04-02-14 EDC - Laserfiche WebLink

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City of Arden Hills Economic Development Commission April 2, 2014 Page 2 of 3 Loan Amount and Terms The maximum loan amount should be between $50,000 and $75,000. If the City were to set the RLF interest rate at two or three percent, these loans would be very competitive with commercial lending rates. Currently, commercial rates average at least five percent. The private lender should set the term length, but the City could still put a limit on the maximum number of years for a loan term. Terms are determined by the amortization period. Projects requiring less capital investment (equipment acquisition) usually have a shorter amortization and term, while projects with a larger investment (real estate acquisition) have a longer amortization and term. If a goal is to see a quicker return of loan repayments, the City should focus on projects with short-term amortization periods of ten years or less. Eligibility The following types of projects should be eligible for loans issued through the RLF:  Land and building acquisition  Real property improvements  Commercial façade improvements  Fixed asset equipment Financial Criteria Revolving fund loans should act as gap financing for loans being made by a private lender. For each loan, the City would enter into a participation agreement with the partnering bank. The lender would prepare the note and collateral documents and the City would issue a check from the RLF to purchase a participation in the note. The lender would be responsible for disbursing the loan funds and collecting payments for both the City and private portions of the loan. Monthly payments would then be submitted to the City. The bank would also be responsible for doing the necessary underwriting for the entire loan package. Since banks are risk-averse in lending money, if an applicant meets a bank’s underwriting requirements the City can be confident about the risk level associated with the loan. Additional recommended financial criteria included:  Require a minimum of 50 percent of a project be privately financed.  Be willing to take on some risk recognizing that the City will likely see a direct benefit from a successfully completed project regardless of whether the loan is repaid in full (for example, improvements to real property).  Many projects would likely not receive a high score using the City’s Grading and Report Card for public financing proposals, as that tool is largely focused on redevelopment projects. Consider exempting projects receiving financing through the RLF from being reviewed using this evaluation tool.  The job creation requirements in the existing RLF Guidelines should be revised considering that certain projects such as façade improvements and equipment acquisition may not meet this required criteria.