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within a $1.4 million project budget. The company has indicated to city staff that <br /> they have the ability to inject 5% equity into the project. <br /> As Ramsey's Economic Development Consultant I have been asked to provide my <br /> perspective on whether the EDA should consider this request for an exception to <br /> policy or consider amending its RLF policy to allow for 5% minimum equity <br /> injections. <br /> Policy Exceptions <br /> Ramsey's RLF loan Policy has been around for some time and has undergone many <br /> changes since it was originally written. Records indicate that no changes have been <br /> made since 2005. After reviewing the current policy I have found that it does not <br /> provide any provision for exceptions. <br /> Exceptions to loan policies are common. Even fundamentally sound credits may <br /> need policy exceptions from time to time as such credits may not always conform to <br /> all aspects of a loan policy. There may be mitigating circumstances that would <br /> justify the loan's approval. Ideally the loan policy should establish processes and <br /> procedures for presenting nonconforming or exception loan requests received from <br /> creditworthy borrowers. Having the ability to approve exceptions for solid credits <br /> would give the EDA the ability to approve a loan request or propose an alternative <br /> structure. <br /> Keep in mind that frequent approval of policy exceptions may indicate a loosening of <br /> credit underwriting criteria and/or a policy that is too restrictive. The underlying <br /> reasons behind frequently granted exceptions should be assessed and appropriate <br /> actions should be taken to ensure the policy is appropriately conveying the risk profile <br /> desired by the EDA and City Council. <br /> In short, the EDA and/or City Council may want to consider amending the Ramsey <br /> RLF Policy to establish review and approval procedures for exception loans, <br /> including loans with loan-to-value percentages in excess of desired limits. <br /> The American Print & Digital Request <br /> The type of request that American Print & Digital is making is not unusual. It is <br /> common for gap financing programs offered by cities involved in economic <br /> development to assist with increasing leverage beyond what other financing tools <br /> may provide. It is equally common and wise to require some level of equity on the <br /> part of any borrower to insure that risk is shared between all parties including the <br /> borrower as well as the lender. The art of economic development lending involves <br /> designing a plan that accomplishes the goals of the city while at the same time <br /> minimizing the risk. <br /> 2 <br />