Loading...
HomeMy WebLinkAboutRES 87-095 6-10 R E S O L U T I O N S BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BEAUMONT: THAT the City Manager be, and he is hereby, authorized to approve the guidelines for the Small Business Revolving Loan Fund Program, a copy of which is attached hereto as Exhibit t1A01 , funded through the Community Development Block Grant Program. PASSED BY THE CITY COUNCIL of the City of Beaumont this the day of aAfI 4 , 1987. Mayor - -A SMALL BUSINESS REVOLVING LOAN FUND PROGRAM DESCRIPTION Exhibit "A" Table of Contents Paae Introduction 1 A. Loan Advisory Board 2 B. Staff 2 C. Application Process 3 D. Credit Analysis and Packaging 4 E. Private Sector Lenders 5 F. General SBRLF Criteria 5 G. Minimum Requirements of the SBRLF 6 H. Financing Policies 7 I. Loan Advisory Board Review 9 J. Loan Closing 10 K. Loan Servicing 10 L. Other Requirements 11 M. Decline or Restructure 12 Exhibit A 13 Exhibit B 14 Exhibit C 15 Exhibit D 16 INTRODUCTION Purpose The overall objectives of the City of Beaumont Small Business Revolving Loan Fund Program (SBRLF) is the retention and expansion of existing businesses and industries, attraction of new businesses and industries, stimulation and creation of new businesses, and to increase the number of permanent jobs available to citizens of Beaumont. Another objective will be to increase private financing availability for small business enterprises, owned or operated by minorities, women or the economically disadvantaged. The program will be concentrated within the City limits of Beaumont. The City of Beaumont has allocated $250, 000 in CDBG funds to be used as a match to obtain a grant from the Economic Development Administration in the amount of $500, 000. The total amount of $750, 000 will be used to finance the expansion and start-up needs of small businesses. All of the loans will be in participation with other private capital (debt and equity) so that a minimum of 2 : 1 leverage ratio of private dollars to public dollars is achieved. For most of the loans a local commercial lending institution will provide a first mortgage loan, the SBRLF will provide a second mortgage, and the borrower will provide at least ten percent equity, . Loan packages will be reviewed and acted upon by a seven member Loan Advisory Board appointed by the Mayor and City Council. The loans will generally be made in the form of subordinated collateralized notes. These loans will be used for fixed assets and working capital, including (1) purchase of land and/or building, (2) new construction, (3) building renovation, (4) purchase of machinery and equipment, and (5) working capital, and other such uses as are allowed by the EDA Title IX RLF guidelines. For the purpose of this program the definition of a small business is a business with 100 employees or less. A. Loan Advisory Board A nine member Loan Advisory Board will be formed with the membership as follows: 1. At least one member will be drawn from local financial institutions. 2 . At least one member will be appointed from the Small Business Assistance Center at the John Gray Institute. 3 . Two members will be appointed from small and minority businesses or community organizations. 4 . Two members will be appointed from the Citizen Advisory Committee. 5. One member representing the City of Beaumont. (Finance Director) 6. Two At-Large members will be appointed. Provisions will be made to assure strong representation among women and minorities. Both public and private sectors will be represented. Board members will be appointed to two year terms, which will be staggered to assure continuity on the board. B. Staff The City' s Community Development Department will provide support staff to the Revolving Loan Fund. At least one staff person with relevant experience will be assigned this responsibility full time. The Department has ongoing responsibility and experience in 2 administering other housing and community development loan programs. The SBRLF staff will work closely with the particular commercial lending officers of the, private financial institution(s) involved in the leveraging of each loan. The loans that are made will provide adequate loan security to the City and allow maximum operating flexibility to the borrowers. C. Application Process The success of the EDA loan program is contingent upon careful screening and consideration of each loan prospect for both financial feasibility and job retention and creation. The loan application procedures will emphasize a three step screening process. After a brief phone interview to establish general project scope and program parameters, the application will begin with a meeting between the potential applicant and the SBRLF staff where the applicant will be interviewed, an initial interview worksheet will be completed and the applicant will be asked to submit specific financial and project information (financial statements and project cost breakdown) . Also, a copy of the program guidelines will be given to the borrower. (See Exhibit E) Second, SBRLF staff will work with the borrower to complete the SBRLF application and SBRLF staff will review both the application and the financial statements for project eligibility and financial feasibility, and references will be checked. If the initial credit and eligibility review is positive, the borrower may be asked to provide the following information: o Personal Financial Statement of Principals o Projections Existing company: 2 years (profit and loss, balance sheet) New Company_: 3 years (profit and loss, balance sheet, 24 month cash flow) 3 • Resume of Principals • Brief (one page) History and Description of the business (product, growth, management, etc. ) • List of affiliate and subsidiary firms. • Appraisal • Agreement of Sale • Copies of bids or cost estimates from engineer, architect, or contractor for construction projects • Copies of equipment vendor quotes • Cost Summary Form (including each use of proceeds, both hard and soft costs) • Listing of Collateral • Jobs Form • Lender Commitment Letter • Business Plan New Company: detailed description of company, product, market and management. Existing Company: One page document which describes plans to grow and expand) o Other documents that may be required D. Credit Analysis and Packaging Upon return of the above documents and required information, a complete analysis of the loan application will occur, which will include: 4 • an evaluation of the ability of the applicant to repay the loan, • an assessment of the applicant' s managerial capabilities, • an assessment of the number and quality of long term jobs that will be provided. SBRLF staff will proceed to assemble the financial and project information into a complete package, and an evaluation and set of recommendations will be prepared (see Section H) . E. Private Sector Lenders An important step in the application process will be the meeting with the applicant's bank or other lending institution. SBRLF staff will brief the bank about the program, the specific borrowing request, the process, and the responsibilities of each party. For each loan, an agreement will be prepared which prescribes the conditions of the participation by the City, the lending institution, and the applicant borrower. F. General SBRLF Criteria The major criteria by which the projects of eligible borrowers will be considered as listed below: • Financial Feasibility • Minority and Women enterprise development • Expansion of existing and new businesses within CDBG and NHS strategy areas • Minority employment • Expansion of existing and new businesses 5 • Ratio of loan fund dollars to jobs created • Growth potential of borrowing companies • Linkages to the area's existing economy • Generation of tax revenues • Environmental considerations • Diversification of area economy These criteria specifically address the purpose of the SBRLF in its broadest application to Beaumont' s economic revitalization. G. Minimum Requirements of the SBRLF More specifically, the SBRLF shall meet the following minimum standards: 1. Borrowers will be located within the City limits of Beaumont. 2 . One job shall be created or retained for each $10, 000 invested. 3 . The minimum leverage of private dollars to public shall be 2 : 1. 4 . The interest rate charged shall be in a range of 4%-8%. The interest rate shall not be less than the EDA required minimum. 5. The SBRLF borrower will be required to inject at least 10% equity into the project. 6. All applicants will have written evidence of the need for the SBRLF funds to prevent displacement of existing capital. 7 . Loans will be made to eligible borrowers, who are: 6 private profit making firms. 8 . Borrowers are not relocating from another labor area. 9 . If construction is financed by an SBRLF loan, accessibility to the handicapped is assured by compliance with the necessary standards. 10. Borrowers will obtain required flood hazard insurance. 11. No more than 20% of the total SBRLF contributed capital shall be loaned to any one borrower during any one time period. H. Financing Policies The Revolving Loan Fund will include the following policies: 1. Approximately twenty-three loans will be made under the initial Revolving Loan Fund capitalization. (see Exhibit C) 2 . The Revolving Loan Fund loans shall range between $10, 000 and $100, 000. (see Exhibit D) 3 . During the initial financing, funds will be used to meet the following needs: Fixed assets (land-building-equipment) 70% Working and Inventory Capital 30% 0 All loans granted with the initial round will be participation loans with other private and public sources of financing. 4 . Terms and Conditions of the Loans The expected amortization period for Revolving Loan Fund loans will be as follows: 7 Working capital loans: Negotiated within normal commercial financing range Machinery and Equipment: Based upon the useful life of equipment financed Land and Building: 15-25 years 5. Interest Rates: Interest rates for all Revolving Loan Fund loans will be set depending on the needs and financial condition of the applicant. Interest rate floors and ceilings will be established. EDA minimums will be adhered to. The SBRLF minimum interest rate will be 4%. The interest rate charged will be determined by the SBRLF staff and the Loan Advisory Board by considering the following factors: • the degree of risk involved in the loan • the cash flow available for repayment 6. Special Financing Techniques: Revolving Loan Fund staff and administration will employ flexible financing techniques designed to meet the needs of the borrowers and to maximize the effectiveness of the Revolving Loan Fund program. The special financing techniques that shall be utilized include: Extended amorization period for loans. Moratoriums on loan payments may be allowed for a specified period of time. Assumption of a subordinated collateral position to other financial institutions. 7 . Collateral and Equity requirements: Fixed asset financing will be secured by the fixed assets 8 financed with other assets included if required. Collateral for working capital loans will include inventory, accounts receivable, fixed assets, cash and personal guarantees. The Revolving Loan Fund required the contribution of equity by the borrower, requiring not less than 10%. Personal guarantees may be required. Additional collateral may be requested, as appropriate. 8 . Restructuring Loans: Under the initial capital- ization period, the Revolving Loan Fund will not be involved in restructuring loans or in refinancing projects. 9. Use of repaid recaptured Revolving Loan Fund interest and principal funds: Repayments of interest and principal will be used for additional loans. Revolving Loan Fund administrative and operating expenses will be paid by the City of Beaumont. 10. Fees: A fee of up to 1% may be charged on a per deal basis to defray legal expenses, credit reports, and other expenses and overhead incurred by the City that relate to the SBRLF. Late payment fees may be imposed according to program policy. I. Loan Advisory Board Review After completion of the evaluation phase, a set of recommendations will be prepared by staff for consideration by the board. A Staff presentation will be made to the Loan Advisory Board for their approval or denial . Applicants will be afforded an opportunity to address the Board and to answer questions. 9 J. Loan Closing Once final approval has been authorized by the board, staff will assist in the preparation of loan closing documents including necessary deeds of trust, liens, mortgage instruments and loan agreements. Prior to closing, a schedule of loan disbursements will have been negotiated. The SBRLF will coordinate with any other lending institutions involved in the project. Monitoring of the implementation of the project will begin after the initial disbursement. Continuing technical assistance will be provided, as available by the Department of Community Development and the SBRLF staff. K. Loan Servicing It is anticipated that in most cases, the participating private sector lender will service the SBRLF loan for the City. A servicing agreement will be completed by the City and the lender, whereby funds will be returned to the Revolving Loan Fund on at least a quarterly schedule. Borrowers shall make monthly payments on their loan. If a default appears eminent, the staff of the SBRLF will work with the financial institution to avert such an occurrence. When default cannot be averted, the staff will commence foreclosure proceedings as mandated by State Law. In addition to the lender servicing function, SBRLF staff will institute a portfolio management system which monitors each loan on an ongoing basis for timely payment, submission of financial data, job creation, loan balances, updated collateral filings, current hazard and liability, etc. This method will allow for simple administration of the repayment schedule devised for the applicant, and will insure a cooperative working arrangement with lending institutions and the SBRLF. 10 L. Other Requirements 1. Compliance with Civil Riqhts Laws: Applicants for SBRLF assistance are required to pledge not to discriminate against employment applicants. They must sign an affidavit to that effect at the loan closing. Any proven instance of discrimination proven against the loan applicant shall be grounds for calling in the loan. Compliance shall be monitored on an annual basis. Active loans will be reviewed at least annually. Borrowers shall be required to submit personnel data concerning the status of jobs which were created under the SBRLF, including pay scales, sex, and ethnicity. 2 . Environmental Impact• Staff will consider the environmental impact of all proposed projects. 3 . Access: All buildings involved in the proposed project must be made accessible for persons with impaired mobility. 4. Insurance• Key man insurance, flood hazard insurance, liability insurance, or other types may be required of the applicant in the amount of the aggregate loan with the City of Beaumont and the Bank named as the beneficiaries. 5. For all Capital Improvement Projects, the Applicant must adhere to Davis-Bacon requirements where mandated. 6. Procurement Standards for the City of Beaumont and CDBG Regulations shall apply to all Capital Improvement Projects. 11 M. Decline or Restructure At any phase prior to packaging the deal, SBRLF staff has the option of declining the application or restructuring it in order to make it a viable project. 12 S 1AL- L- BUSINErS REV ❑ L_ VINC L_ ❑ AN EL_ ❑ W - CHART TELEPHONE INQUIRY COMMUNITY DEVELOPMENT DEPARTMENT DECLINE OR POSTPONE C D B G DIVISION IF PROJECT APPEARS FEASABLE & ELIGIBLE SBRLF- STAFF )K COMPLETES INITIAL INTERVIEW WORKSHEET PROVIDES PROGRAM GUIDELINES REQUEST SPECIFIC PROJECT & FINANCIAL INFORMATION FINANCIAL STATEMENT PROJECT COST SUMMARY IF NOT DOABLE IF FEASABLE AND ELIGIBLE RLF ARRANGES MEETING DECLINE OR POSTPONE WITH APPLICANT i i i SBRLF STAFF WITH APPLICANTS ASSISTANCE, COMPLETES SBRLF APPLICATION i REVIEWS FINANCIAL STATEMENT REVIEWS PROJECT FOR ELIGIBILITY IF PROJECT FEASABLE & ELIGIBLE IF NOT DOABLE CREDIT ANALYSIS DECLINE OR RESTRUCTURE IS CASH FLOW)DEBT SERVICE i PRIVATE SECTOR LENDER MEETING... i PACKAGE DEAL w PROJECTS x PERSONAL I COMMIT TITLES i APPRAISAL 1 LOAN ADVISORY BOARD STAFF & APPLICANT ` EXHIBIT C LOAN PLACEMENT SCHEDULE Time in Months from Loans Funds Availability Processed Total Amount 0 0 -0- 0 6 1 $100, 000 13 9 2 $150, 000 33 12 2 $100, 000 47 15 2 $100, 000 60 18 5 $75, 000 70 21 5 $75, 000 80 24 6 $150, 000 100 24 Months 23 Loans $750, 000 100% This schedule is only a projected sequence. EXHIBIT D LOAN SIZE SUMMARY Size of SBRLF Loan Number of Loans Total $100, 000 3 $300, 000 $50, 000 5 $250, 000 $15, 000 10 $150, 000 $10, 000 5 $50 , 000 23 Loans $750, 000 PROGRAM GUIDELINES: THE BEAUMONT SMALL BUSINESS REVOLVING LOAN FUND Background: Under a Title IX grant awarded by the Economic Development Administration of the U.S. Department of Commerce and a local matching Community Development Block Grant, the City of Beaumont is sponsoring a Small Business Revolving Loan Fund (SBRLF) for businesses. The loan fund has been created to promote business expansion and job creation in Beaumont, and to stimulate employment and entrepreneurship among women, minorities, and the economically disadvantaged. The loan fund will provide below market rate financing for new and expanding businesses within the target area. The SBRLF financing will be in combination with other private sector financing so that each project will require $2 of private capital for every $1 of SBRLF loan. The programs will be administered by the City of Beaumont Department of Community Development. Eligibility: To be eligible for assistance for the Beaumont Small Business Revolving Loan Fund, a company must: o Be located within the City of Beaumont o Have fewer than 100 employees Uses: o New Construction • Property Acquisition • Building Rehabilitation • Acquisition of Machinery and Equipment • Working Capital • No Refinancing Permitted Financing: Loan Amount • Loan cannot exceed 30% of total eligible project cost • Maximum SBRLF loan amount is $100, 000 • SBRLF loan must not exceed $10, 000 per new job created Term • Working Capital: 2-5 years • Equipment: 5-10 years • Land and Building: 15-25 years. Rate The rate will be set at the time the loan is made. It will be in a range of 4%-8%, depending on the needs of the project. It may not be set below the EDA set minimum rate. Typical Structure: Total Project Cost: $200, 000 • Bank Loan $120, 000 (60%) • SBRLF Loan 60, 000 (30%) • Equity 20, 000 (10%) $200, 000 (100%) Collateral and o Loan from the fund may be Security: subordinated to other project financing o Loan must be fully collateralized o Personal Guarantees will be required o Additional security may be required (i.e. , life insurance, lease agreements, etc. ) Equity: A minimum of 10% equity is required for each project. This will be in the form of cash or contributed land. Application Total time for Application approval and Procedures: funds disbursal from the time of completed application is approximately 60 days. The application procedure is as follows: 1. Preliminary interview and questionnaire completed by borrower and SBRLF staff. 2 . Borrower completes loan application and provides 3 years historical financial statements and project cost summary. (Three years projection for new business) 3 . When application is accepted, borrower provides supporting documents, including: • Appraisal • Certified bids or cost estimates o Personal Financial statements of principals o Sales Contract o Lease Agreements o Vendor .Quotes o Jobs Form o Resumes of principals o History and Description of Business o Bank Commitment Letter o Business plan (for new businesses) o Other support documents as appropriate 4 . Borrower and SBRLF staff meet with borrower's participating lender 5. Loan request is presented to the Loan Advisory Board 6. Once application is approved, loan documents are drawn up, and approximately 3-4 weeks are needed for disbursal of the funds. Fees: o A processing fee of up to 1%, not to exceed $1, 000 is payable to The Department of Community Development upon submission of the Application Form. Should the application not be approved, one-half of the fee will be returned. o Late payment fees of 2% of the loan payment may be assessed. Other Program Only projects which demonstrate job creation and financial feasibility will be eligible for the Small Business Revolving Loan Fund. In addition, several criteria will be considered: • Financial Feasibility • Minority and women enterprise development . • Job creation within CDBG and NHS strategy areas • Minority employment • Expansion of existing and new businesses • Ratio of loan fund dollars to jobs created • Growth potential of borrowing companies • Linkages to the area' s existing economy • Generation of tax revenues • Environmental considerations • Diversification of area economy And the following standards must be met: • Project will be located within the City limits of Beaumont. • One job shall be created or retained for each $10, 000 invested. • The minimum leverage of private dollars to public shall be 2 : 1. • The interest rate charged shall range between 4%-8%, however, it will not be less than the EDA required minimum. • The SBRLF borrower will be required to inject at least loo equity into the project. • All applicants will have written evidence of the need for the SBRLF funds to prevent displacement of existing capital. • Loans will be made to eligible borrowers, who are: private profit making firms. • Borrowers are not relocating from another labor area. o If construction is financed by an SBRLF loan, accessibility to the handicapped is assured by compliance with the necessary standards. o Borrowers will obtain required flood hazard insurance. o No more than 20% of the total SBRLF contributed capital shall be loaned to any one business during any one time period. o New Construction/Davis Bacon. For further information, please contact: Jerone Bassett, CDBG Planner Department of Community Development City of Beaumont (409) 838-0844