Agenda - Economic Development Authority - 01/12/2017

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between Do-All Printing and Lano Equipment on US Highway 10 (6320 Highway 10). This building is just less than 15,000 sf, and is set up ideally for their operations. Some renovations are needed. This purchase will allow for expansion of their business,placement of their new machine, and room for small future expansion. Additionally, in the short term,American Print&Digital plans to sub-lease a small portion of the property until they need it(about 3,000 sf). The project is about$1.4M total--in which American Print&Digital is seeking financing,with about$600,000 of the total project costs are the new machine. The Bank of Elk River has tentatively indicated they would fund 50%, the SBA(via the development corporation)has tentatively indicated they would fund 40%, and the owner has indicated they would like the EDA RLF to cover 5%, and for owner equity to be 5%(20 year term, Bank lien 1, SBA lien 2, City lien 3). The owner is requesting 5%EDA RLF financing to allow equity dollars to be dedicated to ongoing business working capital needs. The printing industry requires a significant level of working capital to upgrade machines, repair machines, and purchase ever-changing software. It is not uncommon for these unexpected costs related to machines to cost several hundred thousand dollars. American Print&Digital can physically make the deal happen without without the EDA RLF. However,they want to be prudent/smart about how they are growing their business planning--and they want to make sure they can digest their growth. NOTE: a common pit-fall for quickly growing small businesses is to not have enough money available in working capital, and outstrip their ability to digest their growth(i.e.they don't have enough working capital to pay for short term expenses incurred as a result of their quick growth). This can happen by putting too much equity into the upfront project, and not leaving dollars for working capital.American Print&Digital is attempting to avoid this potential problem via this request to the City. SBA 504 PROGRAM Please follow this link: http://www.cmdcbusinessloans.com/tools-resources/sba-504-sba-7-a-comparison Notification: Observations/Alternatives: The EDA RLF has an adopted set of"Guidelines" which are attached to this case. These guidelines were adopted in 2005. It's staff understanding, only one EDA RLF loan has been made in the past decade (about 26K for equipment to Korn Fitness). Staff believes the EDA RLF has been used sparingly for two major reasons: (1) The guidelines require a minimum 3%interest rate. Since the great recession,interest rates available through private banking institutions have been very low. Additionally,traditional economic activity has been relatively sparse,until recently. As a result of these items, demand for this program has been low. (2) Small businesses commonly use the SBA 504 loan program. That program doesn't stack well with the EDA RLF program. As a result,businesses often cannot use the EDA RLF program. With the above information in mind, and the request from American Print&Digital in-hand, staff believes it might 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