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HomeMy WebLinkAboutAgenda - 08-04-1997 - 9c r ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT MEETING DATE: August 4, 1997 Action Agenda Item # q. C.. SUBJECT: Orange County small Business Loan Program DEPARTMENT: EDC PUBLIC HEARING: Yes_No X_ BUDGET AMENDMENT NEEDED: Yes No ATTACHMENT(S): INFORMATION CONTACT: Summary of Loan Programs (5-9) Ted Abernathy(ext. 2325) Draft Loan Program Operating Geoff Gledhill (732-2196) Policies&Procedures (10-19) TELEPHONE NUMBERS: Attorney's Letter(4/25/97) (20-21) Hillsborough - 732-8181 Summary of Small Business Loan Program(22) Durham - 699-7331 Mebane - (910) 227-2031 Chapel Hill - 967-9251/9684501 Purpose: For the Board of County Commissioners to consider authorizing staff to proceed with legal actions required to initiate the Orange County Small Business Loan Program. Background: The Orange County Economic Development Strategic Plan states: "The EDC should expand financial options by developing an Orange County Loan Pool for small businesses." At the strong encouragement of the EDC Board of Directors, staff began working to develop a loan pool in 1995. Initially, meetings were held with local small business assistance providers and bankers to determine the major obstacles preventing additional small business lending locally. Three areas were identified as being problematic for borrowers. First, banks are reluctant to fund small requests because of the lack of profitability. Second, conventional lending sources typically require a large percentage of owner equity to qualify for a small loan, usually in the 50%range. Third, any problems with the credit history of a potential borrower can make an already difficult loan impossible. After identifying the gaps, various types of public sector programs were examined. The City of Charlotte and thirteen participating banks offer loan assistance to new and expanding businesses located within the uptown part of the city. The focus is on producing jobs for low to moderate-income individuals. The bank provides 80 percent of the loan amount and the city provides 20 percent, which serves as equity. The rate on the bank portion of the loan is prime plus 1.5 percent. The repayment of the city-extended portion of the loan does not begin until the bank portion is paid off, as a result, the city portion is considered as equity. Since the program began in 1991, 65 loans have been made for a total of$8.9 million. This revolving loan fund aims to provide capital for start-up or expansion of small and/or minority 1 2 businesses. Program emphasis is on creating new jobs to assist low to moderate income persons. The guidelines call for one new job for each $15,000 of city loan funds. A hiring schedule is also required from loan applicants. The City of Greensboro created a program to provide debt financing to minority or female-owned businesses to assist them in obtaining conventional commercial loans. Loans are made in connection with the applicants' effort to obtain financing for start-up funds, property or equipment acquisition, and working capital needs. Loans range from $5,000 to $50,000 and have a maximum term of five years. The interest rate is prime rate plus 3 percent to 6 percent. The Wake County loan fund is administered jointly by Wake County and Self-Help for the purpose of supporting small business development. The fund seeks start-up and small business applicants who earn less than 80 percent of the median income in Wake County. The program is open to all applicants but focuses on loans to women and minorities. Loans must be secured if collateral is available, and a personal guarantee is required. In 1995, four loans were made for a total of$44,500. All businesses in Wake County qualify except for those in Raleigh and Holly Springs. Loan funds can be used for real estate, equipment, inventory, supplies, and working capital. The Raleigh Small Business Success Program was formed by the City of Raleigh along with major banks in the city to stimulate business development and create jobs. The program targets those small businesses located in the southeast quadrant of the city. The amount of the loans range from $10,000 to $125,000, subject to the availability of funds. The maximum term is five years for a general loan or seven years for a real estate loan. The loan can be used for working capital, equipment, expansion of business services, start-up funding, or improvement of owner-occupied commercial property. The Forsyth County program was founded to provide services to small businesses that have fewer than ten employees and annual sales less than $500,000. The focus of the program is on start-up, existing, and home-based small businesses located in East Winston owned and operated by minorities and women. Loan amounts range from$500 to $5,000. Funds from the micro loan program of Winston-Salem/Forsyth County are available to businesses within the target area or in the F. Roger Page Business and Technology Center. One job that benefits low to moderate-income individuals must be created or retained for each $25,000 borrowed. The business net worth cannot exceed $6 million, and net profits much average less than $2 million during the previous two years. Loan amounts range from$1,500 to $50,000 with a maximum term of 5 years. 1996 loans were available at 7 percent per year plus a 1 percent origination fee. All loans are secured through collateral. The City of Durham's Prime Rate Loan Program provides low interest loans in conjunction with local banks. Loans are eligible between $12,500 and $500,000 and can only be made for construction and rehabilitation of property. Since 1995, six loans have been made totalling $357,000. The loan pool is targeted at projects in the downtown and is authorized by enabling legislation approved by the General Assembly in 1994. Many other programs exist, including the highly successful Carrboro Revolving Loan Fund. The Carrboro fund, initially capitalized by Community Development Block Grant funds in 1986, target 3 Carrboro fund, initially capitalized by Community Development Block Grant funds in 1986, target for-profit and non-profit businesses in Carrboro that have been turned down by at least three banks. Priority is given to projects in the downtown business district. In the past 11 years, approximately 20 projects have been funded,totalling approximately $750,000. A chart created by the Small Business and Technology Development Center summarizing Federal, State and local programs is provided as Attachment 1. After looking at the various options available, discussions were held with bankers and business assistance providers to develop specific criteria. In December 1995, draft operating policies and procedures were presented to the Board of County Commissioners for input. Final draft procedures and exploration of administration options were completed in spring and summer of 1996. The Orange County program most resembles the Raleigh Success Program. Final draft operating policies and procedures are provided as Attachment 2. After reviewing the proposed loan pool, it is the County Attorney's opinion that, in order to be legal under North Carolina law,a non-profit corporation needs to be formed. See Attachment 3. The non-profit corporation would legally function as the debtor in the bank transactions. The County would contract with the non-profit to perform loan pool administration. The proposed administration of the program would involve several groups. - Marketin - Economic Development Commission,using existing staff • Technical Assistance. Loan Package Pre12aration - Small Business and Technology Development Center, as part of their on-going contract • Underwriting and Loan PackagLn g - A third party contract • Servicing and Collection - A third part contract • Follow-un and Administration - New non-profit, using existing EDC staff The budget implications are as follows: • $50,000 per year for three years as a loan loss reserve • Maximum of$11,000 annually in professional services to contract for underwriting, collection, and servicing • $1,500 in additional supplies and printing costs for marketing • $23,000 (estimated) in staff time that will not be a new cost There are numerous options that can be considered when developing a loan pool. Each local program operating in North Carolina is different. A summary of the most important specifics is provided as Attachment 4. Recommendation: As the Board directs. CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES ATTACHMENT 1 4 QUICK REFERENCE CHARTS FEDERAL GOVERNMENT SOURCES era PROGRAM LAME APPLICANTIYPE' _ ,�<,_ -DESCRIPTION w .T_ `"DISSURSEMENTAANGE Small Business Administration 704/344-6563 n' t' Most Stan-ups and small SBA guarantees up to 809e for loans under Maximum guarantee is$750,000. Cost businesses eligible.Special $700,000 or 75%for loans over$100,000 Gwranteed 7(a}Loar► includes fixed or variable rate of loan plus rules apply for some made by private lenders. Loans range from 7 guarantee fee plus service fee. uexr ?;r industries. to 25 yrs. Most start-ups a One page application.SBA guarantees up to Guarantee at NY prime+2 1/4%for less nd small than 7 yrs loan plus 2%guarantee fee plus LowDoaPrograsn 90%of loans made by private lenders. Max. businesses eligible. .5%service fee.409 loans for over$22 guarantee is$700,000. million to NC businesses in 1995 Small business desiring quick Participating SBA lenders use their own loan FASTRAK of turnaround and requiring a process to make guarantees without SBA prior Loan guarantee is for on maximum relatively low guaranty. review. total loan amount of$700,000. Existing small business with Guarantees 75%of total loan amount.Max. Revolving line of credit for short-term or CAPLinks Revolving One cyclical or short-term need. guarantee is$750,000 for all CAPLines fluctuating working capital needs. Accounts -t Credit. Same size requirements as except the Small Asset Based Line which has 7(a) rece ivable or inventory used as collateral. max.of$200,000. At 3 Small businesses engaged in Combined effort of SBA and Ex-Im Bank to Maximum amount guaranteed is$1.25 International Trade Loan int'l trade or adversely support small businesses expanding into million consisting of$t million for facilities Program impacted by competition from export markets.Can be administered under and equipment and$250,000 for working 1 imports, either SO4 or 7(a)programs. capital. ' T 'Export Working Capital.; exporters who need short- Funds are loaned to small businesses needing Maximum guarantee is 75%of loan or Program,, ,i'- term working capital transaction-specific export financing. $750,000,whichever is less. _ 1 Any NC business that is at u feast 51%woman owned with SBA issues a prequalification letter of Pregtafified Women's-. guarantee to the owner of the business to be Maximum guarantee is 75%of loan or Loan P less than$S mm in annual given to the bank.Non profit intermediary $250,000,whichever is less. s sales and less than 100 re helps e application and secure loan. employees. P P Par aPP Defense oriented businesses Total loan amount may be for 51.25 million. Loans to enable defense dependent firms to DELTA looking to diversify May be administered under SD4 loan j operations. diversify into commercial markets. program or 7(a)loan guarantee program. 7j w Businesses with less than$6 Long-tern fixed asset loans up to 20 yrs. CDC loan portion cannot exceed 400/6 of mm net worth and average made by combo financing of SBA backed project Maximum SBA debenture SO4 t0W income less than 52 mm over CDC's and banks.Rates based on current supporting the loan can be up to last two yrs Treasury issues plus guarantee fee of about $1,000,000. $46.5 million in NC loans in i 3% 1994. Start-ups and small businesses e -,.r^ a •+.»t ,a..a�:.:. SBA provides qualified intermediaries with Up to$25,000 loans.Rate for loans is 7.75% s .y owned by women,low A4raoloan Program funds that are then used for short-term,fixed to 8.S%above lender's'cost of money'i.e. ,a1 s income;and minority ingest rate mieaoloans to small businesses. US treasury(S yr.)rate minus 1.25%. entrepreneurs. _ Five Small Business Investment Companies Small-Business Investtment Any start-up or small business (SBICs),licensed by the SBA,provide equity Varies Company Program(5810 with high growth potential. capital and debt/equity combinations to high y growth companies in NC. Participating federal agencies solicit for R&D Small Business iii novzfion Start-up and existing Phase 1 $700,000 grant proposals and award funding to qualified .Research Program.:.:. technology-based companies. Phase 2 5750,000 grant businesses. 5 i i t T t 1 1 CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES tj OTHER FEDERAL GOVERNMENT PROGRAMS PROGRAM NAME APPLICANT TYPE OESCRIMON DISBURSEMENT RANGE RESTRICTIONS National Institute of Standards and Technolm (Dept of Commerce)800287-3863 R&O grant$are made on the basis of either Single company can receive up to$2 million Proposals muss be submitted on time and ..Advanced Tecl eollW Large and small toanies. preynthoxnced tecMotogy topics or via an over three years.$20 million available pr - Progress - - oriented companies' annual general competition. annually f«the general competition. projects must be o!high technical risk. Econamie Development Administration(Dept of Commerce)803/765-5676 Set up in conjunction with EDA funds to establish RLFs range from EaonomieAd'psaraar Provides funds to establish revolving loan Potential RLFs must be looted in areas man-profit organization that f100.000 to f1.5 million.Individual RLFs set expertem g vent employnnen (Tittle Fu 00 Rev AR)Loam. funds in distressed areas ill fazed assets and in hi tin t.low represents area.funds then own polity.General EDA guideline is$5,000 Rtttds(RtFsl- .. loaned to small companies waking capital loam. loaned per job created. Per capita income.or chronic distress. - Rural payekWomt Admmwtntiom(Dept of Aviculture)919/873.2000 RDA guarantees up to 80%an loan Tess than Priority given to applicants,in towns with 1p u less than 25,000 people.10%equity lmdistred La Rural fuss in airy industry $5 million and 70%on loan greater than$S maximum$10 million guaramee. na. required f«established business.20% million. required for start-up. RDA makes loam o nwau.predt organizations 75%of project casts not to exceed S7 50,000 Must be unable to ge funds elsewhere. latteaearediaey Rdatditg Rural firms,any industry. who relend to smell businesses or stan•ups in per borrower.Term and interest rate Projects must createstsave jobs.Firm must Progr Own rural areas involved in any industry. negotiated by borrower an intermediary. be located in town with pop.under 25,000. i} Fart Service Agency(US Dept of A ricWmre)919/790.3057 Maximum amending principal for direct Must be unable to obtain funds elsewhere. . Operators of family size Direct barns and loan guaramees made to loam n 5200,OOO and br guaranteed loam is Borrowers voccennug direct loam arc Farm Look:1 farms. buy,improve,or enlarge farms. $300,000.Loan is secured by real estate expected to finance using commercial involved. coutces when(easible. Operating loan rands maybe used to pay for Operating have satisfactory history or deb Maximum tstanding principal for direct Operators of family size loans is$200.000 and for guaranteed loans is repayment May be used to refinance only Farm Operating Leter- farms, items such as Livestock.equipment,seed,cr $400,000. m Loa are for 1 to 7 years or when certain rm ain debt.Collateral is in the fo of a insurance.hired labor,etc. financed product is sold. first lien. 3 US DeparOmett of Energy 202/586-1478 Invenors and small Only one-time assistance available. Stargy4Rd9pd ktvatii, businesses involved with Grant programs for energy-related inventions Average award is$83,000 since program invention must be recommended for an f4otras : the development of energy with commercial potential. award by NIST. technology. Inventors and small Provides seed money for energy efficiency Seed money ranging from$15.000 to i ItuwvatiwGttnuapes businesses involved with ideas o determine if @W are technically and $20.000.M avenge of 75 innovators per li+c aO�ann realm de tight to publish t pmgras the development of energy camorcially feasible. cycle receive funding. can generated by the funded projects.. 1 techrtology. US Expotbfnyert Barak 800258.0862 j Guarantee of up to 90%of principal.No limit Woef�g Small and midsize Guarantee for lenders making up to are year Finns sun have been operating f«x least on loan sizes Rate is l is in the by lender and one and at least one full-time ,. exporters domiciled in the working capital line of credal available b Y'� • U5. egtaten, borrower.Collateral u in Use form of export principal.No defense protkrev or services. 1 inventory. • Foreign buyer of US goods Fixed inNrea ran bang for two«mare years Up to 85%of cernrad price.Rates based on Buyer must make IS%cash WYmard.US _ : and services where to f of US and U.S.Treasury rates and ban repayman exporter must face officially subsided Dtrett Lewd Msyas+ foreign buyers urpdpunenn foreign competition,except where ban financed portion exeoeM sernicex $70 million. amannt is$2.5 million«less. GrsvaiNas 10 ,` Any qualified foreign buyer interest rat$export loins o foreign buyers of euanmee d 700 R.rf k»rt up w a maximum Buyer must make be m h payment : of US goods and nMc@L US� or 85%of the contract value. Guxarree may be for my amount to Weer d Ire .Affair 703ra3-1303 Irtdan owned business Guarantees f«up to 90%of loan up to max. Fads must be used by a bnpmfe bustrtess ++ Ltteiat�Csatatre_... bataf8ktg economy ol s Loan rAwanteur o assist ktrfam and Indian gu off 500.000 per individual or 52.5 with at least 51%Indian ownership that W federally recognized econe-t kudian tribes in starting and expanding their own million per vibe.Loan tam may not exceed will benefit a federally recognized Indian ,..D� $ Reservation. businesses. 30 years, tribe. 8 V/ CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES 6 STATE PROGRAMS _.TROGRAM NAME.,,,._'';! A/l icmal1TE.v,,. , !-::`DBCRIpn1ON .. :DISC AMMEIM RESTRICTIONS NC Dept.of Caahsrat-Carermm Fiurtce Caper 919/7335297 -?v Frog a^applies want SS,000 per nonrtanufamurtng job Loan is negotiated under a participation .FstpessieDarelapedait - be local gmernment unit Loan an be used far eastruaion, created. $15,000 per mfg.job created agreement with bard" individual firm. PD�IG,s,;z;, in conjunction with bank renovation,laud acquisition or She purchase SOX of 1996 Economic Uevelaprnmeu and local government applicant Bank •' s.;.. -.„r of new pugrnenl funds woe sot aside for small business runt provide at leap 50%of loan .�.' and small business. ,,,;, .-,,;,,...n.,.•+. loan protects. capita, .s•. """`° COBG funds are made Lawn funds exist only in some counties. available to local Local governments set up fords using Ip�Fteti govemmnents who set up technical assistance from organizations $100,000 to local government applicant Funds roust predominantly benefit low CDfG for its micro enterprise program. to moderate income persons. In NC 98 microeuoprise lean experienced in macro-enterprise lending. counties are eligible. i funds'. ig itsainrt' • e, Commercial business Loans are for capital related energy $100,000 to$500,000 per loan for up to T improvements such u energy saving motors, 7 years at rate not higher than 5%.Funds Requires letter of credit from a '.. Pregame�". located oc moving to NC. biller improvements and low I' i are hied from a participating bank. m provemen energy igFn ng• provi part of$2.5 million. .- - Laing-tend,low interest financing.Law rates Maximum tax exempt bond amount is Available only to firms paying 10% Manutactving companies available on low serest issues because the $10 million per jaise iction over a six year over the average county wage. Funds Imisslral Rovrdrss nand faacquiring fixed pants. bads are sub' period.1996 state volume cap was$337 must be used for capital expenditures. legit to federal income tax. m million.Taxable issues are not subject to New firs must put up 25%of the Usually 8 to 10 yr.maturity. this limit bud amount • - Campantes with over 5 Tax credit for businesses creating jobs in 5500 to 512,000 per job created A max. The new jobs must pay 10%above the lobCreeliarlJan Credt em of S0%of total tax liability can be offset average weekly manufacturing wage of ploy— eligible industries. over a four year penod. the county Must be used for manufacturing liviis so-W Du"elopMp hind Local Government Fads available for ra creation of $4,000 per job,up to a maximum of proles in a county designated as ....:. .. ....: .. Applicants nunuauturing and P« ^8 lobs• 5400,Ot30, economically distressed NC Dem.of Camoo ee-Division of Cimmounit f Assistance 919/733.2113 Isemeeliwee Eceeoreie Unit of local government Each year program focus changes. Devdepsatt Dopoa�ation in partnership with private Assistance for local projects targeting a Up to$350,000 per award Taal of$1 1996 focus is on projects that aid W companies. specific state need. million available in 1996. people emerging from welfare or substance abuse programs. NC DeFYL of Commerce-International Tri tle Division 919/7337193 i Exporters can increase their profit margins by Generally 15%of eigwrt profits are ran FSC becomes cost effective when exempt.Maximum tax savings can be as excluding a potion of Heir foreign sales export sales reach 5500,000.Must Foeeryd.Salm Corp. Exposers intone from federal and state taxable high as 30%.Less than S%of U.S. have m Mast one director who is not a intone.Formation cost starts at$2.000. exporting companies take advantage of US reswent. FSC option. Y NC DepL of Commerce-Business and Industry Division 919/73341 S1 - - Businesses locating or Marry can be used for equipment.structural Average award is about$250,000.$10.5 IrndealrW RaapiYuswt expanding in NC deer repairs,renovating buildings,and million off 12 million fund committed Only a selected group of small CatpMbve Fuld- to be vital to a healthy construction of or improvements to new or between Dec.93-hrn.95. businesses and industries. Mate economy. existing water,sewn,gas or electric. Nertln Cardin asst ' Itnrre 919/7312113 ",.. .,. Low interest loans offered on a participating Assets are currently used ably for farm NmW Carolina AWW " basis with the Real Ecoromit and Rural families N/A purchase and improvement loans and Rural Agency and the loans to small food Agricultural Finance Authority operations in rural areas.' � t i i 1 i� 1 i i 88 l...APi (AL \JrrLJI<I iJIVI i IcJ rl)K J1�1In�L DUz)I-rc»c) 7 1 OTHER STATE PROGRAMS PROGRAM NAME APPLICANT TYPE oisa rnoisi DISBURSEMENTS RESTRICTIONS Seerelam of State-Seeunties Division 919/733-3926 Corporations,individuals a indMo0 per year available far Must invest in a quafified business opar pass Provides a credit against state axes for $50.000 per year pe year NC Imegs�a0.Tax Credit:- through entities making qualified corporations and individuals who purchase venture with less than$5 million in _ investments, securities of a qualified business venture. avaliade for a pass per annual sales. North Carolina State Pons Authority 800/331.0682 `- Tax credit can be earned on cargo wharfage Credit canna exceed So%of the .Poet Wbafage Credit Exporters who use ports m and handling fees exceeding the average for Maximum cumulative credit may company's total state tax liability per Morehead City or Wilmington. the last three yeas. not exceed$I million. year.Tax payer must Provide required documentation. North Carolina Biotechnology,Center 919/511-9366 Funds must be used for R&D in a Etxtiemir:Derebpswert P+rarne New a existing businesses in low interest loam d seed nptal provided to Maz.$250,000 per award biosciesce related field on a product Peogtna' = biotechnology related fields. fund early R&D activities. About$500,000 per year. with commercial on a pr. :.5818 Matdtitg Fad., Companies involved in the Fed Provides assittance to help companies bridge Up to$50,000 far beginning Funds must be paid back in entirety in Govt SBIR Program gap between Phase 1 and Phan II furndieng work on Phase 11 objectives. three years along with service fee. Designed to promote cooperation between Company must contribute at least CAUA*rative f A&Ng universities and private companies in Max.$20.000 per award.1995 ._,. Biotech or biasciences firm. university$10,000 and univsity is expected to Assistance Nisgrasr w discovering commercially appifcable awards totaled about 5300.000. _ technology. contribute$10.000 of krkind ervi sces. Nordin Carolina Tedmologial Development Authority,Inc 919/990.8SS8 . Early cage.high growth Investment to$250.000 in equity Iraovaiee Reteardt Fsad businesses seeking Investment fad established b invest in early a convertible debt investments. Must be easily sage,high growth NC- g investors. stage,growth ousinewes in NC. Invested in seven companies in Based Companies 1995. Small business interested in In 1995,175.000 spent on First Nigh System minimizing overhead through System of non-pro it business incubators existing incubator enhancements Limited space is available. Rural areas - shared facilities. housing about 175 companies in 1995. and$250.000 spent for two are targeted for future incubators. -.._... _ new incubators. First vasatre Cate•. �h'stage technology-based Incubator providing space and service,in - f'h6h small companies, for 16 to 20 companies. WA Technology-based small companies NC Rural Eeanassse Devebpnneed Cents 919/821.11 S/ Loans are made 26 participating bunks Average loan size is about Available to businesses missing an by Per w ich . NrxrdnCaolreaCaptal Acaese 555,000.57.2 million in Iwro dement,such as props colluaal, Any business may apply. protected by a capita reserve which allows for more aggressive loan decisions. made from Sept.91 through Apr. needed to qualifying for a 96. corwentional business loan. Child Day Care.Loas Grasansee Start-up or expansion of child Loon can be used to finance land,building, Guarantees 80%of loan up to Limited to economically distressed Fwsd� - cue facilities, or egnaome t needs. total of$75.000. counties. Up to$8,000 for group loans Small business"owned by rual,Group lending involves bres a to groups of/ after smaller loam are repaid In Group lend n&members are not Mioos•Ierpeii►loifte rl bass► low-income minority,or female 10 pesos who function as a unit.Individual Up to$25.000 for individual able to receive additional financing persons in one of 78 lending is reserved for more established firms loos to more established finis. until all individual loans are up to date participating;coontes with large capital needs $2.7 million loaned 1989 to rmd on payments. 1 ENTREM FURIAL COUNCILS 919 1511-4412 apical Counctls don't provide apical,but Any small business. CmaDtchirtg entrepreneurs with investors. None provide the opportunity to network and seek out capital opportunities. '._ 89 CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES $ t . t tt PRIVATE, NON-PROFIT, AND LOCAL PROGRAMS ....►ROGRAMNAME ::sr`sa,: -.APPLWAWTYPE. __ ,._ '.°DESOtIrIION•. --_ ..:: DISWRSFMENFS RESTRICTIONS Center for Care msen,Sa44Wp 919/9S6-M00 f Sol$4sdp VoaYa A"-*el 4%* Varies depending on (.)Self-Help ea is involved A micr in SBA DA loans.SBA Specializes in loans of less than 71a)loans,SBA Microloans,RDA's IRP lemons, $25,000.Made 510 million in Varies LJwa . +.=M =:�- program• and administers other local programs. commercial loam in 1995. 1 Initial bans for up to$500.After No group member can get Good desk Triangle area starwps or Group lending at 13%rate.Program involves repayment,loans available up Ica additional loam unless all other business expansions. groups of individual forming Loan Circles. $10,000.Since 1992,bans 101 50 individuals we current on ` ...._... ::r.._.::." ., btanness for$85.000. WYrnevms• Local Governissent Programs Loans to businesses who hire people from the Loan size is determined by individual Chapelle Ciey Within a City Any business type within city within a city boundaries in Otarbae, bank.Since program began,the city Businesses must employ low to ' program boundaries. Banks provide 80%of the financing and the has loarved$961 k and the banks$3.8 moderate income individuals. city of Charon provides 20%. m. C1usLasq Seasonal.c DewMpnsawt Small business or nan-up Emphasis is on creating jobs for low to middle Must create one new job fo each '.( in'Pocket of Poverty'. income persons. Revolving loan fund. $15,000 loaned. - _ Minority or woman The kind provides debt financng to assist Lon range from$5,000 b SSO,000 et Gi e Vie i�' owned business located in ���in obtaining conventional interests rakes of prime plus 3 to 6% Business must be fo-prat with riot Greessbord m Guilford comercial loam. with max.term of 5 yrs. worth less than$6 million. County. Loam at 10%to 13%b be used for real Loans range from$l O,OW to$50,000. Business must be owned by a WAv�y W�Corny except for estate,furniture and equipment,inventory. Four loam totaling$45,000 made in create Id's for Fow/moderatc Developens"L.Ftwd Ratio and Holly Springs. income employees.Personal - supplies.and working capital. 1995. guarantee retryirod. - Lon can be used for limited 9nsaN Rsraistr 9toe� Small businesses located Major banks and the city d Raleigh created purposes.Term is limited b S yrs. Flow City.the southeast pan of the thus program b stimulate business $10,000 to S 25,000. fa loans,general loa 7 yrs.for real + City. development and the creation of jobs. estate bans. Minn famrprie Lon,leagaans of Small businesses in Offers small loam of$500 to$5,000 covering Must have less than 10 employees and New for 1996 wmsw.S@kM/Fonytlt county. County. a wide variety of needs. annual sales less than 5500,000. tK Salaia Rssisaes Lan, Winston-Salem Target Lens at about 8%to businesses that create &Anti s net worth canna exceed $1,500 to$50,000 per loan. Max.coven area and F.Roger Pages jobs berkefiung low to moderate income $6 million.7 Collateral preference •.` reSrars'x' _. Business DeKfop.Comer. individuals. is 5 yds. of 75X ban b values. Odw Program; Lear*at prime rate to minority businesses to Company must have a confirmed NC cenifked minority contract with a member of National Rraisaes Con,sedms$mast help finance expenses a purchases related to Up to$S W.000 minority Supplier Devel erx businesses' a specific transaelim. y�CCoouncil. aPrn t .ftAaiaamin Carusia{ Stan and Loan P�created by nine participating Loans made in 3 range levels.Loan can Businesses must be in one of 21 1 +tips �On banks. Loam are at 3%over Rime and fora be as high as$150.000.in first half of designated counties in westem Cgroryae _ companies M Weston NC. max.term of S yds. 1996,made 2 foams totaling S75AW. North Carolina. v Small businesses in 10 Offers Iu>yts up to 550.000 or$15.000 One fund n structured based on A elladort RapewaF Caserer�os Participating wesom Allocons capita for two revolving loan funds. f lab created EDA guidelines,other fund On SBA e { courses 504 guidelines. NC Caafeiow of Faomsees.and Rural famines. Revolving loan kind for operating equipnen4 ��h,wider reorganization. Designed to provide support for --�_ •..Fsaia ° seed,etc vegetable farmers. i a f i h a i Y i i t 90 AITACHMENT 2 9 ORANGE COUNTY SMALL BUSINESS LOAN PROGRAM Operating Policies and Procedures Final Draft Proposal March 3, 1997 10 ORANGE COUNTY SMALL BUSINESS LOAN PROGRAM PURPOSE The purpose of this program is to stimulate successful business development and expansion as well as job creation in Orange County. The program will attempt to assist businesses that have limited access to financing through conventional means or other government guaranteed sponsored programs. AMOUNT Initial 3-year loan capacity of up to $500,000, funded by commitments from local financial institutions. COMMITNf 'NT PERIOD Three years from the date of execution of the loan agreement. ELIGIBILITY 1. Businesses located within Orange County. 2. Applicants may be required to participate in the NC Small Business& Technology Development Center(SBTDC)technical assistance program. 3. Applicants must be a for-profit business entity whose gross revenues do not exceed $3 million. 4. Applicants must be willing to contract for management and technical assistance if deters to be necessary by the Loan Committee and/or the Program Administrator. 5. Applicants must have an equity contribution in a start-up business of 15%. 6. Individuals with an ownership position of 20% or more of the outstanding shares of stock of the business will be required to execute an Unconditional Guaranty Agreement for the full amount of the loan. 1 11 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 financing vehicles will be considered on a case-by-case basis. LOAN PROCEEDS SHALL NOT BE USED FOR THE FOLLOWING 1. Refinancing of existing bank debt or investor loans. (Refer to exception in Collateral section. The loan committee may grant an exception of up to 50% of loan value.) 2. Purchase of equipment or improvement of real estate which is used as personal property. 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. Movie theaters. 2 12 9. Pyramid sales - distribution plan businesses. 10. Floor plan financing. 11. Individuals with pending criminal charges or who are incarcerated, on probation, or parole. 12. Foreign controlled businesses. 13. Non-profit institutions. 14. Fishing and shore operations. 15. Private membership clubs. 16. Buildings listed on the National Register of lEstorical Places. COMPLIANCE WITH APPLICABLE REGULATIONS In all cases, loans made from this program must be consistent and in accordance with the following: 1. All state and local regulations governing the applicant's line of 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 extra-ordinary conditions, an alternative loan ma be considered. All loans are subject to availability. LOAN TERM Maximum Term - 5 years 3 13 rNTEREST RATE All loans will accrue interest on a daily basis at a floating interest rate. Interest rates will be quoted based on the Wall Street Prime Rate plus a spread based on the maturity of the loan: 0-2 years Prime plus 2.00% 2-3 years Prime plus 2.25% 3-4 years Prime plus 2.50% 4-5 years Prime plus 3.00% Regarding term loans, Borrower will have option to pay interest at the floating accrual rate, or a fixed payment rate based on the following schedule: • One to three year maturity - accrual rate quoted at the origination date of loan +I% • Three to four year maturity - accrual rate quoted at the origination date of loan+1 1/2% • Four to five year maturity - accrual rate quoted at the origination date of loan+2% The loan committee may consider amount of loan, term, and collateral in making adjustments in the rate that they deem appropriate. The loan committee will review the payment rate at least annually in order to avoid negative amortization. FEES AND EXPENSES An origination fee will be charged, payable at closing, ranging from 1%to 1 1/2%, but, in no case to exceed limits set by North Carolina Statutes and can be financed in the loan. 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 REPAYIENT Loan repayments shall be due on the first day of the month. A late payment will be assessed at 2% of the payment amount after the loan becomes 15 days overdue. Loans may be prepaid without penalty. In the event the loan payment becomes 30 days overdue, the Loan Committee will establish and implement the Procedures for the Collection of Delinquent Loans. 4 14 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). Advance rates should be limited to the following percentages: Inventory - 50%; accounts receivables - 70% on accounts less than 90 days in age; unimproved real estate - 50%; commercial real estate - owner-occupied maximum 800/6 LTV, or 85%LTV on personal real estate; new equipment- 80%, and used equipment- 60%. 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 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 a cash flow coverage, prior to new debt, (as hereafter defined) 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 Worth - The loan program is targeted to applicants whose total debt does not exceed net worth by 3 to 1. LOAN PROGRAM ADMINISTRATION Administration of this loan program shall initially be performed by the Orange County Economic Development Commission. An outside vendor acceptable to the financial institutions and the County will be utilized to underwrite and service these loans, to include billing and generating administrative reports. PROCEDURE 1. Applicants will be referred to the Orange County Economic Development Commission who will meet with them and process applications. This process will utilize the services of the NC Small Business&Technology Development Center. 2. Completed applications will be submitted to the Loan Committee no later than two 5 ,a 15 weeks prior to its next scheduled meeting. The Loan Committee will normally meet once monthly. 3. At the monthly meeting, the Loan Committee will decide whether or not to take action on the request, based on the information provided. The applicant will be informed in writing of the Loan Committee's decision. Should the Loan Committee deny the applicant's application, the Loan Committee will not consider any applications from that applicant for at least six month. 4. At its discretion, the Loan Committee may impose any additional terms and conditions necessary to improve the loan or to secure the applicant's loan. 5. Should the applicant feel that his/her application has been improperly denied, then he/she should notify, in writing, the Chair of the Loan Committee of his/her position. Denial of the application shall then be reviewed by the Loan Committee for fiirther consideration. 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. Business financial statements. (3 years plus interim) 3. Tax returns. (personal and business- 3 years) 4. Pro formas to determine if there will be sufficient cash flow to meet obligations for 2 years. 5. Personal financial statements. 6. Information regarding collateral and a current credit report. 7. Other available financing including, but not limited to, whether other financial institutions have agreed to consider traditional debt financing and under what circumstances. 8. Should the Loan Committee determine that it needs additional information before granting or denying the application, the Program Administrator will notify the applicant of the information needed. 6 i 16 PROPOSED STRUCTURE The relationship between the participating financial institutions and Orange County will be evidenced by a Master Loan Agreement. Each participant will commit a revolving credit line on a non-recourse basis to an entity determined by appropriate legal review of the proposed structure. These credit lines will be secured by assignment of the loan receivables to such entity. A 36-month commitment period will be established during which time each financial institution will fund approved loans on a pro-rata basis. Funding procedures, to include a provision for an appropriate notice mechanism, would be established. At the end of the commitment period, to the extent there are amounts owned under the loan program, the amounts owed would be "termed" for a period of no later than the latest scheduled maturity date for loans outstanding to Borrowers under the program. The County will provide an irrevocable commitment to fund a loan loss reserve equal to 30% of the financial institutions' commitment. All financial institution participants will bear their share of any losses beyond the reserve(principal, interest, collection fees, etc.) incurred under the program. Collection procedures and loss procedures will be established. Repayment of the financial institutions' loans will be on a monthly basis and will consist of the net proceeds received from Borrowers under the program. The established entity will pay each financial institution its percentage share of those net proceeds on a monthly basis. This proposed structure may be subject to modification based upon the review and advice of appropriate counsel. LOAN LOSS RESERVE • In the first year a Loan Loss Reserve of$45,000 (30%) must be 100% irrevocably committed by Orange County prior to implementation or activation of the Orange County Loan Program. In year two, an additional $50,000 must be committed. In year three, $55,000 must be committed, bringing the County total to 30%of the one half million dollar loan capacity. • Loan Loss Reserve to be provided by Orange County shall be funded in an amount not less than 300/6 of the aggregate loans made during the term of the program, less amounts paid from the reserve to the participating financial institutions. LOAN COMIMITI'EF Membership shall consist of 6 representatives from the participating financial institutions and 2 representatives appointed by the County. Selection of the 6 initial members shall be made by the members of the Loan Pool Task Force, with no less than 4 members of this initial selection representing financial institutions serving on the Task Force. Appointees will serve staggered terms established by the Task Force in order to provide for future rotation of 2 members each 7 17 year. Future membership selection from the participating financial institutions will be determined by a majority vote of the sitting members of the Loan Committee, such election to occur annually during the month of June. Meetings will be presided over by a Chair, who will be elected by the Committee each June. It will be the responsibility of the Chair to assure a quorum is present (5 members or more at each Loan Committee meeting), to generally monitor the duties of the Loan Program Administrator, to make sure loan proposal packages are properly prepared prior to their presentation at Loan Committee meetings, and to oversee the preparation of commitment letters to approved borrowers. Such commitment letters will be signed by the Chair, with a duplicate signed copy provided to the County as part of their notice for funding the Loan Loss Reserve. 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 request 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 loan 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 defaultJcharge-of; etc.) 7. Conduct annual review of loan documents and credit files. 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 101/6 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. 8 18` SPREAD ALLOCATION During the first three years of operation, financial institutions will fund commitments at Prime minus 2%in order to provide sufficient spread to substantially defray administrative and servicing costs, plus provide a source to gradually replace the loan loss reserve established by the County. Annually, this entire issue will be reviewed and adjustments made as necessary. 9 ATTACHMENT 3 19 LAW OFFICES COLEMAN, GLEDHILL & HARGRAVE A PROFESSIONAL CORPORATION 129 E.TRYON STREET P.O.DRAWER 1529 HILLSBOROUGH.NORTH CAROLINA 27278 919.732.21% FROM THE DESK OF FAX 919.732.7997 GEOFFREY E. GLEDHILL April 25, 1997 Mr. Ted Abernathy Director Orange County Economic Development Post Office Box 8181 Hillsborough, North Carolina 27278 RE: orange County Small Business Loan Program Dear Ted: Thank you for the copy of the final draft of the Orange County Small Business Loan Program Operating Policies and Procedures . This letter confirms our recent discussions and the discussions we 've had with the representatives of the banks that have agreed to participate in the Orange County Small Business Loan Program. For the Loan Program to work from the point of view of the banks, it is necessary for the banks to "book" a loan equal to the amount that they make available to the program for loans to small businesses . The financial documents that have previously been reviewed and that were from the Raleigh Success Fund Program contemplated that this loan would be to the County. That is, the County would be indebted to the banks for the amount of the banks ' contribution to the small loan program. It is my opinion that the County cannot become indebted to the banks in this manner and for this purpose. The model for this program that works under North Carolina law is for a non profit corporation to be formed and for that corporation to "receive" the bank funds, incur the debt for those funds and lend the money to the qualifying businesses . From the bank ' s point of view, the money advanced for the loan program will be "booked" as a loan to the non profit corporation . The non profit corporation could perform other functions of the loan program but legally its most important function would be that of debtor in the transactions with the banks . The County ' s obligation to fund a loan loss reserve equal to 30% of the combined commitment of the banks can be handled by contract which contract can be funded by appropriations . - 1 r 20 Mr. Ted Abernathy Page 2 April 25, 1997 Upon approval of this concept by the Board of County Commissioners I can "create" the non profit corporation and the program can be implemented. It is likely that I will consult with Bob Jessup on the formation of this corporation and conforming the loan and other documents related to the financing of the project . I have spoken to Bob about this . He is available and willing to help . Bob' s expertise in government finance will make the implementation of this program more efficient . I recommend this matter be placed on the Board of Commissioners agenda for the May 21 , 1997 meeting ( it got "bumped" from the impossibly crowded May 5, 1997 agenda) . The issues for Board decision include approval of the Program Operating Policies and Procedures , proceeding with the formation of the non profit corporation and preparing the loan documents . I will have specific recommendations as to the composition and appointment of the board of directors of the corporation for consideration by the Board of Commissioners when the corporation and loan documents are presented for approval . The number of Board of Commissioner appointments will be no more than one less than a majority. If you have any questions about any of this, please advise . Very truly yours, COLEMAN GLEDHILL & HARGRAVE, P.C. G r y dhill GEG/lsg xc : Kenneth T. Chaviou John M. Link, Jr. lsg-8 abernath. ltr k ATTACHMENT 4 21 SUMMARY OF SMALL BUSINESS LOAN PROGRAM AMOUNT: 1/2 MILLION DOLLAR COMMITMENT OVER 3 YEARS ELIGIBILITY: ANY SMALL BUSINESS IN ORANGE COUNTY (GROSS REVENUES BELOW $3 MILLION) ELIGIBLE USE: WIDE RANGE, INCLUDING WORKING CAPITAL AMOUNT OF LOANS: $5,000 TO $50,000 LOAN TERM: 5 YEARS INTEREST RATE: PRIME PLUS 2% TO PRIME PLUS 3% COST OF FUNDS: BANKS WILL PROVIDE CAPITAL AT COST COUNTY PARTICIPATION: 30%LOAN LOSS RESERVE