HomeMy WebLinkAboutAgenda - 06-21-2011 - 5sORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: June 21, 2011
Action Agenda
Item No. 5 - s
SUBJECT: Status Update for Orange County Small Business Loan Program Company
Including Updates to `Operating Policies and Procedures'
DEPARTMENT: Economic Development PUBLIC HEARING: (Y/N) No
ATTACHMENT(S):
1) Status Memo on Small Business Loan
Program
2) Operating Policies and Procedures,
Revised May 25, 2011
Amended Version
3) Operating Policies and Procedures,
Revised May 25, 2011 Track Changes
Version
4) Listing of Board of Directors
INFORMATION CONTACT:
Gary Shope, 245-2326
Dottie Schmitt, 245-2327
PURPOSE: To receive a status update on recent activities of the Orange County Small
Business Loan Program Company (Loan Program) and to approve updates to the `Operating
Policies and Procedures' (last updated March 21, 2000) as endorsed by the acting Board of
Directors (Board) of the Loan Program.
BACKGROUND: From its creation in 1997, the Loan Program was designed "... to stimulate
successful business development and expansion". The Loan Program is set up as a 501(c) (3)
entity managed by an eight-member Board of Directors (Board of Directors) which is composed
of two local small business owners, two local bankers, and four Orange County government
representatives (Finance Department Director, Economic Development Department Director,
Board of County Commissioners representative, and Economic Development Commission
representative). To date, the Loan Program has awarded five loans to four separate
companies. Amore detailed status report of these loan activities is provided in a separate
memo at Attachment 1.
The Loan Program has undergone occasional revisions to allow it to be as supportive to Orange
County's small business community as possible. A brief summary of relevant items in the Small
Business Loan Program evolution is as follows:
June 18, 1997 -Memo from Economic Development Director to the BOCC and the
County Manager proposing a Small Business Loan Pool, including draft Operating
Policies and Procedures. The original program was envisioned as a three-year, one-half
million dollar pool capitalized by local banks, with the County providing a 30% loan
reserve.
October 6, 1998 BOCC Meeting - An `Operating Policies and Procedures' document
was submitted to BOCC and was approved with changes.
March 21, 2000 BOCC Meeting -The BOCC approved a "Resolution Regarding Small
Business Loan Program" which included anine-member Board of Directors comprised of
three County officials (County Finance Director, County Manager, and Economic
Development Director) and six bank representatives. The funding structure of this
program included eight banks committing a credit line (up to $62,500 each) to the Loan
Program and Orange County providing a Loan Loss Reserve of not less than 30% of the
aggregate loans made from the program (the Loan Loss Reserve totaled $150,000).
March 13, 2007 BOCC Meeting -The BOCC approved granting $75,000 of the
County's committed $150,000 loan loss reserve to serve as `seed money' for a revolving
loan fund and to transfer the remaining $75,000 to the Loan Program so that the full
$150,000 originally committed was available for lending. The agenda item also included
an endorsement from the Board of Directors recommending several changes including
making Orange County businesses with owners that live outside the County eligible for
loans and revising the operating policies and procedures as determined by the Board of
Directors. No timing for these recommendations was proposed at this time.
January 15, 2008 BOCC Meeting -The Board approved changes to the Loan
Program's Bylaws to modify the Board of Directors to its current composition of two small
business owners, two local bankers, one member of the BOCC, one member of the
Economic Development Commission, the Orange County Economic Development
Director, and the Orange County Financial Services Director.
Now that the Loan Program has developed a proven method of operations, the Loan Program's
Board of Directors has endorsed revisions to the Policies and Procedures to make the program
as effective as possible in serving the small business community of Orange County. These
updates are presented in the attached revised Policies and Procedures document, with major
modifications that include:
1. Source of Funds. Changes to structure were made to reflect that Orange County is the
sole source of funding for the Loan Program, rather than credit lines being provided by
area banks with Orange County only funding a loan loss reserve.
2. Residency. Changes reflect that while the business must be located in Orange County to
be considered for the Loan Program, it is not necessary for the owners to be residents.
This change was drafted in order to ensure that any business that desires to locate in
Orange County may be considered under this program. During the review process, the
Board of Directors will evaluate all components of an application, making loans to the
most qualified businesses that will provide the greatest benefit to Orange County as a
whole. Revisions to this section note that preference during the review process may be
provided to applicants with one or more owners that are Orange County residents. A
brief review of comparable small business loan programs did not identify a residency
requirement in any of the other programs.
3. Delinquent Loans. Guidelines for the collection of delinquent loans were added.
4. Operational Updates. Small changes were made to reflect the operational procedures
that the Board of Directors has developed during its successful award of recent loans,
such as determination of loan repayment schedules and requesting an interview with
applicants.
FINANCIAL IMPACT: There is no financial impact with this item.
RECOMMENDATION(S): The Manager recommends that the Board receive the status update
on the Loan Program and approve the updates to the Orange County Small Business Loan
Program Company `Operating Policies and Procedures' document as endorsed by the Loan
Program's Board of Directors.
Attachment 1
Memorandum
To: Orange County Board of Commissioners
cc: Frank W. Clifton, Jr., County Manager
From: Gary Shope, Economic Development Director
Dottie Schmitt, Economic Development Specialist
Date: June 21, 2011
Re: Status Update on Orange County SmaIl Business Loan Program
Background
From its creation in 1997, the Orange County Small Business Loan Program Company (Loan
Program) was designed "...to stimulate successful business development and expansion". The Loan
Program is set as a 501(c) (3) entity up managed by aneight-member Board of Directors (Board
of Directors) composed of two local small business owners, two local bankers, and four Orange
County government representatives (Finance department Director, Economic Development
department Director, Soard of County Commissioners representative, Economic Development
Commission representative)_ Since 2009, the- Program has awarded five small business loans
for four local small businesses, with payments on all outstanding loans being .made in a timely
manner. This memo provides the Orange County Board of Commissioners a status update on
recent activities within the Loan Program.
Status Update -New Loan Awards
Skram Furniture Company. A loan was recently approved by the Board of Directors for Skram
Furniture Company, a Hillsborough business that creates custom-designed furniture~or
residential, commercial, and hospitality clients. As provided on Skram's website
(www.skramfun-uture.com), "... Skram furniture is dedicated to redefining american craft in the
context of modern design." Skram's products reflect the company's commitment to authentic
materials, innovative design, and sustainable practices. Skram proposes to use the funds to
further develop their high volume hospitality client base.
West End Depot. The Board of Directors also recently approved a loan to the West End Depot, a
'vintage' general store located in recently revitalized West Hillsborough commercial district.
The Depot is a new commercial venture that offers a variety of local goods, including the
"Depot Dog", a locally raised beef hotdog and served from an onsite hot dog cart, hand-dipped
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Status update an Orange County Small Business Loan Program
MapleView ice cream as well as an extensive assomnent of locally-produced craft items. The
Depot also serves as an evening venue for local bands and art films.
Status Update -Previous Loan Awards
Phd Productions, LLC. Ixi November 2010 the Loan Program issued a follow up loan to Phd
Productions, LLC (Phd), a Hillsborough company that created the Phd PocketDiscTM, a
handmade, crocheted, flying disc that is making quite a splash in the toy and promotional
markets. Phd was awarded an initial loan in November 2009, and as the capacity of the Loan
Program at that time did not allow full funding of Phd's Ioan request, the November 20101oan
allowed the Loan Program to fully fund this company. Phd operates as a fair-trade company
catering to a variety of markets, including toys, sporting goods and promotional items.
Phd recently reported that they have received `starter orders' from both the Whole Foods
(Texas) and Walgreens (Louisiana) regional offices. They also received several custom disc
orders from clients that include Google, Chaco shoes, and two summer camps in North
Carolina. Phd continues to emphasize their charitable side, with recent deals with major
charities, including Boosterthon Fun Run, which raises money for K-12 schools, and Soles for
Souls, an international shoe charity.
Santosha Service Compan~The Loan Program's initial loan in May 2009 was provided to this
commercial cleaning company. Santosha continues to expand their customer base of industrial
and institutional clients.
Snmmary
With the approval of five loans to four very dynamic local-companies, the Loan Program
continues gain momentum in providing capital to Iocal small businesses. Several additional
applications are currently under-review by the Board of~irectors with additional loans
anticipated in the nea-r future.
This Program is an essential piece to growing the small_business component of Orange County's
Economic Development strategy by fostering growth in our thriving entrepreneur sector.
Proposed updates to the 'Operating Policies' will add flexibility to the Loan Program and allow
it to efficiently serve an expanded client base. The Loan Program is developing into a
successful example of Orange County's commitment to economic development, and the support
of the BOCC is a fundamental reason for this success.
Page 2 of 2 June 21, 2011
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ORANGE COUNTY
SMALL BUSINESS LOAN PROGRAM
Operating Policies and Procedures
Revised July 1998
Revised March 21, 2000
Attachment 2
Revised May 25, 2011
6
ORANGE COUNTY SMALL BUSINESS LOAN .PROGRAM
PURPOSE
The purpose of the Orange County Small Business Loan Program (Program) is
to stimulate the creation of good jobs for Orange County citizens as well as
to stimulate successful business development and expansion in Orange
County (County). The program will attempt to assist businesses that have
limited access to financing through conventional means or other
government guaranteed sponsored programs. Businesses receiving funding
through this program are strongly encouraged to be good corporate citizens
as defined in Orange County's Economic Development Strategic Plan.
Businesses are also encouraged to employ Orange County citizens=
LOAN PROGRAM ADMINISTRATION
The Orange County Small Business Loan Program Company (Company) and
Orange County (County) staff may be utilized to underwrite and service these
loans, to include billing, generating administrative reports, and collection of
delinquent accounts.
PROPOSED STRUCTURE
The Company is anon-profit corporation formed to make-and facilitate-loans to
small businesses-under the program described here. The Program is governed
by an eight member Board of Directors, acting under the Company's Bylaws.
This Program is fully funded by Orange County at the discretion of the-Orange
County Board of County Commissioners.
This proposed structure may be modified from time to time based upon the
review and advice of counsel.
LOAN COMMITTEE
The Board of Directors of the Company will serve as a committee of the whole
and as such will serve as the Loan Committee. The Loan Committee Chair shall
generally monitor the duties of the Loan Program administration; make sure
loan proposal packages are properly prepared prior to their presentations at
Loan Committee meetings; and oversee the preparation of commitment letters
2
to approved borrowers. Such commitment letters will be signed by the Chair.
The Loan Committee will have the following responsibilities:
1. Find creative ways to utilize loanable funds to stimulate successful small
business development and job creation.
2. Meet monthly to review loan applications and determine which requests
will be approved and under what terms and conditions.
3. Periodically review status of existing loans and recommend appropriate
corrective action or special monitoring where needed.
4. Approve modifications to lean agreements.
5. Evaluate underwriting requirements and make appropriate adjustments
as needed to accomplish the objectives of the program.
6. Provide direction regarding collection (e.g. legal action, foreclosure,
acceleration of amortization, determination of default/charge-off, etc.)
7. -Conduct annual review of loan documents and credit files.
FUNDING
The County has provided initial funding for the Program, with the
understanding that the Program will eventually develop into aself-sustaining
revolving loan fund.
COMMITMENT PERIOD
The County will support the Program until demand for the Program is no
longer present, or until it is no longer financially feasible.
ELIGIBILITY
1. Businesses must be located within Orange County in areas zoned
appropriately for their use.
2. Applicant's length of residence in Orange County may be considered
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8
in assessing the applicant's degree of commitment to the community.
Preference will be given to Orange County residents during the loan
review process.
3. Applicants must be for-profit business entities whose gross revenues -do
not exceed $3 million/year.
4. Applicants must be willing to contract for management and technical
assistance if determined to be necessary by the Loan Committee.
5. Applicants must have an equi-ty contribution in the business of at least
10%.
6. Ali owners of the business maybe required to execute an Unconditional
Guaranty Agreement for the full amoun# of the loan. Additional
Guarantors may be required by the Loan Committee.
7. Applicants with any natural person owner who has pending criminal
charges or who has been convicted of a crime and is still serving an
active prison sentence, is on probation or is on parole is not eligible for
an Orange County Small •Business Loan.
ELIGIBLE USES OF LOAN PROCEEDS
1. Working capital or operational funds.
2. Purchase of equipment, commercial-use vehicles, or machinery.
3. Improvement of owner-occupied commercial property. (Owner must
occupy 50% or more-of total space.)
4. Start-up funding.
5. Expansion of business services or products.
6. Acquisition of owner-occupied commercial real estate (7- year
maturation).
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7. Tenant upfit and lease-hold improvements.
8 . A small business loan request that is to be used in conjunction with other
financing will be considered on acase-by_--case basis.
9. Work force expansion.
LOAN PROCEEDS SHALL. NOT BE USED FOR THE FOLLOWING-
1. Refinancing of existing bank debtor investor loans. The Loan
Committee may grant an exception of up to 50% of loan value.
2. Purchase of equipment or improvement of real estate which are used or
to be used for personal use.
3. Political activities.
4. Owner salary and dividend payments beyond an agreed amount.
5.. Speculative ventures (Examples: drilling for gas or oil, commodity
futures).
6. Lending or investment.
7. Real property held for sale or investment.
8. Pyramid sales -distribution plan businesses.
~. Floor plan financing (defined as a revolving line of credit that allows the
borrower-to obtain financing for retail goods. These loans are made
against a specific piece of colrateral (i.-e. an au#o, RV, manufactured
home, etc.)).
10. Foreign controlled businesses.
11, Non-profit institutions.
12. Private membership clubs.
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COMPLIANCE WITH APPLICABLE REGULATIONS
In all cases, loans made from this program must be consistent and in accordance
with the following:
All state and local regulations governing the applicant's business.
2. Policies established by the Loan Committee for each particular
applicant.
3. Policies established by the Board of County Commissioners dealing
with this loan program.
AMOUNT OF LOANS
Maximum: $50,000. Minimum: $5,000. Should market conditions change, or in
the event of an applicant with extraordinary conditions, a loan in amount
outside of the maximum or minimum maybe considered by the Loan
Committee. All loans are subject to availability of loan funds.
LOAN TER1~I
Maximum Term - 5 years (except 7 years for the purchase or unprovement of
real estate used or to be used wholly for the business purpose of-the applicant.)
Should market conditions change, or in the event of an applicant with
extraordinary conditions, a loan term in excess of the maximum term may be
considered by the Loan Committee.
INTEREST RATE
All loans will be charged finance charges based on a variable interest rate. The
variable interest rate (the "interest rate") will be determined by and be based on
the length of the maturity of the loan and an increment over the highest Prime
Rate ("Prime") as published on the first business day of the month in the Money
Rate Table in the Eastern Edition of the Wall Street Journal generally as-follows:
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Loan Term Interest Rate
0 up to 2 years ~ Prime plus 2.00%
2 up to 3 ears Prime Ius 2.25%
3 up to 4 years Prime plus 2.50%
4 u to 7 ears Prime lus 3.00%
The finance charges on the loan will be calculated by multiplying a daily
periodic rate (the interest rate/ 365) by the unpaid principal amount of the loan
on the last day of the billing cycle times the number of days in the month. The
daily periodic rate may vary from month to month due to changes in the
interest rate and will be determined in the same manner as the interest rate is
determined with the loan maturity date unchanged from that used to calculate
the interest rate when the Loan is made. The Loan Committee will assign an
interest rate using the rate guidelines provided above, to-each loan commitment.
FEES AND EXPENSES
An origination fee, which maybe paid from the loan proceeds, will be charged,
payable at closing, ranging from 1% to 1 z/z% but, in no ease to exceed Limits set
by North Carolina Statutes. 'The minimum origination fee will be $100. The
applicant will be responsible for all other expenses related to closing the loan,
including, but not limited to, recording fees and Legal fees. The applicant will
also be responsible for any fees related to any appraisals or reports required by
the Loan Committee.
LOAN REPAYMEN'T'
Loan repayment schedules will be finalized upon loan commitment. All
payments shall be due as stipulated in the repayment schedule: A late
payment will be assessed at 2% of the payment amount after the loan becomes
15 days overdue. Loans maybe prepaid, in whole or in pa-rt, at any time
without penalty. In the event the loan paymentbecomes 30 days overdue,
procedures for the Collection of Delinquent Loans shall be followed.
COLLECTION OF DELINQUENT LOANS
If a payment becomes 30 days overdue, the borrower will be contacted. If
extenuating circumstances warrant, the loan maybe restructured to encourage
payment. The Loan Committee will evaluate the loan as a whole, and determine
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if a restructuring is beneficial to Program.
Once a payment. is 60 days overdue, a plan to collect the outstanding balances
will be developed in conjunction with Orange County's legal department.
Individual Collection Plans will be tailored to the outstanding account, but may
include one or more of the following activities:
When a borrower is 60 days past due, a reminder Letter is sent advising of
the outstanding loan and of the late payment charged as detailed in the
`Loan Repayment' section above;
A collection letter is sent when the account is 90 days past due, and may
contain additional penalties;
Accounts that are 120 days past due may be turned over to a professional
collection agency.
LOAN ANALYSIS
The Loan Committee shall review and consider a number of items in
determining whether a loan should be made: Those items. shall include at Least
the following:
1. Business plan.
2. Current and projected. employment (including future need for
employees; skill levels and education required; employee
compensation, health insurance, and other benefits).
3. Business financial statements. (Past two years plus interim)
~. Tax returns. (Past two years -personal- and business)
5. Pro formas (financi-al statement projections that may include
monthly cash flow, profit and loss, and additional statements
as required by the Loan Committee) to determine that there will be
sufficient cash flow to meet obligations for Z years.
6. Personal financial statements.
7. Information regarding collateral and a current personal credit report.
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8. Other available financing including, but not limited to, whether other
financial institutions have agreed to consider traditional debt financing
and under~vhat circumstances.
9. Any other information that the Loan Committee determines that it needs.
SUGGESTED LOAN GUIDELINES
1. Creditworthiness -Although applicants will be considered with credit
ratings showing a history of accounts up to 30 days past due, preference
will be given to borrowers with good credit ratings. Applicants with
bankruptcy or prior to repossessions listed on their credit report will, in
most cases, be considered too great a credit risk for this program.
2. Cash Flow Coverage -The loan program is targeted to applicants with cash
flow coverage, prior to loan program debt, of not less than 1.1 to 1 to
current maturities of long-term debt. Cash Flow is further defined as net
income plus depreciation.
3. Debt to Net Worth- The loan program is targeted to applicants whose total
debt does not exceed net worth by 4 to 1.
4.- Collateral -Loans shall be secured by appropriate forms -of collateral, with
recorded first lien positions as appropriate. Acceptable forms of
collateral will be based on commonly accepted definitions (fixed assets,
inventory, accounts receivable, land, building, equipm-ent, or personal
assets).
PROCEDURES
1. Applicants will be referred to the Orange County Economic Development
department (Department). Department staff will meet with applicants
and process applications. Applicants maybe referred to the SBTDC for
consultation.
2. Completed applications will be submitted to the Loan Committee no later
than two weeks prior to its next scheduled meeting.
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3. At the scheduled meeting, the Loan Committee will discuss the strengths
and weaknesses of complete loan application(s) and decide whether or
not to take action on the request, based on the information provided.
The Loan Committee may invite the- applicant(s) to a meeting in order to
provide additional information.
4. The applicant will be informed in writing of the Loan Committee's
decision to deny, grant, grant with condition, or seek more information.
Should the Loan Committee deny the applicant's application, the Loan
Committee will not thereafter consider any applications from that
applicant for at least six months.
5. At its discretion, the Loan Committee may impose an~ additional terms
and conditions necessary to-improve the loan or to secure the loan. The
Loan Committee may require an itemized budget detailing the proposed
use of loam-~ funds.
6. Should the applicant think that the application has been improperly
denied, then the applicant may notify, in writing, the Loan Committee.
The notice to the Loan Committee shall state why the applicant thinks the
loan should be approved. Denial of the application shall then be given
further consideration by the Loan Committee. The Loan Committee's
decision on the loan is the final decision.
7. The Loan Committee-shall provide regular reports to the Board of County
Commissioners of loans that it has approved. Any event of default or
loan loss shall be reported to the Board of County Commissioners in
writing and presented to the Board of County- Commissioners at its next
regular meeting following the event of default or loan loss.
PORTFOLIO MANAGEMENT GUIDELINES
1. Loans to start-up businesses shall not exceed 25% of the loan pool.
2. The total of loan principal past due 30 days or more shall not for any
month exceed 10% of outstanding loan commitments.
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Any exception to the above will result in a moratorium on future loan requests
and a review of these loan guidelines by the Loan Committee.
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ORANGE COUNTY
SMALL BUSINESS- LOAN PROGRAM
Operating Policies and Procedures
Revised ~ul~ 1998
Revised 1Vlarch 21, 2000
Attachment 3
Revised MaY 25, 2011
17
ORANGE COUNTY SMALL BUSINESS LOAN PROGRAM
PURPOSE
The purpose of #-lithe Orange County Small Business Loan pProgram_
Pro am is to stimulate the creation of good jobs for Orange County
citizens as well as to stimulate successful business development and
expansion in Orange County Coun .The program will attempt to assist
businesses that have limited access to financing through conventional
means or other governmEnt guaranteed sponsored programs. Businesses
receiving funding through this program aze strongly encouraged to be good
corporate citizens as defined in Orange County's Economic Development
Strategic Plan. Businesses aze also encouraged to employ Orange County
citizens.
LOAN PROGRAM ADMINISTRATION
`The Orange County Small Business
Loan Program Company_ (Company and ##e-Orange County ,(County) staff may
be utilized to underwrite and service these loans, to include billing, a~-
generating administrative reports, and collection of delinduent accounts.
PROPOSED STRUCTURE
Y" ~ ~,.,
The ompany is a
non=profit corporation formed °r ~~'~~ ~~~~-' to mare and facilitate loans to
small businesses under the program described here. The Pro ram is governed
by an eight member Boazd of Directors _acting under the Company's Bylaws
This Program is fully funded b~Orange County at the discretion of the Orange
County Board___of_County Commissioners.
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~ ~
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This proposed structure maybe modified from time to tune based upon the
review and advice of counsel.
LOAN COMMITTEE
The Board of Directors of the
Company will serve as a committee of the whole and as such will serve as the
Loan Committee. The Loan Committee Chair shall generally monitor the duties
of the Loan Program administration; make sure loan proposal packages are
properly prepared prior to their presentations at Loan Committee meetings; and
over-see the preparation of commitment letters to approved borrowers. Such
commitment letters will be signed by the Chair.
The Loan Committee will have the following responsibilities:
1. Find creative ways. to utilize loanable funds to stimulate successful small
business development and job creation.
2. Meet monthly to review loan applications and determine which requests
will be approved and under what terms and conditions.
3. Periodically review status of existing loans and recommend appropriate
corrective action or special monitoring where needed.
3
19
4. Approve modifications to loan agreements.
5. Evaluate underwriting requirements and make appropriate adjustments
as needed to accomplish the objectives of the program.
6. Provide direction regarding collection j{e.g. legal action, foreclosure,
acceleration of amortization, determination of default/charge-off, etc.)
7. Conduct annual review of loan documents and credit files.
^^ "'=FUNDING
The Coun has provided initial funding for the Program with the
understanding that the Program will- eventually develop into aself-sustainulg_
revolving loan fund. '-
COMMITMENT PERIOD
r'o?~~~;~t~~ris~ierter~--~~td~r#c-~p~~ ~t~tc~a=~z~tt#~ens to
dc~~r~te-c~h~-te-Fent~~t~ '-'~~ r , a -The County wiIl support the
Program until demand for the Program is no longer present or until it is
no longer. financially feasible.
I ELIGIBILITY
Businesses must be located within Orange County in areas zoned
appropriately for their use.
2: n "~PP~~~_~tt~st die-resic~a~ its-.~~~tge-~etmt~--~t-tlte eases--o~~
~a pats,-at laast-5~o e€~te~tentbe~;-p~t~te~ e~-
E3~Tlf~rr of ^}s~xac of ~ i F +-L, 7' ~ ~ i, a-, 7 i-.
ui ~- Li
" 0=~ h" '-'"T~„'~° r ^~a '- .Applicant's --~ length of residence in
V J
Orange County may be considered in assessing the applicant's degree
of commitment to the community. Preference will be given to Orange
County residents during the loan review process
3. Applicants must be for-profit business entities whose gross revenues do
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not exceed $3 million/year.
4. Applicants must be willing to contract for management and technical
assistance if determined fo be necessary by the Loan Committee.
5. Applicants must have an equity contribution in a-~~tl~the business of
at least 10~%.
6. °
All owners of the business may be required
to execute an Unconditional Guaranty Agreement for the full amount of
the loan. Additional Guarantors may be required by the Loan
Committee.
7. Applicants with any natural person owner who has pending criminal
charges or who has been convi-cted of a crime and is still serving an
active prison sentence, is on probation or is on parole is not eligible for
an Orange County Small •Business Loan.
ELIGIBLE USES OF LOAN PROCEEDS
1. Working capital or operational funds.
2. Purchase of equipment, commercial-use vehicles,. or machinery.
3. Improvement of owner-occupied commercial property. (Owner must
occupy 50% or more of total space.)
4. Start-up funding.
5. Expansion of business services or products.
6. Acquisition of owner-occupied commercial real estate (7- year
maturation).
7. Tenant upfit and lease-hold improvements.
8 . A small business loan request that is to be used in conjunction with other
21
financing will be considered on acase-by-case basis.
9. Work force expansion.
LOAN PROCEEDS SHALL NOT BE USED FOR THE FOLL04VING
1. Refinancing of existing bank debt or investor loans. The Loan
Committee may grant an exception of u}~ to 50% of loan value.
2. Purchase of equipment or improvement of real estate which are used or
to be used for personal use.
3. Political activities.
4. Owner salary and- dividend payments beyond an agreed amount
5. Speculative ventures (Examples: drilling for gas or oil, commodity
futures).
6. Lending or investment.
7. Real property held for sale or investment.
8. Pyramid sales -distribution plan businesses.
9. Floor plan financing defined as a revolving line of credit that allows the
borrower-to obtain financing for retail goods. These loans are made
against a specific piece of collateral (i.e. an auto, RV, manufactured
home, etc.)).
10. Foreign controlled businesses.
11. Non-profit institutions.
12. Private membership clubs.
COMPLIANCE WITH APPLICABLE REGULATIONS
In all cases, loans made from this program must be consistent and in accordance
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with the following:
All state and local regulations governing the applicant's business.
2. Policies established by the-Loan Commmittee for each particular
applicant.
3. Policies established by the Board of County Commissioners de-cling
with this loan program.
AMOUNT OF LOANS
Maximum: $50,000. Minimum: $5,000. Should market conditions change, or in
the event of an applicant with extraordinary conditions, a loan in amount
outside of the maximum or minimum may be considered by the Loan
Committee. All loans are subject to availability of loan funds.
LOAN TERM
Maximum Term - 5 years (except 7 years for the purchase or-improvement of
real estate used or to be used wholly for the business purpose of the applicant.)_
Should market conditions change; or in the event of an applicant with
extraordinary conditions, a loan term in excess of the maximum term may be
considered by the Loan Committee.
INTEREST RATE
All loans will be charged finance charges based on a variable interest rate. The
variable interest rate (the "interest rate") will be determined by and be based on
the length of the maturity of the loan and an increment over the highest Prime
Rate ("Prime") as published on the first business day of the month in the Money
Rate Table in the Eastern Edition of the Wall Street Journal generally as follows:
Loan Term Interest Rate
0 up to 2 years Prime plus 2.00%
2 up to 3 ears Prime ius 2.25°10
3 up to 4 years Prime plus 2.50%
4 u to 7 ears Prime lus 3.00%
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The finance charges on the loan will be calculated by multiplying a daily
periodic rate (the interest rate~~ 365) by the unpaid principal amount of the loan
on the Last day of the billing cycle times the number of days in the month. The
daily periodic rate may vary from month to month due to changes in the
interest rate and will be determined in the same manner as the interest rate is
determined with the loan maturity date unchanged from that used to calcczlate
the interest rate when the loan is made. The Loan Committee will assign an
interest rate using the rate sidelines provided above to each loan commitment.
FEES AND EXPENSES
An origination fee, which may be paid from the loan proceeds, will be charged,
payable at closing, ranging from 1% to 1 1%z% but, in no case to exceed limits set
by North Carolina Statutes. The minimum origination fee will be $100. The
applicant will be responsible for all other- expenses related to closing the loan,
including, but not limited to, recording-fees and legal fees. The applicant will
also be responsible -for any fees related to any appraisals or reports required by
the Loan Committee.
LOAN REPAYMENT
Loan repavment schedules will be finalized upon loan commitment. All
payments shall be due as stipulated in the repavment schedule._~^ ~"^'~'^^"
r*~ ~-~^-•^~~~-^r. A late payment will be assessed at 2% of the payment amount
after the loan becomes 15 days overdue. Loans may be prepaid, in whole or in
part, at any time without penalty. In the event the loan payment becomes 30
days overdue, procedures for the Collection of Delinquent Loans shall be
followed. 'r, r r, - -•,-,- •n ~ r,,• 1.. ,. ,..,, ,.~i, ~; c .,^,;r,,,,,,,-,~
a"
awl:
COLLECTION OF DELINQUENT LOANS
If a payment becomes 30 dam overdue the borrower will be contacted. If
extenuating circumstances warrant the loan maybe restructured to encourage
a ment. The Loan Committee will evaluate the loan as a whole and determine
if a restructuring is beneficial to Pro~~ram.
8
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Once a pavment is 60 days overdue, a plan to collect the outstanding balances
will be developed in conjunction with Orange County's legal department
Individual Collection Plans will be tailored to -the outstanding account but maw
include one or more of the following activities•
When a borrower is 60 da~past due a reminder letter is sent advisuzg of
the outstanding loan and of the late pavment charged as detailed in the
'Loan Repayment' section above;
A collection letter is sent when the account is 90 days past due and mad,
contain additional penalties;
Accounts that are 120 da~past due may be turned over to a professional
collection agency.
LOAN ANALYSIS
The Loan Committee shall review and consider a number of items in
determining whether a loan should be made: Those items shall include at least
the following:
1. Business plan.
I 2. Current and projected £employment (including ~ _~;e-future
need for employees; skill levels and education required; employee
compensation, health insurance, and other benefits).
I 3. Business financial statements. (Past two ~-years plus interim)
I 4. Tax returns. (Past two ,ears -personal and business--~~e~r-~)
5. Pro formas financial statement projections- that m-av include
monthly cash flow, profit and loss and additional stat-ernents
as required by the Loan Committee) to determine i€-that there will
be sufficient cash flow to meet obligations for 2 years.
6. Personal financial statements.
I 7. Information regarding collateral and a current personal credit report.
8. Other available financing including, but not limited to, whether other
9
25
financial institutions have agreed to consider traditional .debt financing
and under what circumstances.
9. Any other information that the Loan Committee determines that it needs.
SUGGESTED LOAN GUIDELINES
1. Creditworthiness -Although applicants will be considered with credit
ratings showing a history of accounts up to 30 days past due, preference
will be given to borrowers with good credit ratings. Applicants with
bankruptcy or prior to repossessions listed on their credit report will, in
most cases, be considered too great a credit risk for this program.
2. Cash Flow Coverage-The loan program is targeted to applicants with cash
flow coverage, prior to-loan program debt, of not less than 1.1 to 1 to
current maturities of long-term debt. Cash Flow is further defined as net
income plus depreciation.
3. Debt to Net Worth- The loan program is targeted to applicants whose total
I .debt does not exceed net worth by ~-4 to 1.
4. Collateral -Loans shall be secured by appropriate forms of collateral, with
recorded first lien positions as appropriate. Acceptable forms of
collateral will be based on commonly accepted definitions (fixed assets,
inventory, accounts receivable, land; building, equipment, or personal
assets).
e4-Eella#era~~~~ts~~8°~-ate~~eeer~l~~~~-,~-'~~rted to
a~ee~t~-r~erT'~lesart ~C~~ys gage}-~p~~~ed~eal es#-a~te-
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v r 'i «.r vc~.uYi~ ,
1~,,~~,s_~elated real es~ate~a~nm-~~~~e~~v eq~~e~--wed
°
PROCEDURES
1. Applicants will be referred to the Orange County Economic Development
department (DepartmentL Department staff
will meet with applicants and process applications. Applicants maybe
referred to the SBTDC for consultation.
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26
2. Completed applications will be submitted to the Loan Committee no later
than two weeks prior to its next scheduled meeting. `''"~~~
3. At the ~~+~scheduled meeting, the Loan Committee will discuss the
strengths and weaknesses of complete loan application s) and decide
whether or not to take action on the request, based on the information
provided. The Loan Committee may invite the applicant(s) to a meeting_
in order to provide additional uzformation.
4. The applicant wdl be informed in writing of the Loan Committee's
decision to deny, grant, grant with condition, or seek more information_
Should -the Loan Committee deny the applicant's application, the Loan
Committee will not thereafter consider any applications from that
applicant for at least six months.
54. At its discretion, the Loan Committee may impose any additional terms
and conditions necessary to improve the loan or to secure the loan. The
Loan Committee may require an itemized budget detailing the proposed
use of loan funds:
I ~r5. Should the applicant think that the application has been improperly
denied, then the- applicant may notify, in writing, the Loan Committee.
The notice to the Loan Committee shall state why the applicant thinks the
loan should be approved. Denia-l of the application shall then be given
further consideration by the Loan Committee. The Loan Committee's
decision on the loan is the final decision.
g7. The Loan Committee shall provide regular''. ?^~^'- ^,,.,,.,-^•-~-~~-reports to
- z-------~,
the Board of County Commissioners of loans that it has approved. Any
event of default or loan loss shall be reported to the Board of County
Commissioners in writing and presented to the Board of County
Commissioners at its next regular meeting following the event of default
or loan loss.
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27
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PORTFOLIO MANAGEMENT GUIDELINES
1. Loans to start-up businesses shall not exceed 25% of the loan pool.
2. The total of loan principal past due 30-days or more shall not- for any
month exceed 10% of outstanding loan commitments.
Any exception to the above will result in a moratorium_on_future loan requests
and a review of these loan guidelines by the Loan Committee.
~r-7-7=Ti(ir'1#Fii~ nr~ ~- ~f' ,.,~ ~ ., .7 a.
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12
~~ ~
Orange County Small Business Loan Program Company
Jim Evans
Harrington Bank
1203 Martin Luther King, Jr Blvd Chapel Hill, NC 27514
913-1971 (W)
jevans(c~bankatharrington.com
Brad Curelop
BB&T
351 S. Churton St
644-0899 (w)
bcurelop~cr~.BBandT.com
Clarence Grier
Orange County Finance Director
245-2453
cgrier(rJ_co. orange. nc. us
Kathleen Yarbrough
517 Central Avenue
Hillsborough, NC 27278
998-213 (W)
kVarbroug~grimaiLcom
Sherry Gray
Yesterday and Today Frame Shop
110 Boone Square • Suite 25 • Hillsborough, NC 27278
919-732-9795
sherrygray(c~yesterdayandtodayframeshop.com
Valerie Foushee
106 Claris Court
Chapel Hill 27514
245-2~i3U (w)
vfoush~e(a~co.orange.nc. us
Gary Shope
Orange County Economic Development Commission
P.O. Box 1177
Hillsborough, NC 27278
919-245-2325
gshope(a~co.orange.nc.us
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