's Micro Loan Policy.
The company has fulfilled its job goals per the subsidy agreement. The company reports
current employment at 9 full-time positions (including owner) and 2 part-time positions at
an average wage of $17/hour.
Issues for Discussion
In June 2004 the Finance Committee and EDA approved several amendments to the Micro
Loan Policy & Guidelines. One of the amendments included extending the original loan
terms from a 3-year balloon payment to a 5-year balloon payment. The extension period
beyond the balloon payment, if borrower is unable to obtain conventional financing, has
remained the same as "up to two additional years at a market rate of interest". Therefore the
Committee may want to consider the total term on this loan as no different from current
micro loan policy.
Monthly repayment on the loan has been slow; however the micro loan is not currently in
default. Attached is a copy of the loan payment history. An automatic withdrawal may be
an option to remedy the situation in the future. In addition, the Committee should take into
consideration during its discussion the company's current financial condition, ability to repay
the loan, and the EDA's security position.
S:\EDA\Micro Loan Fund\LOANS\Lake Assault Custom Boats\11.03.08 Finance Comm Memo.doc
I.AI(~ AS~A(J~T
October 10, 2008
Catherine Mehelich
City of Elk .River
13065 Orono Parkway
Elk River, MN 55330
Dear Catherine,
As per your e-mail of September 29, 2008, Lake Assault Custom Boats is asking for an
extension on its current micro loan financed through the City of Elk River. Enclosed you
will find copies of current fmancial statements as well as a completed application to
facilitate our request.
Catherine, thank you for all your time and efforts and should you have any further
questions please do not hesitate to contact me.
Sincerely,
~~~~~
Jerry Atherton
Lake Assault Custom Boats
Encl: Financial Statements
Micro Loan Application
9954 Highway 10, Elk River, MN 55330
(763) 633-0766 Fax: (763) 633-0767
www.lakeassault.com
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