HomeMy WebLinkAboutAgenda - 09-02-1997 - 9b ' 1
ORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
MEETING DATE: September 2, 1997
Action Agenda
Item # q_b
SUBJECT: Orange County Small Business Loan Program
DEPARTMENT: EDC PUBLIC HEARING: Yes No X_
BUDGET AMENDMENT NEEDED: Yes_No X
ATTACHMENT(S): INFORMATION CONTACT:
Letter to John Link Ted Abernathy(ext. 2325)
Policy&Operating Procedures
Agenda Abstract (8/4/97) TELEPHONE NUMBERS:
Attorney's Letter(4/25/97) Hillsborough - 732-8181
Summary of Small Business Durham - 699-7331
Loan Program Mebane - (910) 227-2031
Carrboro Brochure Chapel Hill - 967-9251/968-4501
Purpose:
For the Board of County Commissioners to receive additional information and to consider
authorizing staff to proceed with legal actions required to initiate the Orange County Small
Business Loan Program.
Background:
At the August 4, 1997, Board of County Commissioner meeting, the Commissioners discussed
the loan pool and had several questions and concerns. A newly revised"Operating Policies and
Procedures" is attached which reflects two changes requested by Commissioners, additional
changes requested by the County Attorney, and wording changes to some language to make the
document easier to read.
The two changes to the program proposed by Commissioners are to add an additional eligibility
standard requiring two years of Orange County residency by applicants, and to increase the
number of loan committee members appointed by the Commissioners from two to three.
If the Commissioners agree to move forward, we would bring the banks back together to get their
approval. The next steps would be to develop legal documents for commitment by all parties, to
develop third-party contracts for underwriting and servicing, and to"create" the non-profit
corporation, as recommended by the County Attorney, to receive the bank funds, incur the debt,
and lend the money.
Recommendation: As the Board of Commissioners directs.
'la
ORANGE COUNTY
rmmol ROW
P R E S E R V A T 10 N-P 110 G R E S S-P E O P LE
Memorandum To: John Link
From: Ted Abernathy
Date: August 27, 1997
Subject: Orange County Loan Pool
Attached is a new loan pool abstract and revised"Operating Policies and Procedures". In
addition to specific changes to the program, the Commissioners asked several questions. I am
providing the answers through this letter. Several suggestions, made since the meeting, are
provided here to be discussed at the September 2 BOCC meeting.
Question: Who is the"loan pool task force" referenced on page 7 of the Operating Policies
and Procedures?
Answer: There was never an appointed group that was given that name; but, the bankers
and staff involved used the name for identification during the process. The first
meeting to discuss the possibility of a loan pool was held November 1, 1994, and
included Moses Carey, John Link, Denise Corey(NationsBank), Jim Carter
(CCB), Karen Raleigh(First Union), and myself. Bankers from Wachovia, First
Citizens, BB & T, UCB, Village Bank(now Triangle Bank), and Centura, as well
as staff members from the SBTDC and the EDC, attended subsequent meetings.
In some cases, the County Attorney also attended.
Question: What is the Loan Committee and what will be its role?
Answer: The specific responsibilities of the Loan Committee are detailed on page 8 of the
operating policies. Simply, the Loan Committee would be charged with making
loans and providing direction to any third-party contractor to insure servicing and
collection.
Question: What does"irrevocably committed" mean as it relates to Orange County's funding
of the loan loss reserve?
ORANGE COUNTY ECONOMIC DEVELOPMENT COMMISSION
POST OFFICE BOX 1177 • HILLSBOROUGH,NORTH CAROLINA 27278
(919)732-8181 (919)968-4501 (919)688-7331 (919)227-2031 FAX(919)644-3008
lb
Answer: Practically speaking, it means that Orange County must provide sufficient funds to
cover 30% of any losses, after liquidation of collateral. The funds would be
contractually obligated.
Question: How were the eligibility criteria for uses of funds determined; and why were
certain items- such as movie theaters- excluded?
Answer: The original list of uses was borrowed from the Raleigh loan program and the
Small Business Administration(SBA) loan standards. Some were also suggested
by the banks. We have changed the list to allow those items questioned by the
County Commissioners.
Question: How were the specifics of the Operating Policies and Procedures developed?
Answer: Specifics were developed based on suggestions by the bankers and small business
providers and from rules borrowed from other programs - specifically, the
Raleigh program. The Raleigh program was chosen because our local banks are
largely supervised by regional executives that have already approved the Raleigh
model. Almost any specific is negotiable; changes would need to be presented to
the banks for their approval. Every program in the state is different, so any
modeling from another program should reflect local desires.
Question: Carrboro's loan pool requires three bank rejections before being eligible. Why is
that not a proposed requirement of the Orange County loan pool?
Answer: Carrboro wants to insure that they are only making loans where conventional
lending is not possible, a"lender of last resorts." The proposed Orange County
fund has a similar philosophy; but, rather than require the borrower to go through
the bank process three times, any banker on the loan committee who believes the
application to be bankable, will be encouraged to make the loan. If several banks
want to make the loan, the borrower will benefit from the competition.
Question: What is the total cost of the loan pool to Orange County?
Answer
• The biggest cost is $50,000 annually for three years to provide a 30% loan loss
reserve. These funds would be used to cover 30% of any losses, after collateral
has been liquidated, on any loan that defaults.. An example might be as follows: A
loan is made to ABC Company for$10,000. The company cannot pay off the loan
and, after liquidating the pledged collateral, there is a short-fall of$1000. The
County would be responsible for$300 of the loss. After three years, if all parties
agree to continue the program, the County would be responsible for maintaining
30% of the outstanding fund balance in the loan loss reserve.
lc
John Link
Loan Pool Memo
August 27, 1997
Page 3
• $11,000 was budgeted to pay a third party to do underwriting, servicing, and
collection of the loans. Some of the costs of these services will be supported by
borrower fees and the"spread" of the money. Fees ranging from$100 to $500
will be paid by all applicants. The"spread" is the difference between the cost of
the money that the banks will provide, proposed at prime minus 2%, and the cost
to the borrower, proposed at prime plus 2%to 3%. The $11,000, or some part of
it, will cover the difference. Until final loan pool policies are approved, we cannot
finalize a contract so exact cost is unknown. Any funds not needed will be
returned to the General Fund.
• $1,500 was proposed to be added to the EDC budget to cover marketing costs for
the program(postage, printing a brochure, etc.).
• There will be the cost of existing staff time. We have estimated approximately
$23,000 in existing staff time. This is not a new cost and will not result in new
personnel. Existing staff will assume whatever functions are appropriate, based on
the final program.
The revised Operating Policies and Procedures reflect the suggested change that the County
appoint three members of the nine-member Loan Committee. Commissioner Brown has
suggested that those three members be one County Commissioner, the County Manager, and the
County Finance Director. If the Board of Commissioners agrees, this could be incorporated into
the final operating policies.
Additional suggestions for changes to the Operating Policies and Procedures have been made:
one, eligibility requirements should include an item that states that any business applying for a
loan must be located in an area zoned appropriately for that business use; two, that all loan
applications be brought to the Board of County Commissioners for review and approval. The
appropriate place in the process, if the Board wishes to add this, is to place the application on the
next Board agenda after the Loan Pool Committee has given its approval. Finally, the issue of
further targeting of the fund has been raised. Should the Commissioners wish, the loan pool could
be restricted to ethnic and gender minorities, or it could be more geographically focused.
I have tried to address the specific questions asked at the August 4th meeting as well as
subsequent Commissioner suggestions. I would be happy to meet with any Commissioner to
provide additional information prior to their next meeting. I have written to invite James Harris to
discuss Carrboro's program at the September 2nd meeting, and he has agreed to be at that
meeting.
. 2
ORANGE COUNTY
SMALL BUSINESS LOAN PROGRAM
Operating Policies and Procedures
Final Draft Proposal
T e,feSf9, 19W
3'
ORANGE COUNTY SMALL BUSINESS LOAN PROGRAM
(Revised August 25, 1997)
(All additions and changes are shown in bold and deletions are shown as str-ikeeuts)
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.
COMMITMENT PERIOD
Three years from the date of execution of the master loan agreement.
ELIGIBILITY
1. Applicants must be a resident of Orange County for at least the previous two years
prior to the date of application.
2. Businesses must be located within Orange County.
3. At the discretion of the Loan Committee,applicants may be required to participate in
the NC Small Business& Technology Development Center(SBTDC) technical assistance
program.
4. Applicants must be a for-profit business entity whose gross revenues do not exceed $3
million.
5. Applicants must be willing to contract for management and technical assistance if
determined to be necessary by the Loan Committee.
6. Applicants must have an equity contribution in a start-up business of at least 15%.
1
• 4
7. 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.
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.
2
5
7. Real property held for sale or investment.
8. Me-Ae theeAer-s.
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.
15. Private membership clubs.
16. Bttildings lisW on the T
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 May be considered. All loans are
subject to availability.
LOAN TERM
Maximum Term - 5 years(except 7 years for real estate)
3
6
INTEREST 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 +1%
• 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 REPAYWNT
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. These
procedures will be developed by the Loan Committee and will be presented to the Board of
County Commissioners for approval.
4
7 -
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
receivable - 70% on accounts less than 90 days in age; unimproved real estate - 50%;
commercial real estate - owner-occupied maximum 80%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.
PROCEDURES
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.
5
• 8
2. Completed applications will be submitted to the Loan Committee no later than two 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 months.
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 further 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
• 9 ,
PROPOSED STRUCTURE
Each bank 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 (70% of 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 $50,000 (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, $55,009 $50,000 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 30% of the aggregate loans made during the term of the program, less amounts
paid from the reserve to the participating financial institutions.
LOAN COMMITTEE
Membership shall consist of 6 representatives from the participating financial institutions and-2 3
representatives appointed by the County Commissioners. 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
7
10
staggered three-year terms established by the Task FeFee in order to provide for future rotation
of-2 3 members each 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 Loan Program administration; 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 default/charge-off, 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 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.
8
11 ,
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
12
ORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
MEETING DATE: August 4, 1997
Action Agenda
Item#
SUBJECT: Loan Pool
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 - 967-9251/968-4501
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
13
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
14
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.
• Marketing - Economic Development Commission, using existing staff
• Technical Assistance, Loan Package Preparation - Small Business and Technology
Development Center, as part of their on-going contract
• Underwriting and Loan Packaging - A third party contract
• Servicing and Collection - A third part contract
• Follow-up 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 ATTAC MENT 1 15'
I
QUICK REFERENCE CHARTS
FEDERAL GOVERNMENT SOURCES
—«►ROGRAM iVAMC«+� ems-?!/►PPLIUNTTYPE°�` =: ;DESCRIPTION �'„ -DISSURSEMENT'RANGE
Small Business Administration 704l344.6S63 ;
Most start-ups and small SBA guarantees up to 80%for loans under
L businesses eligible.Special $100,000 or 75%for loans over$100,000 maximum guarantee is$750,000. Cost
Gta ranteed7W Loan includes fixed or variable rate of loan plus
rules apply for some made by private krmdass Loans range from 7
� awa �z guarantee fee plus service fee.
,..,•;,•�rd?••- ., .ter?•- industries. to 25 yrs.
*-• Ch+e page application.SBA guarantees up to
Guarantee at NY prime+2 114%for less
Most start-ups and small than 7 yrs loan plus 2%guarantee fee plus
. "LowDoe Program t 90%of loans made by private lenders. Max.
businesses eligible. guarantee is S100,000. 5°A service fee.409 loans for over$22 =
million to NC businesses in 1995
w. Small business desiring quick Participating SBA lenders use their own loan
FASTRAK turnaround and requiring a process to make guarantees without SBA prior Loan guarantee is for 50%on maximum
relatively low guaranty. review. total loan amount of$100,000.
w Existing small business with Guarantees 75%of total loan amount.Max.
Revolving line of credit for short-term or
c4d;;es Revolving Line of cyclical or short-term need. guarantee is$750,000 for all CAPLines
fluctuating working apical needs. Accounts
Credit Same size requirements as except the Small Asset Based Line which has
71a) receivable or inventory used as collateral. max.of$200,000.
Small businesses engaged in Combined effort of SBA and Ex-Im Bank to Maximum amount guaranteed is 57.25
International Trade Loan int'I trade or adversely support small businesses expanding into million consisting of$1 million for facilities
...program --, impacted by competition from export markets.Can be administered under and equipment and 5250,000 for working
imports. either 504 or 7(a)programs. capital.
Export working Capital.- exponers who need short- Funds are loaned to small businesses needing Maximum guarantee is 75%of loan or
program': term working capital transaction-specific export financing. $750,000,whichever is less.
Anv NC business that is at
least 51%woman owned with SBA issues a prequalification letter of
Preq�i'rfied Women's- guarantee to the owner of the business to be Maximum guarantee is 75°!of loan or
Loan Program less than mm i annual given to the bank.Non profit intermediary 5250,000,whichever is less.
sales and d less than n 100
employees. helps prepare a application and secure loan.
Defense oriented businesses Loans to enable defense dependent firms to Total loan amount may be for$1.25 million.
"DELTA looking to diversify May be administered under 504 loan
operations. diversity into commercial markets. program or 7(a)loan guarantee program.
Businesses with less than$6 Long-term fixed asset loans up to 20 yrs. CDC loan portion cannot exceed 40%of
mm net worth and average °by combo financing of SBA backed project. Maximum SBA debenture
504 this $2 CDC's and banks.Rates based on current supporting the loan an be up to
income less $2 mm over Treasury issues plus guarantee fee of about S1,000,000. $46.5 million in NC loans in
last two yrs. 3% 1994.
v ,: Stan-ups and small businesses SBA provides qualified intermediaries with Up to 525,000 loans.Rate for loans is 7.75%
owned by women,low
),y� p �i funds that are then used for short-term,fixed to 8.5%above lender's'cost of money'i.e.
,..vl5 income'and minority interest rate microloans to small businesses. US treasury(S yr.)rate minus 1.25%.
.....'l+E-rte:: entrepie teUrs.
Five Small Business Investment Companies
Small Businew Investment Any star-up or small business (SBICs),licensed by the SBA,provide equity Varies
Company Program(SBIC) with high growth potential. capital and deWequity combinations to high
- _ growth companies in NC.
Participating federal agencies solicit for R&D Phase 1 5700,000 cant
Small Business Innovation Start-up and existing g
Research Program technology-based companies. proposals and award funding to qualified Phase 2 5750,000 grant
businesses.
86
CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES
16
OTHER FEDERAL GOVERNMENT PROGRAMS
PROGRAM NAME I APPLICANT TYPE DESCRIPTION F DISBURSEMENTRANGE RESTRICTIONS
National Institute of Standards and Tedaalep Omit.of Cwnece)000/Z87-3863
_... ;
R&D grants are made an the basis of either Single company can receive
mil up to ai million
Advaead Tedmbgr� Large and small technology Proposals nuwv be submitted on time and
pre-announced technology topics or via an over under years.f20 million available
Program -
oriented companies. projocs must be of high teclehical risk-
annual general competition. annually for the general ctenpoftion.
Econoti nie Development Administration(Dept of Conenared 803/765.5676
L�noanieAdpebnenf Set up in conjunction with Provides funds to establish revolving loan EDA funds to establish RLFs range from Potential RLFs must be located in areas
non-profit organlzabOn that 5100.000 to$1 S million.Individual RLPs set
(Tiede 10 Rewlviwg tarn. hrnds n i iwessed areas for fixed assets and caTSaiwscmg wry high unanployme t.
represents area.Funds then own policy.General EDA guideline is$S.000
Fuels(RLFs) work"capital loam. per capita income,or chronic orients.
loaned to small companies loaned per job created.
Rural Devdopeed Adminstration(Dept.of A ricubt re)919/873-2000
RDA guarantees up to 80% an less than PnOnty given to applicants in towns with
on b
Bntsunw/Inhdnsstrial Low. Rural frets n any induwy $5 million and 70%on low greater than$5 maximum$10 million guarantee. less than 25,(00 PeoW�1 O%equity
million
required for established business.20%
required far sort-up.
Infenee�ry Rel�d r6 RDA makes bans to nompipf t ongadzasions 75%of project cow not to exceed SI S0,000 Must be unable uo get funds ei" me.
Progeas it Rural firms,any industry. who rewind a small businesses or start-ups m per borrower.Term and interest rate Projects must createfs ive jobs.Firm must
rural areas involved in airy industry. negaiated by borrower an intermediary. be loomed in town with pop.under 25.000.
Farm Service Agency (US Dept of Axrscdnwel 919/790.3057
-- -- Maximum outstanding principal for direct Must be unable to obtain funds elsewhere.
Farm Ovniaeduip Lai.,. Operators of family size Direct loam and loan guarantees made to loan is 5200,000 and for guaranteed loans is Borrowers receiving direct loam are
,... farms. buy,improve.W enlarge farms. $300,000.Loan is secured by real estate expected to refinance using commercial
involved. sources when feasible.
Operating loan funds may be used to pay for Maximum outstanding principal for direct Must have satisfactory history of deed
Farm Loans of family size . loans is 5200.000 and for guaranteed loans is repayment.Maybe used 10 refinance only
toms. Hems such as ranee, it equipment,seed,crop $400.000.loans arc for I to 7 years a when certain debt.Collateral is in the forma a
insurance,hired labor,ere. financed product is sold. first him.
2 US Department of fnergy 202586-1478
Inventors and small
bux,V Rndated lnnvediahe businesses involved with Grant programs for energy-nelaled invenuors i Average award is$83,000 since program Only 0Ae-time assistance available.
she uvelopment ol energy with commedal paential. stoned.
Invention must be recommended for an
,.. technology. award by N15T.
inventors and small Provides seed for effi Seed r from 515.000 to
IreevaweCnoospts busnesses involved with TOnry e1Q�' C1e"n' ( � � The program retains the right to publish
y ideas to determine U they are 1eclnically and $20.000.M average a is innovators per
Program the development a energy data generated by the funded polttts.
technology. commercially feasible. eyek receive funding.
US Eapvt-tnrgsst flank 800/2.58-0862
Guarantor d up to 90%a principal. No limit
Small and mid-size Guarantee for lenders making up to one year finis must have been operating for u least
Wprfarg Capital• on roan size.Rate is negotiated in he by lender and
exporters domiciled in the waking capita line a credit available to one year and m kasu one full.iime
( C.rnararrlae U5. exporters, borrower. Collatera in the(rpm d export princi No defense a services.
inventory. pal. products
Foreign buyer of US goods Fixed interest rate loans for two or more yeas Up to 85%a contract price.Rates based on Buyer must make 1 S%cash payment.US
` ahem:,; and services where foreign Layers a quip Y �yn� exporter must face officially subsided
Direct Law M financed portion exceeds to a U$ and U.S.US.T rates and loan r f dnanh whore loan
_ - f10 million services period' owl cape
amount is$2S million or let.
Guarantee of repayment a fixed or floating
Crarasl N to:Buyes ' f s goods �loupe interest rate et{fon low to foreign buyers of Guarantee a 100%a ban stp to a ma:.ntmh Buyer onus make 1 fix rash amount.
d US goods and crevice. US exports. a 85%of the contract value. Guarantee may be fe any amount.
US Guinness of Indian Affairs 7031235-1303
Indian awrd business L.Oarh gharenle4 a asaif!khdaxns and Irhdian Guartnntnes for up to 90%of ban up to mac Furndt nthtrtt be used by a for-profs buarrteas
loam Emwture benefiting i conmery of a I guarantee a$SOD,00o per individual or$23 with at less 51%Indian ownership that
a fit N zed ktdian tribes n staring and expanding their owns
�eva)opuent/rognm y SWvaa businesses. million pie tribe.Loan rem may not exceed will benefit a federally recognized Indian
-- -- Reservation. 30 years. tribe.
47
CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES 17
STATE PROGRAMS
PROGRAMNAME.-r AMCANTTM `Desca"ON I DISRURSFMEhrtS RFSTRIQIONS
fvC OTI.ai Carnsece.Carrwerae Fesarmce�919!733.52!7
. «pi .- SSA00 Per nor►rrwwfap Loan is negotiated under a
.:: Pto6rans applicant must m+ing!f� ^ergo paniciftauas
Gaiasse Dev ^iat.: be focal govwrunsrt unit Lori can be used f«construction, created. Sl SAW par mfg.job created agreement with be*.individual firm,
in mnjwrcuon with bank r°1D1atian.land acquiswion«the Purchase sox pi 1996 Eootwnic Dewlapnetr and local gonrerener apf>trr:rt.Bank
and small business. of now equymra. funds were file aside few small business must provide at least f0%of loan
loan projeoc. caPiul.
y -•""'^ ~. CDBG limits are made
available to foul Local governments set up funds using Loan funds exw only in sense counties.
�:Fett� governneas who net apt ter:hniul assistance from orgarkzatfons
51 00,000 to local
government applicant Funds must income ninantly benefit low
CDOG mivoealeprik loan for i�macro enterprise program, to moderate irncorrne porsarn+. n NC 98
fads. e%PlrirnCed in mit7o-eterpise lending.
counties are eligible.
Bier Commercial business Loam m for capital related energy (5700,000 0 5500,000 pot loan for up a Rctluires Icier of credit from a
Asograwm., located or moving o NC. such as energy svillg nmelors. 7 years at rare not higher than 5%.funds participating bank.
boiler improvements and low energy lighting. are provided from a pool pi S2.5 million.
low interest frrsanc Maximum tax exenspi bond amount n Available only to firms paving 10%
.., leng°sem4 sing.Low rates f 10 million
Immdustrel Revesre Raved` Manufacruring eonnpanies available on tax exot*nW issues because the �jurisdiclon over a si:year over the average[oumy wage. Fulls
period.1996 sate volume ca was 5337 must be used for
for acquhing fixed cress. bonds are not subject to federal income u:. Pon P cacti!expendhues.
Usually 8 to 10 yr.maturity. million.Taxable issues are not subject to New firms must out up 25%of the
this limit. bond amount.
f ob Cnaaow Tax Paedit Companies with over 5 I Tax credit f«businesses creating jobs m SS00 ro St 2.000 per job created.A max.I The new jobs mum pay 10%above the
employees. eligible industries. of 505:al teal tax Itabihry can be olfser average weekly manutacturng wage of
over a four year period the county
Local Government furls available(«the creation of $4,000 Must be used for manufacturing
Ist"Di rslopetaid Fund per job,up to a maximum of protects bins county designated as
Applicants nunsrfacrunng and processing jobs. 3400,000. economically distressed.
NC Dept.of C.onnmerce.Division of Conxwumn,Assistance 919/733.2113
fnmovalive Eoasorsie Unit of local government Each year program focus changes.
Development Dersrfioralion in partnership with private Assistance for local projects targeting a Up to$350,000 per award. You of St 1996 focus is on project that aid
hograwm.-_ companies.
specific state need. million available in 1996. people emerging from welfare o
-' substance abuse programs.
NC Dept.Of Correnerce-Intersutienil Trade Division 919/7337193
•. V Exporters can increase their profit margins by Cenerallv 1 S%of expon profits arc tax FSC hecomes cot effective when
excluding ion of their ion sales exempt.Maximum tax savings can be as
call Perm gin export sales reach 5500.000.Must
Shared Frreiym.fales Corp. Exporters income from Wderal and mute taxable high as 305:,.Leas titan 5°,:of U.S.st have at least one director who n not a
m
incoe Formation cost arts at 52,000. exposing companies Lake advantage of US raiment.
FSC apron.
NC DepL of Commerce•Business and lndnsrm Division 919/'33.4151
.. Businesses locating or M«sry can be used for equipmet,structural Average award is about$250,000.S1 0S
expanding_irdssatel Reeri�sert-,;' in NC deemed reports.renovating buildings,and Only a selecred group of small
million of S12 million fund cortnmed
laeapeluve frsmd to be viol ro a loaluny construction pi«irnFxovemens to new« between Dec.93-km.95. businesses and industries.
. - mute economy. esdwrmg weer.sewer.gas«ekeeic.
Noll Cmali n Department pi A 919/733.2113
...�...._ _,rr ..__ Low interest loam piloted on a participating Alas arc currontYy used only for farm
-Ner16 careless Rseaf- basis with the Rural Economic and -
Rua families purchase and improvement loam and
_'.isisebw lies,C•erP-...-`' Community Devdopmera Agency and the NC wA loans to small load processing
-= Agricultural Finance Authority. operations in rural areas.
8 V
CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES
OTHER STATE PROGRAMS
PROGRAM NAME AWRANT TYPE DESCRIFMN I DISBURSEMENTS RESTRICTIONS
Secwetary Of State.Setahties bison 919/733.3921
Corporations,individuals or SS0,000 per year avaliable(a
oPOr pus provides a credit against ewe tars for Must invest in a qualified business
NC IrivraYeerM-Tax CmM- entities making died corporations and individuals who ini ivirwais.S750.000 par year
through 'n8 Qom. oCpor Psrdnue venture waft lass than SS million n
available for a pass through
.rrvestnhenm. securities of a qualified business venire, annual sale.
North Carefata State Ports Aulherdv 800/334.OM
Tax credit can be eanwd on cargo wharfage Credit canna exceed 50X.of the
Part C.rednt Exporters who use poem u Maxrnon cumulative credit may ednpany'a tool tare Mast IiabfGnv per
Morehead City or Wilmington. and handling fees exceeding the average for rut exceed S1 million. year.Tax paver must provide required
—...... .. .— the last three years.
North Carolina tie Center 919/511.9366
Funds must be used for R&D in a
Enanssc DevelopwwN iiesartu New or estwing business in Low itrwst loam d said capital provided W Max.5250.000 per award, Mere acme related field on a
. Ptogrea..- biotechnology related fields. fund early R&D activities. About$500,000 per year. product
- - with commercial potential.
Companies involved in the Fed Provides assistance to help companies b U to 550.000 for role Funds must be
Si1R a' i Rand Govt SBIR between Phase 1 and Phase 11 kmt8 work on phase II paid Gads in ice entirety in
Pro1S� Sap rag. objectives. Wee years along with.,reamer fee.
.. Designed to promote coaperaion beween
cAdeGered"Fling,� universMies and ph. tompames in Max.520.000 per award 7995 Company must contribute is ex x lean
Assistance Biotech a bioKiences fine. $10.000 and umversiry is expected W
hegraw discovering commercially applicable awards totaled about 5300.000.
technology. contribute f 10.000 of in-kind semen.
North Carohns Tedroiogimai DevelepmaM Author".lint:919/9904SS8
. Early stage.high growth $50.000 to$250,000 n equity
li ova ise Research Food businesses seeking equity I Investment ford establislhed b invert in early or convertible debt im utnenu. Must De early stage,high growth NC-
investors. stage,growth ousmesses in NC. Invested in seven companies in Based Com—mas
1995.
in 1995,$75.000 spent on
Small business interested in System of nomr art tininess incubators sung incubator ennanccmenu Limited s
First Higlm System minimizing overhead through W R pace is available. Rural areas
shared overhead through about 175 compams in 1995. and 5250.000.,pant for two arc targeted for future incubators.
nesv immeubanors.
First ht Verrhae Cater Early stage technology-based Incubator providing space and services in RTP�
µg I N/A 7ttnnol ba.,ed small companies
- small companies. for 1610 20 canpan.e. � °�"" W
NC Rural Economic De ebptsent Center 919/821.1751
I
Loans arc made 26 participating bps Average khan size is about Available to businesses missing an
learn Punn6 proper eollaiml,
*ca Pro�Accosts Am business may apply. protected by a caaul reserve which allows 555,000.$3.2 million in loans elemee eels u
(or more aggressive loan decisions. made from Sept.94 through Apr, needed IO owlifving for a
96. converuional business ban.
Child Day Cam toms Gormnee Stan-up or expansion of child I Loans can be used to imance land.building,I Guarantees 80%of loan up to I limned to aeonemically distressed
- Fund - care facilkw— or eoumomment needs. tea(0(175.000. coon;.,,.
Up to 58.000 for group loans
Small businesses owned by rural Group lending involves leans to groups of 4 40 after smaller loans arc repaid. In(,:Coup lending,members are not
MioimarMep i t.LAM hogsawa low-insane 1mo0hry s female 10 persons who hneion as a uniL Individual Up to 525.000 fa individual able to receive additional financing
(AMJ)•;: persons in one of 78 lending;a reserved for more established firms loam to more established firms. unfit all individual loans are up to due
participating edmtis. with larger capital needs. $2.7 million loaned 1989 to mid pea payments.
1994.
7
ENTREPRENEURIAL COUNOLS 919/5144642
3 c°°'d for Any small business. CED sponsors arrrol venture capital fair Councils don't provide capital,but
t Devdbprnr t ... matching entreprarvs with invstom None provide the opportunity to network and
<_ seek out dap"opponum4es.
89
CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES r 19
PRIVATE, NON-PROFIT, AND LOCAL PROGRAMS
:_=:-.-,PROGRAM-NAME�r�+'+tlpks,s,APPEiG5M4yPE -. .:::t.:_+.x.,•.-:-DESf]tl/FION"': a _. :-:�.DIStURffA1ElYT5'' RESiRICT10N5
Comer lw Cana-wnv SeM-F1e1P 919H56••�e00
eg fWf-Feip is involved n SBA 504 lows.SBA Specialize n loam of lass than
'Se1LeM+Veares fese�.3eB�la4 Varies depandimtg on 7W loans,SBA Miaoloars,RDA's IRP lows, 525,000.Made 510 million in Varies
-.C�iit lJwa a Program.
..<y., and admirses other local pmograre. comnrrtatcial bars in 1995.
Initial loans lot up to SSW.Allier No group lernbar can get
Triangle area sswegs or Group landing at 13%tale.Program involves repayment,loans available up b additional loam unless all other
• `�` business expamiom. groups of individual forttnimg loan Circles. S 10,000.Since 1992,loam;10150 individuals are current on
,� •...�r•.iafr a f'y,3I^^a"' "'*,.
business for 585.000. pavmcras.
Local Govsnswars hol an;
Loans to businesses who hire people from the Loan size is determined by individual
CLarbee City Widmim a 431ir '_ Any business type within city within a city boundaries in(harlooe. ba ni Since program began,the city Businesses mum employ low,to
program baxndanes. Banks provide 807E of the fvwncing and the has loaned 5961 k and the banks S3.8 moderate income individuals.
city of Chario a provides 20%. m.
CharioKe Bowerahe Develepmwt Small business or start-up Emphasis is on creating jobs for low to middle R loan fund. Musa create one new job for each
r. fond x•�-.:....
_ _ i'Puke d Poverty'. income parses. $15,0W loaned.
-- .-.
Minority es woman The fund provides debt financing b assist Loan range from S5,00D to SS0,000 at
owed Greensboro/ loped n Business meta be io$6 miit with miner
Crwbrp Venrare hard businesses n obtaining conventional fmeteus ales of prime plus 3 b 6%
Grew Coun Gullfod commercial loans. with max.term of 5 yn. worth less than f6 million.
Canty.
Lions at 1076 b 13ss b be used for real Loam range from 510,000 to 550.000. Business must be owned by or
WokeC aW,y Fina angk, • Wake Comaey exce"for Crewe jobs for bwmbderalC
Develspwwt Laest iswd: Raleigh and Molly Springs. cede,furniture and equipment.inventory, Four Irons toulirng 515.000 made in income employees.Personal
supplies,and working capital. 1995.
guaramm required.
Small businesses locoed Malmo barn;and the city of Raleigh created Loan can be used for hawed
Sri Mrimesr Smoos in the soutlteasa pan of thine this program to stimulate business 510.000 to 5125.000. purposes.Tema is limited to S vin.
Pragmesa •,
city. development and de creation of jobs. for general bans,7 yrs.for real
- estate loans.
Micro 6teeprare Loan Prograrw Of Small businesses n 1 Offers small loans of 5500 to$5,000 covering Must have less than 10 employees and New for 1996
Wrarw►Saiam/fe"cAuldy Forsyth County. a wide variety 0 needs. I annual sales less than 5500,000.
N'insson•Sakm Tamget Loans at about 8%to businesses that create Business net worth canna exceed
warabrfdarst Btwaess►o. x1,500 b SSO,ODD per loan. Max.term)
tea and F.Roger Page jabs benefium�low to moderate income 56 million. Collateral prole Business Develop.Crew. individuals. is S yrs. of 75%loan to value.
Otlnet Programs
NC cenifxd minor I Loam at prime rate to minority businesses to Company must have a confirmed
-Mnaens Comormat Fund•- minority I help iancee contract with a member d National
businesses. p expenses a purchases Mated to Up b 5500,000
a specific transaction. Minority Supplies DewNopmrnt
Council.
Love pod awed by mane panty auq Loamy made n 3 range levels.Loan can Businesses must be in one of 21
wind g N bans. Loam are at 3%over prone and for a be as high e S 750,000.in Ern half of designated counties,in wessem
Camrotbtw r n_:_ compares n vreYen NC. rteL usvn of 5 yrs 1996,made 2 foams IoWng 575,000. North Carolina.
SmaO businesses n 10 (Naas Inns up to SSO,OOD or$15,000 One Mind is suuaured based on
Appaladmow BgssE Crei�m liam-paging westetn Allocate capital for two revolving Inn funds. Per lob anted. MA guidels nes.aher kand on SBA
cp�M. 504 guidelines.
NC Cankum of Panto awd Idral lamrttae> I Revolving loan fwd for oparaung eguipAent. Currently tender raomgarzation I Designed to provide support for
NC,•..Pariis-'^::'_:.:•�;' seed,etc. veRetatde fanners.
go
ATTACHMENT 3
20
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.
7t 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
300 of tree combined commitment of the banks can be candied by
contract which contract can be funded by appropriations .
' '21
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
GAG/lsg
xc : Kenneth T. Cha_viou
John M. Link, Jr.
lsg-8
abernath. ltr
ATTACHMENT 4
22
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
23
O
3 y
O �
• Z A � �
o �w
� q
o
.. N �
N
V a�e
a
M
� o
A
a _
� N
V1 > r•. K h h b h O e) O�
QQ
wcs
Wk
a O rdVl � FOi/1 y_ fA V! Mf! N � Vi�/1 L3H
u 3 > 3 gay {cgs 00
� ..1 ZNri T.. Nri O � ..i Gr � � V1m ..1 i � n.l
ICU
ICE 9
U
(0% S N N N N
3 NfA VVI � V a3 aV y N
o aw � �°, � • ai Lz jai 3 � z 'eg3
2�
y � 3p p •� �� � � 4
irs
st v C G•
y '�
7 .• Oj
log fa s
it
fro X,
Cl
o � � r' �, �, $ •• r o � � gyp• �;d
° • o
Ivi I
Von --o-
SS
f 47,0 � �
am MIS
*2
Jv
• g
y► �
� � , � .5
ya IM'Os .5 �
5
U .0 .
Ila '� 3