SMALL BUSINESS REVOLVING LOAN FUND GUIDELINES 1.0 INTRODUCTION

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1 SMALL BUSINESS REVOLVING LOAN FUND GUIDELINES 1.0 INTRODUCTION Fay-Penn Economic Development Council has established a Small Business Loan Fund. The Small Business Loan Fund Program is designed to stimulate economic growth and to expand our services by providing financing and other support to individuals and/or companies that would not otherwise have access to these resources. The program provides affordable, non-conventional financing to eligible small businesses with ten (10) or less employees or individuals that have little to no access to commercial banking and requiring a loan of $50,000 or less for business start-up, development capital or debt refinancing. It is expected that this program may reach minorities, women, farmers, and other individuals that may not otherwise qualify for funding or that may fail because of their inability to refinance current debt at acceptable rates and terms. In addition to financing, Fay-Penn intends to continue to work with clients by provide business counseling and assistance, whenever possible, to assist in helping these micro-businesses grow and succeed. 1.1 NON-DISCRIMINATION & COMPLIANCE WITH OTHER FEDERAL LAW Fay-Penn is an Equal Opportunity Lender, Provider. No person will be excluded from participation in, or otherwise discriminated against, on the basis of race, creed, color, national origin, religion, gender, handicap, or age. Fay-Penn Economic Development Council prohibits discrimination in all its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or part of an individual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) 2.0 SMALL BUSINESS LOAN PROGRAM OVERVIEW 2.1 PROGRAM ADMINISTRATOR The Small Business Loan Fund Program will be administered by Fay-Penn Economic Development Council, a community based, private, non-profit agency that provides professional development services to companies interested in expanding operations in Fayette County. Fay-Penn will accept and process applications, underwrite and recommend approval of loans, ensure proper loan closing and disbursement of funds, maintain loan files and fiscal records. Fay-Penn staff will follow and ensure compliance with these guidelines.

2 2.2 PROGRAM SERVICE AREA Financing under this program is available to eligible businesses in the entire County of Fayette, and based upon referrals from regional partners, may assist projects located in communities meeting the rural definition located in neighboring Greene, Washington, Westmoreland and Somerset Counties. 2.3 SOURCE OF PROGRAM FUNDS The Small Business Loan Fund Program is capitalized through Fay-Penn Economic Development Council. This Loan Program has certain conditions that must be met, as described below. 2.4 ELIGIBLE LOAN APPLICANTS The following entities are generally eligible to apply for loans provided they owe no delinquent debt either privately or to the Federal, State or Local Government: Individual citizens or individuals who have been legally admitted to the U.S., and All applicants must be located in the Program Service Area as defined in Section 2.2., and A micro entrepreneur or microenterprise as defined below: Microenterprise: (i) A sole proprietorship; or (ii) A business entity, located in a rural area, with not more than 10 full-time-equivalents (FTE) employees (See definition below). Rural microenterprises are businesses employing 10 FTE people or fewer that are in need of $50,000 or less in business capital. Such businesses may include any type of legal business that meets local standards of decency. Business types may also include agricultural producers provided they meet the stipulations in this definition. Micro-entrepreneur; An owner and operator, or prospective owner and operator, of a microenterprise who is unable to obtain credit elsewhere. Definition of Full-Time Equivalent Employee (FTE): Applicants must have ten (10) or less FTE employees in order to qualify for Small Business Loan Program funding. For purposes of this program, a full-time equivalent (FTE) job is defined as 35 hours per week x 52 weeks per year = 1,820 hrs. FTE employment will be calculated as show in the following Example: Total hours of all full-time, part-time and seasonal workers during the calendar year: 7,390 Divided by: 1,820 Total FTE Jobs: 4.06 If an FTE calculation results in a fraction, it should be rounded up to the next whole number. The owner/operator in a Micro entrepreneur project will be counted as one employee. Small Business Revolving Loan Fund Guidelines 2

3 2.5 OTHER ELIGIBILITY REQUIREMENTS Must have a credit score of 600 or above. Find out if you are likely to meet this requirement: use MyFico s Credit Score Estimator for free, or obtain your actual credit score for a small fee at AnnualCreditReport.com. Have not declared bankruptcy in the past 12 months. Have not had any late rent or mortgage payments in the past 24 months. 2.5 OTHER ELIGIBLILITY REQUIREMENTS CONTINUED Exhibit steady cash flow and the ability to support monthly loan payments. Can provide a cosigner, if needed. 2.6 ELIGIBLE PROJECTS Below is a listing of projects that qualify for consideration: Business Acquisition Purchase or lease of real estate that is already improved and will be used for the location of the subject business only, provided no demolition or construction will be accomplished with program funding. Neither interior decorating, nor the affixing of chattel to walls, floors, or ceilings are considered to be demolition or construction. Refinancing of Existing Debt Operating Capital (including license and permit fees) Furniture, Fixtures, Supplies, Inventory and Equipment Purchase Construction 2.7 INELIGIBLE PROJECTS Distribution or payment to a micro borrower when such will use any portion of the microloan for other than the purpose for which it was intended. Distribution or payment to a charitable institution not gaining revenue from sales or fees to support the operation and repay the microloan. Microloans to a fraternal organization. Any microloan to an applicant that has another microloan application pending with another micro lender or that has a funded microloan outstanding with another micro lender that would cause the applicant to owe a combined amount of more than $50,000 to one or more micro lenders under this program shall be deemed ineligible. Any illegal activity Microloans to lending and investment institutions and insurance companies. Golf courses, race tracks, or gambling facilities. Lines of Credit. Subordinated liens. Small Business Revolving Loan Fund Guidelines 3

4 Use of an Agency funded loan to pay debt service on a previous Agency loan. Program funds will not be used to facilitate the movement of a business from one labor market area to another. Projects that are primarily housing in nature. Projects not meeting Fay-Penn objective or public benefit or Fay-Penn underwriting standards. Projects that are not located within the service area. Subsidy of interest payment on existing loans Family Subsidization 3.0 DESCRIPTION OF LOANS 3.1 DETERMINATION OF LOAN AMOUNT The maximum Small Business Loan Fund amount is $50,000 (or 75% of the eligible project costs, whichever is less); and the minimum loan amount will generally not be less than $5,000. Loan amounts and terms will be determined based on the ability of the business to service the new loan payment, and the reasonableness of the costs to be paid for by the loan. If there are not sufficient Small Business Loan funds for the project, then Fay-Penn may be able to assist in identifying other public and/or private funding to leverage the project financing. The percentage of contribution to the project by the applicant will be determined on a case by case basis. Start-Up projects may be required to provide up to 25% in cash equity. 3.2 DETERMINATION OF LOAN TERM Loan terms can range up to a maximum of ten (10) years depending upon the project being funded and the security being pledged. A loan s maturity date will take into consideration the use of proceeds, the useful life of the assets being financed, and the borrower s ability to repay the loan. 3.3DETERMINATION OF LOAN INTEREST RATE All loans will have a progressive interest rate as follows, regardless of the term of the loan: The interest rate for Years 1 through 2 will be: 3% The interest rate for Years 3 through 4 will increase to: 4% The interest rate for Years 5 through 10 will increase to: 5% Example: Based upon the progressive interest rate above, with a 7 year loan term, the interest rate for years 1 and 2 will be 3%; in years 3 and 4 it will increase to 4%; and in years 5, 6 &7 it increases to 5% 3.4 PAYMENTS Generally, loan repayments will be made in equal monthly installments. Partial or full repayment of debt may be made at any time without any pre-payment penalties being assessed. Agricultural or Seasonal: May qualify for a payment deferment period of up to 6 months. Small Business Revolving Loan Fund Guidelines 4

5 4.0 LOAN PROCESSING AND APPROVAL 4.1 FAIR LENDING COMPLIANCE This program will be implemented consistent with Fay-Penn s commitment to fair lending laws. 4.2 LOAN FEES Loan application fee: The loan application fee for all projects (except refinancing projects) will be $ due at the time of submission of an application. Refinancing Project application fees will be 1% of the amount of the project, but in no case shall be lower than $ LOAN CLOSING PROCESS AND DISBURSEMENT OF FUNDS Upon loan approval, Fay-Penn staff will have all documentation necessary prepared for loan closing. The Borrower will sign all the necessary documents and agreements. Fay-Penn s designated legal counsel will prepare the loan closing documents; prepare title and lien searches, and UCC-1 filings. Borrower will be responsible for all cost of document preparation, filing and legal fees of counsel for both parties. In most cases, loan funds will be disbursed incrementally on a reimbursement basis, or direct payment of vendor/contractor invoices, as eligible costs are verified. Funds under this Small Business Program are provided to eligible businesses as loans. Funds under this Small Business Loan Program can pay for reimbursement of expenses incurred prior to Fay-Penn s formal loan approval. Projects must have reasonable assurance or repayment of loan funds. 5.0 OTHER OBLIGATIONS, CONDITIONS AND/OR SUPPORT 5.1 TECHNICAL ASSISTANCE AND TRAINING On occasion, education, guidance, and/or instruction may be offered to loan recipients to prepare them for self-employment; to improve the state of their existing rural microenterprises; to increase their capacity in a specific technical aspect of the subject business; and, to assist in achieving a degree of business preparedness and/or functioning. Loan recipients are encouraged to accept and/or participate in programs and/or assistance offered. 5.2 RECORDKEEPING, REPORTING AND OVERSIGHT Loan recipients must maintain all records applicable to the loan and make them available to Fay-Penn upon request. Loan recipients must agree to provide information and/or documentation to Fay-Penn as may be requested from time to time (for example, employment information, new investments, etc.). Fay-Penn will report your repayment to all three (3) credit bureaus, helping you build a positive credit history. Small Business Revolving Loan Fund Guidelines 5

6 5.3 CREDIT ELSEWHERE EVIDENCE Micro borrowers will be subject to a credit elsewhere test so that the micro lender will make loans only to those borrowers that cannot obtain business funding of $50,000 or less at affordable rates and on acceptable terms. Each micro borrower file must contain evidence that the micro borrower has sought credit elsewhere or that the rates and terms available within the community at the time were outside the range of the micro borrower s affordability. Evidence may include a comparison of rates, loan limitations, terms, etc. for other funding sources to those forth offered by the micro lender. Denial letters from other lenders are not required. Small Business Revolving Loan Fund Guidelines 6