Revolving Loan Fund Program. AADO Annual Conference Overview of RLF Plan Updates & Requirements

Transcription

1 Revolving Loan Fund Program AADO Annual Conference Overview of RLF Plan Updates & Requirements October 30, 2014 Little Rock, AR 1

2 EDA RLF OVERVIEW AADO Annual Conference EDA & RLF OVERVIEW 1:15 P.M. RLF PLAN REQUIREMENTS 1:20 P.M. QUESTIONS & DISCUSSION 1:45 P.M.

3 Mission Statement To Lead the federal economic development agenda by promoting innovation and competitiveness, preparing American regions for growth and success in the worldwide economy. Established 1965 Public Works and Economic Development Act. Revolving Loan Fund 1974 As the only federal agency with economic development as its exclusive mission, EDA drives collaborative regional economic development initiatives that lead to job creation.

4 Eligibility Eligible Applicants: State and local governments Nonprofit organizations Institutions of high education Native American tribal governments

5 EDA Investment Programs PROGRAMS Economic Adjustment Public Works University Centers Research & National Technical Assistance Planning Local Technical Assistance Trade Adjustment Assistance for Firms

6 EDA Investment Programs Revolving Loan Fund PROGRAMS Economic Adjustment Public Works University Centers Research & National Technical Assistance Planning Local Technical Assistance Trade Adjustment Assistance for Firms

7 Regional Offices Seattle Chicago Philadelphia Denver Austin Atlanta

8 EDA RLFs in the Southwest Region EDA RLF OPERATORS - AURO AADO Annual Conference

9 Revolving Loan Fund Small Business Small Business RLF Operators RLF Operator EDA Create & Retain Jobs Long Term Fixed Rate Working Capital Fix Assets Chicago EDA Regional Office ~570 EDA RLF Operators Nationally. States, local governments, tribes and universities in distressed regions. GAP Financing. Additional Resource for Private Lenders. Atlanta Philadelphia Denver Austin Seattle

10 RLF Program RLF is a viable complement to a Financial Product Portfolio. Flexible source of capital that can be stand alone or be used in combination with more conventional sources. Over 40 years - the RLF Program remains relevant and has survived many business cycles. Talk to EDA staff about interest in capitalizing or recapitalizing an RLF, or visit:

11 Revolving Loan Fund EDA RLFs established for business lending. Economic Adjustment Assistance Grants to capitalize or recapitalize RLFs most commonly fund business lending, but may also fund public infrastructure or other authorized lending activities. [see 13 CFR 307.7] Approximately 570 EDA-funded RLFs nationwide EDA investment of $550M Combined capital base of about $850M Current Total Available for Lending $250M

12 RLF Example Disaster Response South Central Reg. Planning Commission Houma, LA Oil Spill Disaster Recovery Loan Fund $450k of $562k RLF Recapitalization Grant Financing for small business assistance in responding to oil spill affecting fisherman, seafood, and tourism industries

13 RLF Example Disaster Response Gulf Coast Econ. Development District Houston, TX Hurricanes Gustav and Ike disaster relief Alternative financing sources for businesses in Gulf Coast Region severely impacted by the hurricanes Allows for lending to local governments ($500K loan limit)

14 RLF Example: Smith County Smith County RLF Tyler EDC Businesses with a product or service where majority of their sales are derived outside of Smith County. Provide evidence of a financing gap and should have a substantial potential for retention or creation of jobs. Eligible Uses - working capital - equipment and machinery, - purchase and development of land and building, - pollution control and Loan limits: $50,000 - $200,000 Owner participation will generally be 20% of project costs. Loan may be subordinated to the primary lender. Loan term will be tied to the life of the assets financed, up to twenty-five years. Working capital loans shall be for terms of five years or less. abatement.

15 RLF Example: SPAG SPAG Capitalization (Lubbock) 1987: SPAG established the RLF program with $500K grant 1991: EDA funded an additional $500,000 grant in : Due to the closing of Reese Air Force Base, SPAG was awarded an additional $500,000. Eligible Uses - working capital, - consolidation of A/P, - machinery and equipment, - and building and land Financing: 1/3 of total project cost, limit: $250,000 Term tied to useful life of assets pledged as collateral. Rates are determined by the SPAG RLF loan Board depending on the strength of the project. Create or retain 1 job for every $10,000 borrowed. Lending Area: Bailey, Cochran, Crosby, Dickens, Garza, Floyd, Hale, Hockley, King, Lubbock, Motley, Terry, and Yoakum Counties.

16 RLF Example Energy Efficiency Burlington Electric Department Burlington, VT Business Energy Efficiency Revolving Loan Fund $1M of $2M RLF Capitalization Grant Financing for up to 150 commercial electric users seeking to make energy efficiency electrical improvements.

17 RLF Example Redevelopment Racine County Econ. Dev. Corp. and City of Racine, WI Racine, VT $600k of $1.2M RLF Recapitalization Grant Recruit, retain, and grow businesses and Redevelopment assistance of vacant, urban industrial & commercial buildings

18 RLF Basics EDA RLF guiding principles Gap financing for economic development purposes Fixed Assets, Working Capital Start-up, Expansion, Retention Job creation (RLF $ lent per job created/saved) Leverage Private Capital ($2:$1) Use of RLF Income for administrative costs Capital Utilization Standard (75% or greater) Federal Interest remains in perpetuity

19 RLF Basics RLF Grant Administration RLF Plan functions as business plan & operations manual matching requirement (grant terms and conditions) disbursement phase vs. revolving phase semi-annual RLF report financial reporting [organizational audit] Federal Interest remains in perpetuity

20 RLF Basics RLF Income [ ] RLF Income must be placed into the RLF Capital base for the purpose of making loans or paying eligible and reasonable administrative costs associated with the RLF s operations. Minimum interest rate: 4% or 75% of WSJ prime Account interest and loan fees RLF Income and admin. costs incurred in same 6 mo. RLF Income and Expense Statement RLF Income added to Capital base for relending

21 Use of RLF Funds Restrictions on use of RLF Capital. [ ] RLF funds cannot be used for the following: Over 27,000 loans made Acquire equity position in private business Subsidize interest payments on existing RLF loan Provide borrowers require equity contribution under other Federal loan programs Enable borrowers to acquire an interest in a business (unless sufficient economic benefit) Provide loan for purpose of investment capital Refinance existing debt (unless sound economic justification or purchase rights of prior lien holder) More than $12B non-rlf dollars leveraged (22:1) Reported 340,000 jobs created, 307,000 jobs retained

22 RLF Compliance Issues RLF Oversight & OIG Audit Capital Utilization Sequestration Requirement High Default Rate Portfolio Analysis // Default Workout Plan On-time Reporting Late notice // Delinquency grounds for termination Audit Requirements and Submission to Federal Audit Clearinghouse Federal Interest remains in perpetuity

23 EDA RLF OVERVIEW AADO Annual Conference EDA & RLF OVERVIEW 1:15 P.M. RLF PLAN REQUIREMENTS 1:20 P.M. QUESTIONS & DISCUSSION 1:45 P.M.

24 EDA RLF PLANS AADO Annual Conference RLF Plan operations hierarchy: Federal Regulations Title 13 Part 307 [13 C.F.R ] OMB Circulars Department of Commerce Standard Terms & Conditions Revolving Loan Fund Standard Terms & Conditions Prudent Lending Practices Revolving Loan Fund Plan

25 RLF Basics RLF Standard Terms and Conditions RLF Plan [ 307.9] consistency with CEDS or EDA-approved E.D. plan Part I Revolving Loan Fund Strategy Part II Operational Procedures Updated every 5 years Prudent Lending Practices

26 RLF Plan RLF Plan Regulations TITLE 13 Business Credit and Assistance CHAPTER III ECONOMIC DEVELOPMENT ADMINISTRATION, DEPARTMENT OF COMMERCE PART 307 ECONOMIC ADJUSTMENT ASSISTANCE INVESTMENTS Sections Revolving Loan Fund Plan. All RLF Recipients shall manage RLFs in accordance with an RLF plan (the RLF Plan or Plan ) as described in this section. The Plan shall be submitted in electronic format to EDA for approval, unless EDA approves a paper submission.

27 RLF Plan RLF Plan Regulations 13 C.F.R Revolving Loan Fund Plan. (a) Format and content. (b) Evaluation of RLF Plans. (c) Revision and Modification of RLF Plans. [71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62867, Oct. 22, 2008; 75 FR 4264, Jan. 27, 2010]

28 RLF Plan RLF Plan Regulations 13 C.F.R Revolving Loan Fund Plan. (a) Format and content. Part I - Revolving Loan Fund Strategy Summarize the Region's CEDS & business development objectives, and Describe the RLF's financing strategy, policy and portfolio standards. Part II - Operational Procedures Serves as the RLF internal operating manual and Set out administrative procedures for operating the RLF consistent with Prudent Lending Practices, as defined in 307.8, and EDA's conflicts of interest rules set out in of this chapter.

29 RLF Plan RLF Plan Regulations 13 C.F.R Revolving Loan Fund Plan. (b) Evaluation of RLF Plans Provide sufficient administrative procedures to prevent conflicts of interest and to ensure accountability, safeguarding of assets and compliance with Federal and local laws. (1) Consistency with the CEDS or EDA-approved economic development plan. (2) Identifies the strategic purpose of the RLF and Describes the selection of the financing strategy and lending criteria, including: Analysis of local capital market and financing needs of target businesses; and Financing policies and portfolio standards [consistent with EDA policies and requirements] (3) Demonstrates an adequate understanding of commercial loan portfolio management including loan processing, underwriting, closing, disbursements, collections, monitoring, and foreclosures.

30 RLF Plan RLF Plan Regulations 13 C.F.R Revolving Loan Fund Plan. (c) Revision and Modification of RLF Plans. Update RLF Plan as necessary in accordance with changing economic conditions; at a minimum, submit an updated Plan to EDA every five (5) years. Notify EDA of any change(s) to its Plan. Any material modification must be submitted to EDA for approval prior to revision: - merger or change in the EDA-approved lending area - change in critical management staff, or - change to the strategic purpose of the RLF.

31 RLF Resources

32 RLF Basics EDA RLF guiding principles Gap financing for economic development purposes Fixed Assets, Working Capital Start-up, Expansion, Retention Job creation (RLF $ lent per job created/saved) Leverage Private Capital ($2:$1) Use of RLF Income for administrative costs Capital Utilization Standard (75% or greater) Federal Interest remains in perpetuity

33 EDA RLF PLANS AADO Annual Conference When is the RLF Plan updated? Material changes to your program like mergers or transfers, or Changing economic conditions in the Region At a minimum, every 5 years.

34 EDA RLF PLANS AADO Annual Conference How is the RLF Plan updated? Identify most recent EDA-approved RLF Plan Review checklist for Revolving Loan Fund Plans Convene loan committee -or- other internal stakeholders Send draft RLF Plan electronically to EDA regional office Schedule call to review RLF Plan Make edits to RLF Plan & seek local RLF Plan approval Submit RLF Plan update to EDA for approval

35 EDA RLF PLANS AADO Annual Conference How is the RLF Plan updated? Resolution from Board of Directors approving the revisions to EDA RLF Administrative Plan that incorporates this program; RLF Administrative Plan, with EDA comments that require regulatory changes. The Plan cover must be dated the same as the approving Resolution and should include the Plan s expiration date five years from the date of the Resolution; Copies of all loan documents, including any new loan documentation associated with the Loan Program; Letter from your Legal Counsel providing legal certification that standard RLF loan documents reasonably necessary or advisable for lending are

36 EDA RLF PLANS AADO Annual Conference How is the RLF Plan updated? Resolution from Board of Directors; RLF Administrative Plan (cover with expiration date) Copies of all loan documents, including any new loan documentation associated with the Loan Program; Letter from your Legal Counsel providing legal certification that standard RLF loan documents reasonably necessary or advisable for lending are in place and that these documents have been reviewed for adequacy and compliance with the terms and conditions of the Grant and applicable to Federal, State and local laws.

37 EDA RLF PLANS AADO Annual Conference Components of the RLF Plan Part I Revolving Loan Fund Strategy Summarize Region s CEDS or EDA-approved econ. dev. plan Identify business development objectives Financing strategy Policy & portfolio standards Part II Operational Procedures Serves as RLF internal operating manual Administrative procedures prudent lending practices Presents conflict of interest rules

38 EDA RLF PLANS AADO Annual Conference How is the RLF Plan evaluated? Consistency with CEDS or EDA-approved econ. dev. plan Identify strategic purpose of RLF Describe selection of financing strategy & lending criteria, including: Analysis of local capital market Financing needs of targeted businesses Financing policies & portfolio standards (consistency with EDA policies and requirements) Demonstrate adequate understanding of commercial loan portfolio management procedures

39 EDA RLF PLANS AADO Annual Conference How is the RLF Plan evaluated? Demonstrate adequate understanding of commercial loan portfolio management procedures: Loan processing Underwriting Closing Disbursements Collections Monitoring Foreclosures Sufficient administrative procedures to prevent conflicts of interest Ensure accountability & safeguarding of assets and legal compliance

40 EDA RLF PLANS AADO Annual Conference How do these pieces fit together into a Revolving Loan Fund Plan? Guides: Checklist for Revolving Loan Fund (RLF) Plans Sample Table of Contents RLF Plan Guidelines 2002 Sample RLF Policies

41 EDA RLF PLANS AADO Annual Conference RLF Plan: Developing its contents Part I Revolving Loan Fund Strategy Summarize Region s CEDS or EDA-approved econ. dev. plan Identify business development objectives Financing strategy Policy & portfolio standards Part II Operational Procedures Serves as RLF internal operating manual Administrative procedures prudent lending practices Presents conflict of interest rules

42 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Credit Otherwise Available: A borrower is not eligible for RLF financing if credit is otherwise available on similar terms and conditions that would permit completion and/or the successful operation or accomplishment of the project activities to be financed. [RLF] will document this in the loan write-up. A loan write-up will include a discussion of the particular borrower or project to be financed that result in the need for RLF financing. [RLF] is responsible for obtaining supplemental evidence, as appropriate, to support the need for RLF financing. This may need, but not always, include the following: a. A commitment letter from a participating bank stating the loan terms, the maximum amount to be extended by the bank, and the need for the RLF's

43 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Credit Otherwise Available: supplemental evidence may need, but not always, include the following: a. A commitment letter from a participating bank stating the loan terms, the maximum amount to be extended by the bank, and the need for the RLF's participation, b. Bank rejection letter(s), if obtainable, listing the proposed loan terms, or c. The determination and documentation by [RLF] senior loan staff that, due to weaknesses in a borrower s unique credit circumstances (e.g. limited time in business, non-standard financial ratios, operating losses in prior periods, lack of guarantor strength); or due to situations that may exist within the credit markets, such as the unavailability of credit in 2008/2009, it would be impractical for the borrower to approach another lender for the proposed RLF financing.

44 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Cost Per Job Goals: Should be based upon per capita income levels in eligible lending area [American Community Survey] Conflict of Interest Policy The [RLF] is a unit of local government whose Board members, Loan Administration Board members and professional staff are chosen to provide public benefit. These persons have a duty to conduct the affairs of the Organization in a manner consistent with the mission of the Organization and not to advance their personal interests. This conflict of interest policy is intended to permit the Organization and its Board members, Loan Administration Board members, and professional staff to identify, evaluate and address any real, potential or apparent conflict of interest that might, in fact or in appearance, call into question their duty to put the interests of the Organization ahead of their personal interests.

45 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Conflict of Interest Policy The [RLF] is a unit of local government whose Board members, Loan Administration Board members and professional staff are chosen to provide public benefit. These persons have a duty to conduct the affairs of the Organization in a manner consistent with the mission of the Organization and not to advance their personal interests. This conflict of interest policy is intended to permit the Organization and its Board members, Loan Administration Board members, and professional staff to identify, evaluate and address any real, potential or apparent conflict of interest that might, in fact or in appearance, call into question their duty to put the interests of the Organization ahead of their personal interests. Covered Persons: This policy applies to the Organization s Board members, Loan Administration Board members and professional staff. Each Covered Person shall be required to acknowledge that they have read and are in

46 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Conflict of Interest Policy Covered Persons: This policy applies to the Organization s Board members, Loan Administration Board members and professional staff. Each Covered Person shall be required to acknowledge that they have read and are in compliance with this policy. Covered Transactions: This policy applies to transactions between the Organization and a Covered Person, or between the Organization and another party with which the Covered Person has a significant relationship. A Covered Person is considered to have a significant relationship with another party if: a) The other party is a family member, including a spouse (or domestic partner or significant other), parent, sibling, child, stepchild, grandparent, and grandchild. This does not include distant relatives, such as cousins, unless the distant relative lives in the same household as the person. b) The other party is an entity in which the Covered Person has a material

47 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Conflict of Interest Policy Covered Transactions: This policy applies to transactions between the Organization and a Covered Person, or between the Organization and another party with which the Covered Person has a significant relationship. A Covered Person is considered to have a significant relationship with another party if: a) The other party is a family member, including a spouse (or domestic partner or significant other), parent, sibling, child, stepchild, grandparent, and grandchild. This does not include distant relatives, such as cousins, unless the distant relative lives in the same household as the person. b) The other party is an entity in which the Covered Person has a material financial interest; or c) The Covered Person is an officer, director, trustee, partner, consultant or employee of the other party. A Covered Transaction also includes any other transaction in which there may

48 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Conflict of Interest Policy A Covered Transaction also includes any other transaction in which there may be an actual or perceived conflict of interest, including any transaction in which the interests of the Covered Person may be seen as competing or at odds with the interests of the Organization. Disclosure, Refrain from Influence and Recusal: When a Covered Person becomes aware of a Covered Transaction; the individual has a duty to take the following actions: a) Immediately disclose the existence and circumstances of such Covered Transaction to the Organization s Chair or Executive Director. b) Refrain from using their personal influence to encourage the Organization to enter into the Covered Transaction; and c) Physically excuse themselves from any discussions regarding the Covered Transaction except to answer questions, including Board discussions and

49 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Conflict of Interest Policy Disclosure, Refrain from Influence and Recusal: When a Covered Person becomes aware of a Covered Transaction; the individual has a duty to take the following actions: a) Immediately disclose the existence and circumstances of such Covered Transaction to the Organization s Chair or Executive Director. b) Refrain from using their personal influence to encourage the Organization to enter into the Covered Transaction; and c) Physically excuse themselves from any discussions regarding the Covered Transaction except to answer questions, including Board discussions and decisions on the subject. Standard for Approval of Covered Transactions: The Organization may enter into a Covered Transaction where: a) such Transaction does not constitute an act of self-dealing and

50 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Conflict of Interest Policy Standard for Approval of Covered Transactions: The Organization may enter into a Covered Transaction where: a) such Transaction does not constitute an act of self-dealing and b) the Board determines, acting without the participation or influence of the Covered Person and based on comparable market data, that such transaction is fair and reasonable to the Organization. The Board shall document the basis for this determination in the minutes of the meeting at which the Covered Transaction is considered, and shall consult with the Organization s legal advisor as necessary to ensure that the Transaction does not constitute an act of self-dealing. Lending Activities: The following conflict of interest policy shall apply specifically to s direct loan programs: No personal or private loans may be made by the Organization to its Board members or their immediate families as provided in

51 EDA RLF PLANS AADO Annual Conference Sample RLF Policies Conflict of Interest Policy Lending Activities: The following conflict of interest policy shall apply specifically to s direct loan programs: No personal or private loans may be made by the Organization to its Board members or their immediate families as provided in 13 CFR and in. No member of the Board or their immediate families may be an officer, director, or owner of a small business concern receiving financial assistance from the Organization. Former Board members, Loan Administration Board members and staff are ineligible to apply for or receive loan funds for a period of two years from the date of termination of their services.

52 EDA RLF OVERVIEW AADO Annual Conference EDA & RLF OVERVIEW 1:15 P.M. RLF PLAN REQUIREMENTS 1:20 P.M. QUESTIONS & DISCUSSION 1:45 P.M.

53 Mitchell E. Harrison, Management Analyst Austin Regional Office, EDA Thank you.

54 Revolving Loan Fund Program AADO Annual Conference Overview of RLF Plan Updates & Requirements October 30, 2014 Little Rock, AR 54