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HomeMy WebLinkAboutCity Council Resolution 1997-0500 CITY OF PLYMOUTH RESOLUTION 97- 50 FINAL APPROVAL OF PLYMOUTH ECONOMIC DEVELOPMENT FUND GUIDELINES WHEREAS, on May 15, 1996, the Plymouth City Council approved submission of an application to the Minnesota Department of Trade and Economic Development for an Economic Recovery Program loan and grant to assist Value RX with its plans to relocate its business to property in Plymouth located at 4700 Nathan lane; and WHEREAS, proceeds of the program will be used to capitalize the Plymouth Economic Development Fund to encourage economic development by supplementing conventional fir-ancing sources available to existing and new businesses; and WHEREAS, on May 15, 1996 the Plymouth City Council adopted Resolution 96-288, giving preliminary approval of guidelines for implementation of the program by the Plymouth Housing and Redevelopment Authority (HRA), pending approval of the grant and review and comment by the HRA board; and WHEREAS, the HRA has reviewed and revised the draft guidelines and has recommended their approval; NOW, THEREFORE, BE IT RESOLVED that the Plymouth Economic Development Fund Guidelines, Attachment A to this Resolution, are hereby given final approval. Adopted by the City Council on January 22, 1997. STATE OF MINNESOTA) COUNTY OF HENNEPIN) SS. The undersigned, being the duly qualified and appointed City Clerk of the City of Plymouth, Minnesota, certifies that I compared the foregoing resolution adopted at a meeting of the Plymouth City Council on January 22, 1997, with the original thereof on file in my office, and the same is a correct transcription thereof. WITNESS my hand officially as such City Clerk and the Corporate seal of the City this day of City Clerk a,p1en\st&ffrep\res\ma97\1oengu1d • Loan Fund Guidelines, As Recomm _nded by HRA 8/1/96 PLYMOUTH ECONOMIC DEVELOPMENT FUND GUIDELINES CITY OF PLYMOUTH 3400 Plymouth Boulevard Plymouth, Minnesota 55447-1482 (612) 5095000 I. INTRODUCTION The purpose of the Plymouth Economic Development Ft nd (PEDF) is to encourage economic development by supplementing conventional financing sources available to existing and new businesses. The Plymouth Economic Development Fund (PEDF) is administered by the Plymouth Housing and Redevelopment Authority (HRA), subject to the PEDF guidelines as approved by the Plymouth City Council. 'through this program, the HRA works with participating lending institutions) to make loans to businesses to help them meet a portion of their financing needs. Itis the responsibility of the HRA to assure that loans are consistent with the objective 3 of the program and comply with all other PEDF policies as defined in this document "he Plymouth Economic Development Fund is operated as an equal opportunity program. All applicants shall have equal access to PEDF funds regardless of race, sex, age, marital status, or other personal characteristics. Revolving loan funds (RLF's) have bet ame an increasingly popular business financing tool because of their ability to leverage public and private dollars and recycle funds as well as their flexible design and simple operation. RLF's provide firms with direct loans, loan guarantees, interest subsidy and other financial assistance. As the RLF receives the principal and interest from outstanding loans, the money is made available to another borrower. This recycling of funds makes RLF's particularly valuable in light of the growing scarcity of development fiords. RLF's are designed to alleviate the high cost and short supply of capital for community businesses by providing flexible loan terms. Typically, RIT s lower the rate, !zngther the term, or reduce the risk of a loan, increasing accessibility to capital, RLF's help flrms expand, develop or remain in the community. By providing critical subordinate financing for a loan package instead of 100 percent direct financing, RLF's are an effective tool for leveraging. RLF loans are typically combined with other public or private dollars. • Loan Fund Guidelines, As Recommended by HRA 8/1/96 It is anticipated that the PEDF revolving loan fund will initially be funded by an Economic Recovery Grant for the 1996 Value Rx expansion Project. III. PEDF PROGRAM OBJECTIVES AND CRITERIA All activities funded through the RLF will mect at least one of the following objectives: • Benefit to low and moderate income persons; • Prevention or elimination of slam:: and blight; • Alleviate urgent community development or redevelopmentneeds. All projects funded by the RLF are intended to create or retain jobs that are taken by or available to low and moderate income persons. At least 51% of all jobs created and/or retained will be either taken by LMI (Low and Moderate Income) persons or considered to be available to LIvII persons. In addition to meeting one or more of the PEDF program objectives, all loans must meet two or more of the following criteria: A. To provide loans for credit worthy businesses that create new jobs. B. To provide loans for credit worthy businesses that would increase the community tax base. C. To assist new or existing industrial and commercial businesses to improve or expand their operations. D. To provide loans to be used ac a secondary source of financing that is intended to supplement conventional financing (bank financing). E. To provide loans in situations in which funding gap exists. F. To provide funds for economic developmentthat could be used to assist in obtaining other funds such as Small Business Administration loans, federal and state grants, etc. A. BUSINESS ELIGIBILITY • Industrial businesses or • Commercial businesses which enhance the community, but do not compete with an existing commercial business within Plymouth. 2 n Loan Fund Guidelines, As Recommended by HRA 8/!/96 B LOAN AMOUNT • $10,000 loan per each job created, or $5,000 per every $20,000 increase in property market valuation, or $5,000 per every $20,000 increase in personal property used for business purposes, whichever is higher; subject to fund availability and loan fund guidelines. C. FINANCINGMETHOD • COMPANION DIRECT LOAN • PARTICIPATIONLOAN • LOAN GUARANTEES D. USE OF PROCEEDS Example: Equity 20%, PEDF 30%, and bank 50%. (All such loans maybe subordinated to the primary lender(s) if requested by the primary lenders(s). PEDF loan is leveraged and the lower interest rate of the PEDF lowers the effective interest rate on the entire project). PEDF buys a portion of the loan. (The PEDF is not in a subordinate position, no collateral is required by the PEDF, and the loan provides a lower interest rate). PEDF guarantees a portion of the bank loan. (Personal and real estate guarantees handled separately). • Real property acquisition and development. • Real property rehabilitation(expansion or improvements). • Machinery and equipment. • Working capital. • Business buyouts, only in circumstances in which such assistance is deemed by the City as essential to retain an existing Plymouth company in the area. E. TERMS AND CONDITIONS • LOAN SIZE K Fifty percent of the remaining loan fund balance or $15,000, which ever is greater. • Loan Fund Guidelines, As Recommended by HRA 8/l/96 • LEVERAGE Minimum 60% of private/publicnon-PEDF Maximum 30% public (PEDF) Minimum 10% equity • LOAN TERM Personal property term not to exceed life of equipment (generally 7-10 years). Real estate property may be amortized up to 30 years. Balloon payment at 10 years, as appropriate. • INTERESTRATE Fixed rate not less than the average rate of return on funds invested by the City of Plymouth over the 6 month period prior to loan approval. • LOAN FEE Minimum fee of $200, but not to exceed 1% of the total loan project. Fees are to be documented and no duplication of fees between the lending institution and the PEDF. Loan fee may be incorporated into project cost. HRA retains the right to reduce or waiver loan fee or portion of loan fee. �0:9 ' 31A ttt Za74WJ • INTEREST LIMITATION ON GUARANTEEDLOANS • ASSUMABILITYOF LOAN • BUSINESS EQUITY REQUIREMENTS • COLLATERAL 4 No penalty for prepayment. Subject to security and/or review by HRA. Subject to HRA approval. Subject to type of loan; HRA will detenrine case by case analysis under normal lending guidelines. • Liens on real property in project (mortgage deed). • Liens on real property in business (mortgage deed). E Loan Fund Guidelines, As Ra ommended by HRA 8/1196 • COLLATERAL, cont. Liens on real property held personally (subject to HRA approval -homestead exempt). • Machinery aad equipment liens (except equipment exempt from bankruptcy). • Personal and/or corporate guarantees (requires unlimited personal guarantees). F. PARTICIPATING LENDINGINLOTITUTION(S) s Partizipating lending institution(s)shall be determined by the PEDF applicant. • Participating lending institution(s) shall cooperate with the HRA and assist in carrying out the policies of the PEDF as approved by the HF,A Board. Participating lendaig institution(s) shall analyze the formal application and indicate to the HRS`, tli,, level at which the lending institution will participate in the finance package. V LOAN APPLICATION AND ADMINISTRATIVE PROCEDURES The HRA desires to make the PEDF loan application process as simple as possible. However, certain procedures must be followed prior to the 1IRA consideration of a loan request. Information regarding the pro,3ram and procedures for obtaining a loan are as follows: A. HRA STAFF DUTIES: The HRA Executive Director shall carry out PEDF operating procedures as approved by the HRA Board on the City Council. Stats' is responsible for assisting businesses in the loan application process, and will work closely with applicants in developing necessary information. B. APPLICATION PROCESS: Applicant shall complete + preliminary loan application. Staff will review application for consistency mih the policies set forth in the PEDF Guidelines. Staff consideration of tate pwliminary loan application should take approximately one week. 5 • Luan Fund Guidelines, As Recommended by HRA 8/1/96 2. Staff will ask applicant to contact a lending institution regarding financing needs and indicate to applicant that further action by the HRA on the potential loan will require indication of support from a lending institution. 3. If applicant gains initial support from lenc:ing institutions, and if the preliminary loan application is approved, applicant is then asked to complete a formal application. If the preliminary loan application is not approved by staff, the applicant may request that the HRA consider approval of the preliminary application at the next regularly scheduled meeting of the HRA Board. 4. ,f the preliminary loan application is approved, applicant shall complete a formal application. Formal application shall include a business plan which will include its management structure, market analysis, and financial statement. Like documentation necessary for obtaining the bank loan associated with the proposal is acceptable. S. Attached with each formal application is a written release of information executed by the Ivan applicant. 6. Staff will meet with applicant and other participating lender(s) to refine the plan for financing die proposed enterprise. 7. Staff shall analyze the formal application and financial statements contained therein to determine if the proposed business and finance plan is viable. Stats may, at its discretion, accept the findings of a banking institution regarding applicant credit and financial viability of the project. After analysis is complete, staff shall submit a written recommendation to the HRA Board. A decision regarding the application shall be .rade by the Board within 45 days of the submittal of a completed formal application. 8. The HRA shall have authority to approve or deny loans; however, within 21 days of HRA decision, the City Council may reverse a decision to approve or deny a loan if it is determined by Council that such loan was issued or denied in violation of PERF guidelines, 9. Prior to issuance of an approved loan, the City Attorney shall review all contracts, legal documents, and intercreditor agreements, After such review is .-omplete, the HRA shall issue said loan. 6 • Loan Fund Guidelines, As Recommended by HRA 8/1/96 C. REPORTING Staff shall submit quarterly summaries and an annual report detailing the status of the Plymouth Economic Development Fund. D. LOAN ADMINISTRATION 1. Staff shall service the loan, shall monitor the HRA's position with regard to the loan, and shall assure HRA compliance with intercreditor agreement. Up to 50% of interest portion of loan payments shall be available to offset administration costs of this RLF program. 2. All loan documents shall include an intercreditor agreement which must inchtde the following: A. Definition of loan default, agreements regarding notification of default. B. Agreements between lending institution and city regarding reproduction of pertinent information regarding the loan. 3. All loan documentation shall include agreements between borrower and lender regarding release of privacy regarding the status of the loan. E. APPLICATION REQUIREMENTS Sufficient information shall be included in a loan application for the HRA to determine that the assistance provided to a for-profit business is actually needed to snake the project work- and orkand is not excessive in the amount of assistance. In order to accomplish this determination, for-profit businesses applying to the PEDF shall provide the following: I. A detailed feasibility study both from a, narrative and descriptive basis as well as financial projections for three years into the future (i.e. cash flow pro forma, projected balance sheets and profit and loss statements, etc.). 2. A market analysis demonstrating the opportunity for the product, or increased demand for the product an expansion of an existing business). 3. A management plats and background of key management personnel. 7 Loan Fund Guidelines, As Recommended by HRA 8/1/96 • 4. The number, types, and wage levels of job; to be retainer: and/or created, including an estimate of the net increase in jobs to the State of Minnesota. 5. Estimated increases to the tax base of Plymouth. 6. Any other peripheral development which may occur as a result of the project. F. ADDITIONAL INFORMATION REQUIRED The PEDF will also require information necessary to allow the hRA to make the following determinations. I. Whether project costs are reasonable in comparison to similar projects or industry standards. 2. Whether pro forma projections are reasonable when compared with historical date (if any) or with industry standards (i.e. RMA, etc.). 3. Documentatio.i of private and bank funds that are committed to project costs. 4. Terms of any loan proceeds that are part of Project. 5. Documentation that a financing "gap" exists and financial assistance is necessary. 6. Documentation that the rate of return is unsatisfal.tory and financial assistance is required to improve said rate of return. 7. Demonstration that a location preference of Plymouth versus some other community (in State or out of State) exists and financial incentives are necessary to cause Project to remain in or locate to Plymouth. (Note that items 5, 6, and 7, will be required to the extent they aro the basis for the request for assistance. Further, the PEDF may waive in certain instances, some of the information and documentation required as may, in certain instances, require additional documentation or information for matters not covered above.) 0 Loan Fund Guidelines, As Recommended by HRA 8/1/96 VI: OTHER REQUIREMENTS A. In the event the PEDF funds are used that are subject to "Program Income" requirements, the HUD Program Income Regulations will be followed. B. In the event PEDF Funds are used that are subject to Davis/Bacon requirements, businesses assisted will be so informed and the HRA will be responsible to insure that Davis -Bacon Guidelines are complied with. C. Businesses assisted with PEDF funds must provide valid bids for construction work to be done or equipment to be acquired in whole or in part with PEDF funds to verify cost effectiveness. VII. FUND GUIDELINES MODIFICATION No substantial changes to the PEDF guidelines shall be instituted without prior approval by the City Council. cd\housing\hm\conven\loanmv4.doc E