5.0 EDSR 07-13-2009REQUEST FOR ACTION
To Item Number
Economic Development Authority 5 .
Agenda Section Meeting Date Prepared by
July 13, 2009 Annie Deckert, Economic
Develo ment Assistant
Item Description Reviewed by
Consider EDA Micro Loan Applications Lori ohnson, Ci Administrator
- Sweet P's Ice Cream & Candies Reviewed by
Action Requested
The EDA is asked to consider the EDA Finance Committee's recommendation for approval with
conditions on the following Micro Loan application:
• $20,000 Micro Loan to Sweet P's Ice Cream & Candies (Tim Jeanetta)
Background/Discussion
The attached staff reports to the EDA Finance Committee and July 8, 2009 committee meeting minutes
provide background regarding the Micro Loan request. The applicant is anticipated to be at the EDA
meeting to respond to any questions about the proposed project.
Financial Impact
The Micro Loan Fund has a current cash balance of approximately $813,378.
The Finance Committee is recommending EDA approval of the following Micro Loan and term:
Applicant: Sweet P's Ice Cream & Candies (Tim Jeanetta)
Loan Terms: $20,000 at 2% interest, 5-year amortization
Purpose: Assist in purchasing equipment and exterior revitalization necessary in starting up the
business
Security: Subordinate position on all business assets
Attachments
• EDA Finance Committee Meeting Minutes dated July 8, 2009.
• EDA Micro Loan Fund Policy and Guidelines
• Staff report to EDA Finance Committee re: Sweet P's Ice Cream & Candies Micro Loan Application,
July 8, 2009.
Action Motion by Second by Vote
Follow Up
S:\F..DA\Micro Loan Fund\I,OANS\Sweet P's Ice Cream & Candies, Inc\7.13.09 EllA Action Requested.doc
City of
El:
The Light Industrial Hub of'the Northwest Metto
Economic Development
Micro Loan Fund Policy & Guidelines
And Application
Amended: November 2006
Amended: May 2006
Amended: June 2004
Adopted: September 1999
City 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 River
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 Program
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
may be 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
f. 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 IOQnS
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
unprovements.
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 City 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.
3. 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.
5. 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 Corrunitment 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 eliminates 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
Amended 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.
l~licro Loan Fund Policy & Guidelines Page 8 of 14
Amended November 2006
ELK RIVER ECONOMIC DEVELOPMENT
MICRO LOAN FUND APPLICATION
I. CONTACT INFORMATION
Legal Name of Business:
Address:
City /State /Zip
Contact Person(s)
Business Phone
Home Phone
Check One:
Social Security No.
Federal ID #
F
Email
Proprietor Corporation Partnership
State ID #
II. NATURE OF LOAN REQUEST
Which Micro-Loan Program are you applying for?
Industrial Incentive Program
Rehabiliation Financing Program
Downtown Business Revitalization Loan Program
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
Refinancing existing debt
Other
Micro Loan Fund Application Page 9 of 14
Amended November 2006
Please give a brief suininary 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:
III. 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:
Micro Loan Fund Application Page 10 of 14
Amended November 2006
Proposed Sources of Financin
SOURCE NAME
Bank Loan
Bank Loan
Other Private Funds
Applicant Contribution
Other
Fed Grant/Loan
State Grant/Loan
EDA Micro Loan
Tax Increment Financing
Tax Abatement
Total Financing
Collateral Assignments
Description of Collateral
TERMS
To Bank 1
To Bank 2
To Private Sources
To Other Sources
To Federal Govt
To State
To EDA Micro Loan
Micro Loan Fund Application
Amended November 2006
AMOUNT
~.
Lien
Position
Pagellofl4
Value of Collateral
Book Value Cost
Land $ ~
Buildings $ ~
Machinery & Equip.
Other $ ~
Other $
Existing Liens
IV. JOB & WAGE GOALS
Present # of Employees Total Payroll
Jobs To Be Created*
Please brovlde the followlnQ inft~rmatinn nn inks vnn Pxr,Prt rn rrvarP \X/irhi„ ~_~~P~r~
ob Title
Number
of Jobs Average
Hourly
Wage
Annual
Salary Are the Jobs
Permanent or
Temporary? Expected
Hiring
Date
Tir loan is for job retention only, please explain in Business Ylan.
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.
Micro Loan Fund Application Page 12 of 14
Amended November 2006
IV. PROJECT CONTACTS
Attorney
Name
Address
Phone
Accountant
Name
Address
Phone
Financing Sources (lenders, partners, etc...
Name
Address
Phone
Name
Address
Phone
Parent CompanX
Name
Address
Phone
Others
Name
Address
Phone
Name
Address
Micro Loan Fund Applicarion Page 13 of 14
Amended November 2006
V. 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 Two Years
C) Financial Projections for Two Years
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) Fee (1% of amount of loan request).
VI. 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.
APPLICANT SIGNA'
BY
DA
Micro Loan Fund Applicarion Page 14 of 14
Amended November 2006
fiver
MEMORANDUM
TO: EDA Finance Committee
Tim Simon, Finance Director
FROM: Annie Deckert, Economic Development Assistant
DATE: July 8, 2009
SUBJECT: Consider Micro Loan Application
- Sweet P's Ice Cream & Candies, Inc.
Attachment
Sweet P's Ice Cream & Candies Micro Loan Application and related attachments
dated July 18, 2008.
Attached is the Micro Loan application submitted by Tun Jeannetta, owner of Sweet P's Ice
Cream & Candies, Inc. Sweet P's is a start-up business looking to open in downtown Elk
River, in the old Bead Bag location, 707 Main Street. The business is an ice cream, candy
and taffy parlor; the ice cream would be made on-site, the candy and taffy would be retail
sales.
The application includes background information about the owner and Sweet P's business.
In short, Mr. Jeanetta would like to provide Elk River residents homemade ice cream, taffy
and candies in downtown Elk River. Sweet P's will be upgrading the exterior of the
building; including tables, chairs, awnings, signage, paint and flower boxes. Mr. Jeanetta will
be in attendance at the Committee meeting to further describe the project and financing
request.
Sweet P's is requesting an EDA Downtown Rehabilitation Micro Loan of $20,000 to assist
in financing equipment and exterior revitalization necessary in starting up the business. The
EDA would obtain a 1st position lien on the equipment.
Sweet P's has submitted an application for a Conditional Use Permit (CUP; required to
operate a restaurant downtown). The application will be reviewed by the Planning
Commission on July 14`'' and the City Council July 20`''
Consider EDA Micro Loan Application -Sweet P's Ice Cream & Candies, Inc.
duly 8, 2009 EDA Finance Committee Meeting
Page 2 of 2
In addition to the financial criteria that must be considered, the Finance Committee must
also consider to what degree the applicant satisfies the criteria set forth in the Micro Loan
Fund policies outlined below:
Micro Loan Criteria- Downtown Rehabilitation Financing Program
• Max. Loan Amount: $75,000 (not to exceed 40% of the project cost)
• Interest rate: Fixed at 2%
• Equity: 10% or more of project
• Private Financing: 50% of project
• 20% of Micro Loan dollars must be used for improvement of building facade
• Exempt from job creation and wage goals because the loan amount does not exceed $75,000
and does not qualify as a business subsidy by state law
Sweet P's Ice Cream & Candies, Inc.
• Amount requested: $20,000 (25% of project cost)
• Rate requested: Fixed at 2%
• Equity proposed: 12.5% of project ($10,000)
• Private Financing: 62.5% of project ($50,000)
• Exterior leasehold improvements ($4,000)
• Estimates 1-12 part-time jobs created
Action Requested
Staff recommends the EDA Finance Committee recommend EDA's approval of the micro loan
request, contingent on the approval of the CUP, with the following terms and conditions:
Participation Loan: Klein Bank, SBA7a (approved)
Loan Amount: $20,000
Interest Rate: 2% fixed
Term: 5-year amortisation/5-year balloon
Security: Subordinate position on all business assets, personal guarantee.
The EDA will consider the Finance Committee's recommendation at its July 13, 2009
meeting.
S:\EDA\Micro Loan Fund\LOANS\Sweet P's Ice Cream & Candies, Inc\7.8.09 Finance Committee.doc