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