HomeMy WebLinkAboutRevolving Loan Fund GuidelinesEconomic Development Revolving Loan Fund Guidelines
Adopted May 7 , 2012
Sections I through XII of this docu m ent govern the use of Federal Economic Development Revolving
Loan F unds (“Federal Funds”) . Section XIII of this docume nt applies to the use of State Economic
D evelopment Revolvin g Loan F unds (“State Funds”) .
SECTION I PURPOSE FOR FEDERAL FUNDS .
The purpose of these guidelines is to establish policies and procedures to regulate, coordinate, and
facilitate the workflow for underwriting new financi ng requests, servicing revolving loans, and ensuring
borrower compliance with loan terms and conditions.
SECTION II AU THORIZATION AND FUND ING SOURCES
Chapter 469 of the Minnesota State Statutes, as a mended, authorizes the City of Prior Lake Economic
Development Authority (EDA or Board ) to make grants or loans to prospective private businesses. The
Federal Fund was capitalized through funds made availab le to the City of Prior Lake from the Minnesota
Department of E mployment and Economic Development (DE ED) .
In addition to these guidelines, Federal Funds are subject to the rules and regulations established by the
U.S. Department of Housing and Urban Development (HUD) for the State of Minnesota’s Community
Development Block Grant (CDBG) program.
SECTION III MISSION FOR FEDERAL FUNDS
The mission of the Federal Funds is to increase the City’s tax base, create and retain permanent private
sector jobs , alleviate economic distress, address urgent community development needs, and improve
economic opportunity for the citizens of Prior Lake by promoting local business development and
expansion, by attracting out - of - state business expansion, leveraging private sector funds , and assisting
the development of new technologies.
SECTION IV PROGRAM OBJECTIVE FOR FEDE RAL FUNDS
The objective of Federal Funds is to fill the financin g gap between project costs, private debt financing ,
and private equity by making direct deferred or low - interest loans for certain approved activities that
otherwise may not occur, to busines ses within the city limits of Prior Lake.
SECTION V EQUAL OPP ORTUNITY AND AFFIRMA TIVE ACTION
Non - D iscrimination
No one shall be denied assistance based upon race, color, creed, religion, national origin, sex, marital
status, age, familial, status, or disability. All grant/ loan recipients, developers, contractors and
subcontractors must agree:
1. Not to discriminate directly or indirectly in any manner against an employee s or appl icant s on
the basis of race, color , religion, sex, national origin, age, familial status, or disability.
2. To post and to cause subcontractors to post in conspicuous places available to employee s and
applicants for employment, notices setting forth the substance of this clause.
SECTION VI ELIGIBLE ACTIVITIES FOR FEDERAL FUNDS
C ertain projects, applicants, activities and costs are eligible for revolving loan funds.
City of Prior Lake
Revolving Loan Fund Guidelines
1
Eligible applicants
Applicants may be a small business or developers who are organized as proprietorships, partnerships, or
a corporation whose business sales are less than $5 million annually for each of t he last two years. The
City of Prior Lake may make exceptions to this rule on a case by case basis. Moreover, the successful
a pplicant must also demonstrate proof of the following:
1. Ownership or lease agreements of the subject property; and
2. Property insurance; and
3. Property taxes paid and current; and
4. Freedom from all judgments, liens, agreements, consent decrees, stipulations fo r settlements,
or other such acti o ns which would prevent the applicant from participating in any program
administered by the City of Prior Lake ; and
5. Compliance with all applicable City of Prior Lake ordinances and plans.
Eligible activities
Revolving lo an funds may be used to assist small businesses primarily by providing financial assistance
for the following types of activities, including but not limited to: growth and expansion, rehabilitation,
code compliance , and microenterprises . When using federal funds, national objectives and other
program requirements must be met as identified in the federal Housing and Urban Development (HUD)
program requirements for Small Cities Community Development Block Grants (CDBG).
Eligible costs
Federal Fund e ligible costs may include the following:
1. Building demolition and/or environmental remediation . Demolition of existing structures on
commercial or industrial zoned property deemed by the City of Prior Lak e to be in blighted
condition. Rem ediation of known environmental contamination of commercial or industrial
zoned property as evidenced by certified reports. [National Objective: Slum/Blight Spot]
2. R enovation of building s . R enovation of existing industrial or commercial facilit ies;
improv ements funded by the revolving funds must be limited to the correction of code
violations, and funds must address improvements to public health and safety . [National
Objective: Slum/Blight Spot]
3. Building expansion . Revolving loan funds may be used for the expansion of existing buildings in
conjunction with business job creation . [National Objective: Low/Mod Jobs]
4. Microenterprise. A range of eligible m icroenterprise activities are eligible for revolving funds.
[National Objective: Low/Mod Limited Clientele]
a. Definition. A microenterprise is defined as a commercial enterprise that has five (5) or fewer
employees, one or mo re of whom owns the enterprise; the owner must meet the Federal
Fund s program requirements as being low/moderate income.
b. Exempt ion. Microenterprise loan applicants may be exempt from certain requirements of
these guid elines on a case - by - case basis, but within HUD CDBG program requirements.
SECTION VII INELIGIBLE ACTIVITIE S
Certain applicants, projects, activities, and cost are ineligible for revolving loan funds.
Ineligible applicants
Any applicants not meeting the eligibility requirements outlined in Section VI, subsection A shall be
ineligible to receive revolving loan funds.
City of Prior Lake
Revolving Loan Fund Guidelines
2
I neligible activities
Funds may not be used to d irectly assist retail businesses, non - profit institutions, gambling
organizations, lending or investment organizations, land speculation, or any use deemed illegal by
federal, st ate, or local law or ordinance. However, e ligible costs, as identified in Section VI.C. may
include building improvements that house these activities (i.e., retail uses in a commercial building that
meets a ll rehab project cost eligibility ).
Ineligible costs
Ineligible costs include , but are not limited to: management fees, financing costs, franchise fees, debt
repayment or consolidation, moving costs, refinancing, and operating costs or working capital.
SECTION VIII LOAN TERMS AND CONDI TIONS
The City shall make available to eligible applicants direct deferred or low - interest loans for the purpose
of encouraging economic development, downtow n development, job creation and job retention, and
preservation of business districts in the City of Prio r Lake .
L oan amount
There are maximum and minimum loan amounts for eligible projects.
1. Maximum loan amount. The maximum loan available from the revolving loan fund for each
e ligible project is limited to $ 5 0,000.00 or 5 0% of total project cost, whichever is less.
2. Minimum loan amount. The minimum loan amount available from the revolving loan fund for
each eligible project is $10,000.00.
3. Micro - enterprise loan. The maximum amount of a micro - enterprise loan shall be $ 10 ,000.00 and
the minimum amount shall be $2,000.00.
Type of loan
The EDA will review all loan requests and decide whether a business needs a low - interest loan, a
deferred loan, or a combination of both loans. This decision will be based on its ow n underw riting
analysis with the exception that microenterprise /incubator businesses will be eligible for deferred - only
loans.
1. Low - interest loan. Interest rate shall be a fixed - rate established at 70 percent of the bank prime
rate as quoted in the Wall Street Journal at the date of application but shall not be less than
three (3) percent. Principal and i nterest collected from loan repayments will be returned to the
revolving loan fund for relending.
2. Deferred loan. Interest rate shall be zero (0) percent and the loan principal repayment shall be
deferred based on conditions established for each business. For example,
microenterprise /incubator deferred loans may not have to be repaid until three (3) years from
the date of assistance . Incentives could als o include partial/full loan forgiveness based on the
business meeting certain thresholds. Principal collected from loan repayments will be returned
to the revolving loan fund for relending.
Administrative c osts
Administrative costs will be financed throu gh:
City of Prior Lake
Revolving Loan Fund Guidelines
3
1. The EDA will charge a one (1) percent loan origination fee to Borrowers participating in the
revolving loan fund program. The use of these funds will be to pay the costs associated with the
preparation and structuring of applications and related cos ts ; and
2. In addition, t he EDA may authorize u p to ten percent (10%) of the revolving loan fund account
to be utilized for staff administrative costs.
Term
The term of the loan will be tied to the useful life of the assets being financed , except that deferred loan
terms shall be established by the EDA based on the needs of each business . The following general terms
apply:
1. Building demolition or environmental remediation . The term of the low - interest loan shall not
exceed ten (10) years; the EDA has the option to approve a deferred loan for building demolition
or environmental remediation.
2. Building expansion /renovation. The term of the low - interest loan shall not exceed fifteen (15)
years.
3. Microenterpri ses. All microenterprise loans shall be deferred loans with terms to be
determined by the EDA.
4. Balance due. All balances will be due and payable if and when the loan recipient sells or
ot herwise transfers any or part of his/her interest in the property , or fails to meet any of the
guidelines established within this document before the maturity date of the loan , or relocates
any part or all of the business outside the City of Prior Lake .
Job creation
A minimum of fifty - one percent (51%) of all jobs created or retained must be held by individuals
determined to be of low - or - moderate income in accordance with the rules and regulations established
by the U.S. Department of Housing and Urban Development (HUD) for the Community Development
Bloc k Grant (CDBG) program.
1. One permanent full - t ime job must be created or retained within two years of th e loan closing
for up to each $ 2 0,000 borrowed from the revolving loan fund; and
2. A business that receives revolving loan funds must agree to list any v acant or new position with
the WorkForce Center of the Department of E mployment and Economic Development .
Slum and b light
Funds may be expended for economic development activities which aid in the elimination of slum or
blight as designated by the City of Prior Lake . D esignat ions must meet the definition of slum or blight
under state or local law.
Equity participation
There shall be a minimum 10 percent private equity investment of total project costs required of all
applicants.
Collateral requiremen ts
All low - interest loan agreements will be secured by one or more of the following: mortgage, promissory
note, UCC filing on equipment, inventory, and/or deliverables, or other security a greement as required
by the EDA. Collateral requirements for deferred loans shall be at the discretion of the EDA.
City of Prior Lake
Revolving Loan Fund Guidelines
4
1. The revolving loan fund may take a subordinate position to the primary lender on the assets
financed; and
2. Surety deposits shall be required for certain construction contracts as set forth in Minneso ta
Statutes 290.9705.
Letters of c ommitment
Letters of commitment from all funding sources must be submitted for the application to be deemed
complete.
Personal guaranty
Personal guarantees of person s with ownership interest of twenty ( 20 ) percent or greater may be
required by the EDA.
Loan repayments
Repayment s shall be specified in an EDA loan agreement. In general, the loan repayment must begin
within one month of completion of construction and/or demolition . The EDA may make exceptio ns to
this rule on a case by case basis.
Loan prepayment
Prepayments are permitted where the Borrower makes the EDA whole for any losses or costs associated
with the prepayment.
Notice of award or denial
Applicants will be notified in writing not more than fourteen (14) days after final action has been taken
by the EDA on their revolving loan fund application. Borrowers are responsible for associated legal fees
relating to closing of the revolving loan fun d loan.
Loan closing documents
The City will close the loan within sixty (60) days of final EDA approval of the loan application. At that
time, the City will deliver to the Borrower all closing documents and a final debt service schedule. In
exchange, the Borrower will deliver to the City its loan obligation which is defined as a bond, note, or
other evidence of obligation issued by the Borrower to evidence it s indebtedness under the loan
agreement.
Post - closing amendments and modifications
Requests for amendments and modifications following award, closing , or disbursement of funds to the
underwriting of the original request require s EDA approval and shall be presented at the next scheduled
meeting of the Board for review .
Loan declination
The EDA w ill not make a loan if it determines that the loan amount would place an undue burden on the
financial resources of the Borrower or the Borrower cannot demonstrate adequate financial capacity to
repay the loan or the EDA otherwise determines that making th e loan is not in the best interest of the
City.
Appeal
There will be a complaint and appeal procedure for aggrieved appl icants:
City of Prior Lake
Revolving Loan Fund Guidelines
5
1. Written notice. Applicants will receive written notice of the denial of the loan and the reason(s)
for the determination within fourteen (14) days of the determination.
2. Petition. The aggrieved applicant may petition the EDA in writing for reconsideration within
fourteen (14) days from the date of the written notice of denial. Any request to appear before
the Board must be in writing and must be submitted at least seven (7) days prior to the Board’s
scheduled meeting. Upon receipt of the written petition fo r reconsideration, the EDA shall
consider the petition at its next scheduled meeting and advise the petitioner in writing of its
decision within fourteen (14) days of that meeting. The Board’s decision will be final.
3. Re - application. Applicants aggrieved b y the Board’s final decision may re - apply for revolving
loan funds after ninety (90) days if the concerns in the preceding application are adequately and
appropriately addressed.
SECTION IX ADMINISTRATION
Loan review committee
The Prior Lake EDA will ser ve as the loan review committee. The final determination on all revolving loan
applications rests with the EDA , which is acting on behalf of the City of Prior Lake .
S taff responsibility
Community d evelopment staff shall have the general responsibility for coordinating the application
process, reviewing loan application s , preparing applications and recommendations for review by the
EDA, and coordinating the loan approval and service process as set for th in Subsections C – F of this
section.
Pre - applica tion process
All parties seeking revolving loan funds must file a pre - application. Pre - application forms may be
obtained from the Community and Economic Development Department.
1. The pre - application form must be completed and submitted to the Department fo r review and
approval.
2. The pre - application form will request information regarding the applicant, project scope, and
project costs.
3. Upon Department approval, the applicant will be forwarded a revolving loan fund application.
4. Pre - application forms may be submitted on an open basis throughout the year.
Application process
All parties seeking revolving loan funds must file an application. Application forms may be obtained from
the Community and Economic Development Department.
1. Components of application. Only completed applications will be reviewed for consideration by
community d evelopment staff. A completed application is one that satisfies the checklist
provided below:
a. Business plan describing the scope of the project, inclu ding site plans, building plans,
renderings, or blueprints; and
b. Project budget; and
c. Private financing commitment; and
d. Equity investment commitment; and
e. Proposed security; and
City of Prior Lake
Revolving Loan Fund Guidelines
6
f. Company financial statements (3 years , if available ); and
g. Personal financial statement; and
h. Credit check release; and
i. Mortgage of property to be improved; and
j. Proof of insurance of property to be improved; and
k. Number of jobs to be created or retained; and
l. Wage information for created and retained jobs ; and
m. Amoun t of loan request; and
n. Other documentation as requested.
2. Inco mplete applications. C ommunity d evelopment staff, in its sole discretion, will determine if
the application is complete and actionable. Incomplete applications will be assigned pending
status and the applicant will be informed in writing of the missing documentation.
3. Transmittal. Applic ations transmitted by oral, telegraphic, facsimile, or e - mail will not be
accepted.
4. Determination of eligibility. Applicant eli gibility will be determined by community d evelopment
staff using cri teria enumerated in Subsection D (1) (a - n) of this section.
5. Site inspection. As part of the eligibility determination process, the city will inspect the property
or building designated for improvements for compliance with the city administrative ordinances
and zoning codes.
6. Credit check. A credit check for the co mpany and each of its principa l owners may be conducted
by community d evelopment staff.
Lo an approval process
Community d evelopment staff will prepare loan applications and make recommendations to the EDA ,
which acts on behalf of the City of Prior Lake .
1. EDA agenda. Upon determining the eligibility of the completed application and reviewing for
credit wor thiness an d soundness of plan, community d evelopment staff will place the loan
application on the agenda for the EDA’s next scheduled meeting.
2. Criteria . The EDA will base its decision on the economic benefit to the City of Prior Lake and
credit underwriting typical to the lending community including the borrower’s ability to repay
the loan , the collateral offered to secure the loan, the number of jobs to be created or retained,
wage rates of jobs created or retained , and increase in the local tax base.
3. EDA action. Upon placement on the agenda, the EDA shall approve the application request,
deny the application request, or table the application request fo r consi deration at a future
meeting .
4. Notification of EDA action. The applicant shall be notified in writing within fourteen (14) days of
the EDA’s decision in accordance with the requirements set for th in Section VIII, Subsection M of
these guidelines.
5. Approval. If approved, the applicant will be sent a written commitment letter that will outline
the terms and conditions of the loan approval. A copy of the commitment letter will be signed
by the Borrowers and Guarantors signifying acceptance of the terms and conditions of the loan
proposal and the conditions for funding. Upon the return of the execute d commitment letter,
community d evelopment staff will begin the loan closing process with the community
development staff .
6. Closing. Community development st aff, in cooperation with the city’s a ttorney , will prepare
documentation and coordinate the closing with the Borrower.
City of Prior Lake
Revolving Loan Fund Guidelines
7
Loan servicing
Community d evelopment staff will coordinate loan servicing activities.
1. Monitoring. Community d evelopment staff will monitor loans for compliance with the accepted
terms and conditions including job creation statistics and wage and benefit levels.
2. Reports. Community d evelopment staff and f inance staff are responsible for ensuring that all
required reports are filed in a timely manner.
3. Records. Computer files and conventional paper files will be maintained for the purpose of
documenting, tracking, and monitoring program and project activities. Program records will be
maintained primarily by th e Comm unity and Economic Development Department and financial
records will be maintained p rimarily by the Finance Department . Where applicable, the
following records will be maintained:
a. Program records. The following program information will be maintained in th e program
project file , including but not limited to:
1) Environmental report; and
2) Eligibility determination records as set forth in Section IX, Subsection D (1) (a - n); and
3) Property inspection report; and
4) Progress reports; and
5) EDA Resolutions; and
6) Corresponde nce; and
7) Loan documents; and
8) Executed loan agreement.
b. Financial records. The following financial information will be maintained in the financial
project file, including:
1) Copy of the executed loan agreement; and
2) Disbursement data; and
3) Progress reports; a nd
4) Repayment data; and
5) Amortization tables.
4. Record retention. All program and financial records, supporting documents, statistical records,
environmental review records and other records pertinent to the revolving loan program shall
be maintained for a p eriod of at least three (3) years from the final project report and project
closeout date.
SECTION X DELINQUENCY
There shall be a notification procedure for delinquent loans.
1. The F inance O fficer is responsible for the timely posting and accounting of all loan repayments.
2. Thirty day notice. Upon thirty (30) days delinquency, the Finance O fficer will notify the
Community and Economic Development Director (CEDD) of the delinquency and the CED D shall
send the B orrower a delinquency notice requesting payment within fifteen (15) days. A copy of
the letter shall be maintained in the financial project file.
th
3. Forty - five day notice. If payment h as not been received by the 45 day , a second delinquen cy
notice will be sent to the Borrower by the CEDD requesting payment within fifteen (15) days. A
copy of the letter shall be maintained in the financial project file.
th
4. Sixty day notice. If payment h as not been received by the 60 day, the CEDD will atte mpt to
contact the Borrower by telephone to discuss the delinquency. The CEDD shall also s end a
notice of default to the B orrower via certified mail requesting imme diate payment and advising
City of Prior Lake
Revolving Loan Fund Guidelines
8
the B orrower the delinquency will be placed on the EDA agenda for discussion at the next
scheduled meeting.
5. Ninety day notice. If no repayment plan is submitted by the Borrower, or if there is no attempt
by the Borrower to n egotiate the amount due, the CEDD wi l l contact the City Manager and t he
City Attorney to discuss sending a ninety ( 90 ) day letter calling due the loan in full.
6. Negotiation. Throughout this process, every attempt will be made to preserve the company, the
jobs and the loan funds.
SECTION XI DEFAULT
If the EDA determines a loan to be in default it will pass a resolution declaring the entity in default and
convey the matter to the City Attorney for disposition.
SECTION XII OTHER FEDERAL AND STATE REQUIREMENTS
Revolving loan fund recipients must also comply with all applicable federal and state laws, executive
orders and regulations governing:
1. Equal Opportunity , including:
a. Title VI of the Civil Rights Act of 1964, as amended (42 U.S.C. 2000d et seq.) (24 CFR Part 1);
b. Age Discrimination Act of 1975, as amended (42 U.S.C. 6101) (24 CFR Part 146);
c. Section 109 of Title I of the Housing and Community Development Act of 1974;
d. Americans with Disabilities Act of 1990, as amended ;
e. Section 504 of the Rehabilitation Act of 1973;
f. Architectural Barr iers Act of 1968 ; and
g. Equal Employment Opportunity, Executive Order 11246, as amended (41 CFR Part 60).
2. Labor Requirements, including:
a. Davis - Bacon and Related Acts (40 CFR U.S.C. 276 (A) - 7);
b. Contract Work Hours and Safety Standards Act, as amended (40 CFR U.S.C. 327 - 333);
c. Copeland Anti - Kickback Act (40 U.S.C. 276c); and
d. Fair Labor Standards Act of 1938, as amended (29 U.S.C. 201, et seq.)
3. Environmental Review. The City will be responsible for undertaking environmental reviews in
accordance with t he Minnesota Department of Employment and Economic Development
Environmental Manual. The environmental review must be complete before funds are
committed.
4. Air and Water Quality: Applicants will be required to comply with all federal, state, and local
laws and regulations concerning air and water quality. All required review must be completed
and permits must be issued prior to funding.
5. Flood Insurance. Section 202 of the Flood Disaster Protection Act of 1973 (42 U.S.C 4106) apply.
6. An t i - Piracy: Subsection 105(h) of the Housing and Community Development Act of 1974 (42
U.S.C. 5305) specifically prohibits the use of CDBG funds to facilitate the relocation of for - profit
businesses from one labor marke t to another if the relocation is likely to result in significant job
loss.
7. Historic Preservation: All loans for demolition or rehabilitation activities must be submitted to
the State of Minnesota Historic Preservation Office (SHPO) for review and consent .
SECTION XIII GUIDELINES FOR STATE FUNDS
The following rules, regulations, p olicies, and procedures govern S tate economic development revolving
loan funds.
City of Prior Lake
Revolving Loan Fund Guidelines
9
Incorporation by r eference
The dissemi nation, use, and regulation of S tate economic development revolving loan funds shall be
generally governed by guidelines including:
1. Prior Lake Economic Development Authority g uidelines governing the use of F ederal Funds
Sections I through XII of this document; and
2. The Minnesota Invest ment Fund (MS.116J.8731).
State Funds requirements
The following general conditions apply through the Minnesota Investment Fund provisions:
1. Revolving funds must not finance more than one - half (50%) of the cost of the project.
2. Businesses receiving revolving funds must pay each employee total compensation that is equal
to or greater than at least 110% of the current federal poverty level for a family of four , as
determined annually by the U.S. Department of H ealth and Human Services .
3. Assistance must be evaluated on the existence of certain conditions, including: (a)
creation/retention of jobs; (b) increase the tax base; (c) public funds induce private funds; (d)
project has excessive public infrastructure or improvement cost s; and (e) provides higher wage
levels or adds to the workforce skills.
4. Revolving loan funds may be used for land acquisition, building construction or rehab, site
improvements, public utilities & infrastructure, and machinery & equipment.
Additions
The following additional provisions to Federal Funds Sections I through XII shall apply for State Funds:
1. Section VI, Eligible Activities - additional eligible activities include public/private infrastructure
and business incubators ; and
2. Section VI, Eli gible Costs - additional eligible costs include:
a. Infrastructure improvements. Costs associated with public and/or private infrastructure
associated with a development project on commercial or industrial property. [National
Objective: N/A]
b. Business incub ator s . Costs associated with a business incubator in Prior Lake, including
building equipment, interior renovation of building space, and direct assistance to eligible
incubator businesses. [National Objective: N/A]
Exceptions
The S tate economic development revolving loan guidelines shall be exempt from the following
requirements set forth in the F ederal guidelines referenced in Section XI II, Loan Amount, (1) above:
1. Section VIII, Job creation
2. Section VIII, Sl um and b light
3. Section XII
City of Prior Lake
Revolving Loan Fund Guidelines
10