Agenda - Council - 01/24/2017 - Laserfiche WebLink

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be worth it for the EDA to consider a exception and/or amendment to the EDA RLF Guidelines. More specifically, to allow for equity to dip down to 5%in situations in which the SBA 504 Loan Program is being used by a business. Here is a preview of what the EDA RLF would look like in this scenario: 50%Bank 40%SBA 5%EDA RLF* 5%Owner Equity *10 year term,third lien, about$70,000. NOTE: staff has received conflicting information on the minimum required term for the EDA RLF. Staff has the perspective to attempt to minimize the city's loan term. There is a chance the EDA RLF will be required to match the SBA 20 year term. In that scenario,we would also need to have an exception to our EDA RLF Guidelines on maximum loan term (from 15 years to the SBA required 20). This question (RE term)will be answered if/when an actual application is brought forward(i.e. February). Funding Source: EDA RLF: about$300,000 balance. Recommendation: ACG/ STAFF RECOMMENDATION Attached to this case is a MEMO/recommendation from ACG/Mike Mulrooney(the City's Economic Development Consultant). Generally speaking,both staff and ACG are comfortable with this policy exception. However,we would note the items below, and importance of good credit analysis (this policy exception isn't a loan approval). On the plus side: .This amendment would allow for use of these dollars in more traditional economic development scenarios (i.e.the commonly used SBA 504 situations). This fund is not used often today. .This scenario still requires 5%owner equity--some level of owner equity is always highly recommended in any project. .This still requires strict underwriting, and a credit-worthy tenant--this is always highly recommended, and would be by staff/ACG for this loan. On the minus side: .This puts the city in a greater position of risk (lower equity means greater chance of not being paid back in the event of a default).* .The city's position would be third in SBA deals (which again,puts the city in a higher position of risk)* *NOTE: these items are not unique to this specific situation. The very essence of why the City EDA RLF exists--is to cover financing gaps that the private sector would not normally fund alone (i.e. riskier situations). The question here is shades of grey/or various levels of comfort RE risk tolerance for the City. Are we okay with 5%equity rather than 10%on SBA deals--both are generally risky levels of equity--one is more risky. EDA RECOMMENDATION The EDA supported this exemption by a 5-0-1 vote on 01/10/2017. EDA Member Hardin abstained, as he is an employee of the Bank representing this project. The EDA felt the purpose of this program was to help Ramsey businesses. The program is very rarely used. Generally,this appears to be a reasonable request/opportunity to expand the ability to use this program. The EDA will still rely heavily on the underwriting process to determine if the applicant is credit worthy. The EDA believes some level of equity is needed in any project the City was involved with--in this specific scenario, 5%appears to be reasonable. The EDA has requested staff bring back a future case to update the EDA Revolving Loan Fund Policy. Action: