PURPOSE SUPPLEMENTAL GUIDELINES FOR EMERGENY BUSINESS LOANS THROUGH THE ININNATI SMALL BUSINESS LOAN FUND A loan category entitled Emergency Business loan is created to accommodate the unique needs of businesses during times of emergency. The Emergency Business loan and the guidelines related thereto are only applicable for businesses suffering damages to, or loss of, building(s), equipment, machinery, and/or inventory as a result of civil unrest occurring April 9, 2001 through April 16, 2001. Each loan must meet one of the eligible activities stipulated in the DBG Entitlement Program Regulations 24 FR Part 570 and detailed in part VII Project Eligibility of these Guidelines. Each loan must also meet one of the following National Objectives as mandated by the DBG program: 1. Benefit to Low and Moderate Income People a. Job reation/retention: Funds are used to finance businesses which create or retain permanent jobs, the majority of which are filled by incinnati residents from low to moderate income households. [Pursuant to DBG regulation 24 FR Section 570.208(a)(4).] In the case of job creation, at least 51 percent of new jobs created must be filled by individuals from low to moderate income households as defined by HUD. In the case of job retention, either 51 percent of the retained jobs or 51 percent of refilled turn-over positions must be filled with individuals from low to moderate income households. The business must maintain on file, and submit to the ity as required, an Income Verification Form for each employee hired meeting the low or moderate-income criteria. (Attachment I) b. Low-Moderate Income Area Benefit: Funds are used to assist projects which provide or expand the availability of goods and services to an area with a majority of low to moderate income residents. [Pursuant to DBG regulations 24 FR Section 570.208(a)(1).] 2. Prevention/Elimination of Slum and Blight Funds are used to assist rehabilitation of structures in a blighted area undergoing comprehensive revitalization in accordance with an urban renewal plan or to rehab structures determined to constitute "spot blight." Spot blight are conditions determined to be public health or safety hazards. Assistance may be for acquisition, demolition or rehabilitation financing. [Pursuant to DBG regulation 24 FR Section 570.208(b)(1).] REPORTING The Director of Economic Development will report to ity ouncil at least semi-annually on loans made pursuant to Emergency Business loan guidelines. I. APPLIANT ELIGIBILITY 1
A. Business Ownership: Existing for-profit business enterprises located within the ity limits of incinnati are eligible to apply for emergency business financial assistance through the incinnati Department of Economic Development (ED). B. Non-profit corporations are not eligible for the Emergency Business loan.. Business Size: For-profit applicants must meet the Federal Small Business Act definition of a "Small Business." For most businesses, this means average sales over the past three years of less than $5 million and fewer than 100 employees. ertain industries may exceed these guidelines (e.g., construction and wholesaling) and still be a "Small Business" as defined by the Act. D. Micro Enterprises are businesses with five or fewer jobs. Business owners count as one employee. Businesses with five or fewer jobs and a financing gap of $25,000 or less are eligible for Emergency Business loan assistance. II. FINANING STRUTURE Emergency Business loans can cover up to 100 percent of the eligible business emergency project costs. The loan is made only when the applicant is able to show ability to repay the loan in a reasonable period of time. III. IV. "BUT FOR" ERTIFIATION The But for affirmation is not required for an Emergency Business loan. SELETION RITERIA A. Job reation/job Retention The DBG regulations allow up to $50,000 in financial assistance per individual full time job, or its full time equivalent (FTE), for projects as long as the annual program average financial assistance does not exceed $35,000 per job. FTEs must provide a minimum of 2,080 hours per year or 40 hours per week. To meet the federal program requirements, job creation and retention benefits are structured as follows: Job reation - one new job for each $35,000 borrowed. Priority will be given to businesses that request loans of $10,000 or less per job created. Jobs must be created within three years and maintained for the term of the loan. Job Retention - one retained job for each $35,000 borrowed. Priority will be given to businesses that request loans of $6,000 or less per job retained. Jobs must be retained for the term of the loan. Loans in excess of $35,000 per job created or retained may be granted based upon the project s significant economic or job retention/creation impact on an area. Area Benefit- Assistance provided to businesses that provide goods and services to low/moderate income neighborhoods shall not exceed $1000 per low/moderate income person in the neighborhood served. [24 FR 570.209(b)(3)(i)(B)]. 2
B. redit riteria for Emergency Business Loans A credit history report will be completed for each applicant to determine his or her payment history on existing debt. All applicants must disclose any adverse credit history. Technical assistance will be provided to applicants as required. 1. urrent cash flow and projected cash flow from the business must be sufficient to support the debt service created by the new loan. V. GENERAL REQUIREMENTS Applicants must agree to each of the contractual terms including, but not limited to, the following conditions: A. Project meets one of the National Objectives as described in the PURPOSE section of this document. B. Provide an Environmental ompliance Request form as required on all federally funded projects. The borrower must comply with reasonable recommendations made by the ity's staff in connection with environmental issues.. Maintain the project in compliance with zoning and all other municipal codes and regulations, and support urban renewal plans, neighborhood plans, or redevelopment goals. D. omply with the reporting requirements mandated by the use of federal funds by providing requested information on at least an annual basis and as requested. E. If a business receiving an Emergency Business loan leaves the ity during the term of the loan, all outstanding principal and interest becomes due and payable within 30 days of receiving notification from the ity. F. Recipients of Emergency Business loans must commit to retaining their pre-emergency employment levels throughout the term of the loan. G. onsider candidates referred by the ity's employment referral agency and comply with the ity job creation/retention reporting requirements during the term of the loan. H. Use its "Best Effort" and take affirmative steps to assure SBEs are utilized as a source of supplies, equipment, construction, and services with the goal of meeting the participation goals established by incinnati Municipal ode hapter 323. I. omply with the Davis-Bacon Act with regard to prevailing wages on construction projects. VI. APPLIATION PROEDURES Emergency Business loan applicants are required to submit information such as: History/description of business Partnerships must provide the partnership agreement 3
orporations must provide articles of incorporation and bylaws Interim financial statements - balance sheets, profit and loss statements not more than 90 days old Fiscal year-end financial statements - balance sheets, profit and loss statements for the previous three years (not required for start-up businesses) Business tax returns for the previous three years Personal financial statements of persons or entities owning 20 percent or more of the business Description of the repairs/improvements to be made. Projected financial statement - balance sheets, profit and loss statements for three years Specification and contractors estimates for construction projects Purchase agreements for equipment purchases Sources and uses of funds statement onsent of Property owner if applicant does not own subject property VII. PROJET ELIGIBILITY 1. Eligible Uses of Loan Funds as per 24 FR Part 570 1. Building repairs 2. Replacement construction 3. Inventory replacement 4. Machinery and equipment replacement. Items must have a useful life of at least five years. 5. Working capital 6. Professional fees related to project a. Architectural, engineering, or survey plans b. Environmental assessments 7. losing costs a. Legal b. Appraisals c. Title examinations d. Title insurance e. Recording B. Limitations on uses of Loan Funds 1. Working capital cannot exceed 30 percent of overall project costs. 2. Professional fees cannot exceed 15 percent of overall project costs.. Refinancing The Emergency Business loan cannot be used to refinance existing debt. D. Ineligible Uses of Loan Proceeds This Emergency Business loan is not to be extended for purposes not related or essential to the business. The following list identifies other ineligible uses or circumstances for financial assistance: 1. Rehabilitation and/or construction of residential housing units or residential floor space. The Emergency Business loan can be used to finance the commercial component of a mixed-use structure. 4
2. Loans which result in the Department of Economic Development taking an equity position and/or management role. 3. Loans to social service agencies that provide for the care and/or rehabilitation of people, religious institutions, or other non-profit service providers. 4. Loans to private clubs with restrictions on membership or patronage. 5. Venture capital investments. 6. Loans prohibited by any ity Administrative Regulation, local, state, or federal law. E. Loan Amount Emergency Business loans cannot exceed $50,000 per business. F. Repayment Terms and Interest Rate for Emergency Business Loans 1. Loan payments are made on a monthly basis, except as provided for in F3 below. 2. The interest rate for Emergency Business loans is 1 percent. 3. The maximum term of an Emergency Business loan will be 7 years. Interest will not begin accruing until after the first 12 months of the term of the loan. Interest-only payments will be due during months 13-24. Principal and interest will be due during years 3 through 7. 4. Loans may be repaid in full at any time without a pre-payment penalty. VIII. OLLATERAL AND GUARANTORS 1. A promissory note in the amount of the loan is required on each loan. Security for each note, such as a mortgage on the real property that is the subject of the loan or other real property, accounts receivable, security interests in the equipment item(s) purchased from loan proceeds, or inventory, life insurance policy, etc., will be required for each loan provided that the unencumbered value of the security item or real property prior to the ity s lien or mortgage is equal to or greater than the amount of the Emergency Business loan. Personal residences and life insurance policies may be required as additional security for the loans. 2. When the Applicant is a corporation, limited partnership, or limited liability company, each person owning 20 percent or more of the business entity may be required to provide a personal guarantee for repayment of the loan. 3. Subordination of the ity s lien position to the position of the private lender participating in the project funding is permitted. 4. Subordination of the ity s lien position to the position of others is permitted provided that the aggregate of the ity s mortgage or lien and other mortgages and/or liens do not exceed the value of the security item or mortgaged real property. 5
5. Appropriate documentation, such as title examinations, appraisals, etc., of the value and ownership status of security items or real property will be required of the Applicant. IX. LOAN REVIEW OMMITTEE The Director of Economic Development and the ity Manager are the approval authorities for the Emergency Business loan and may seek the advice of a loan review committee in an advisory role for the Emergency Business loan. Such a loan review committee may review and make a recommendation to the Director of Economic Development on individual Emergency Business loans. This committee may recommend any of the following for a loan application: approval, revisions to the loan structure - method of payback, amortization and interest rate, collateral, additional conditions, or it may refuse to recommend the loan and defer it to the Director of Economic Development. Recommendations for action on individual loans will be advanced to the Director of Economic Development. Upon final recommendation, the Director of Economic Development will request final approval from the ity Manager. X. LOAN APPROVAL AND REVIEW PROESS Applicants must complete a loan application and submit all business financial and business background information. This information is necessary to determine if the applicant meets the eligibility requirements of the program and can repay the proposed loan. The major steps in processing a loan include: 1. Owner completes an application and submits its business financial statements and business background information. 2. Development Officer or his/her designee analyzes the application, financial statements, and business background information and requests additional information if needed. 3. Development Officer or his/her designee and Employment and Training staff meets with the business and visits the business site. 4. Development Officer or his/her designee completes the loan summary, credit write-up. 5. A loan review committee may review and make recommendation on a loan. 6. Director of the Department of Economic Development makes a recommendation on the loan to the ity Manager. 7. Development Officer or his/her designee facilitates loan closing with client, closing attorney, and the Finance Department. 8. Upon closing, the loan agreement is sent to Employment and Training to provide employment assistance. XI. DEISION AND FUNDING OMMITMENTS Upon loan approval, a written commitment to lend will be sent to the applicant, as well as to its private lender, if appropriate, and the appropriate processing documents will be completed. No loan will be closed without evidence of all sources of financing in place, approved project designs, ready to be executed contract documents, evidence of adequate insurance, and compliance with all contract terms. XII. LOAN OMMITMENTS 1. Any material adverse change in the financial condition of the borrower, collateral, or the guarantor may result in the commitment being withdrawn. 6
2. Emergency Business Loans must be closed within 30 days of loan approval. XIII. XIV. LOAN LOSING AND SERVIING There are no fees associated with Emergency Business loans. INDUSTRY ONENTRATION The industry concentration clause does not apply to Emergency Business loans. J:\GROUPS\NBD\SBLF\Emergency Business loan guidelines.doc April 25, 2001 July 1997 April 1998, amended April 23, 2001 Revised 7
ININNATI SMALL BUSINESS LOAN FUND SUPPLEMENTAL GUIDELINES FOR EMERGENY BUSINESS LOANS APRIL 2001 THE ITY OF ININNATI DEPARTMENT OF EONOMI DEVELOPMENT 8