ECONOMIC DEVELOPMENT AUTHORITY- Erik J. Thorvig, Economic Development Coordinator
Title
ESTABLISHING A BLAINE SMALL BUSINESS LOAN PROGRAM
Background
At a recent EDA meeting, staff was asked to research potential financing options for small businesses to complete remodeling or expansion projects. About 2-3 times per year staff is approached by a business that is struggling to obtain bank financing to complete a remodeling or expansion project. Typically the situation occurs due to lack of equity and/or low value of existing assets (typically the real estate) resulting in a lower amount a bank is willing to lend towards a project. The difference between what a business is able to obtain in financing versus what the project costs is often called a “gap”.
The City of Blaine doesn’t currently have a formal program to assist in project financing. Typically staff will direct the business to the Open to Business program which offers gap financing. The Open to Business program has provided a total of $350,000 in loans to two Blaine businesses since the program began in 2015. Large to medium sized businesses have access to certain grants and loans from the Minnesota Department of Employment and Economic Development.
There formally existed an entity called the Blaine Area Development Corporation (BADC) which was created to provide loans to small and medium sized Blaine businesses. The funds for this program originally came from the Community Development Block Grant (CDBG) Federal program. Under this program the maximum loan amount was $100,000 and funds were used for purchase, acquisition or construction of industrial/commercial real estate or machinery and equipment. The loans were secondary to bank financing. This program was used most in the early 2000s, however the program dissolved and all loans were transferred to Anoka County in 2014. The main reason for dissolving the program was decreased interest and the additional requirements of administering CDBG dollars.
Staff researched two comparable neighboring cities to determine what programs they offer. Coon Rapids has two programs that provide loans for commercial rehabilitation and real estate/M&E purchases. Brooklyn Park has a real estate and equipment loan program.
Staff presented general parameters of a potential small business loan program at the October 4, 2018 workshop to receive feedback. Staff also contacted Mike Mulrooney with the Central Minnesota Development Company (CMDC). CMDC specializes in SBA lending and is very active in Blaine and the north metro. Several cities utilize the services of CMDC for underwriting and servicing of business loans. Staff is proposing to have CMDC complete the underwriting and servicing of Blaine’s loans. Mr. Mulrooney provided some suggestions for Blaine’s program based on his experience with other cities. Most notably he suggested having a minimum loan amount of $5,000 and increasing the maximum loan amount to $75,000 (up from $50,000 presented at workshop). He also provided information as to what their fees would be for underwriting, credit and background checks. Based on the feedback provided, the following is a summary of the proposed loan program.
Who: Existing commercial/industrial buildings or buildings/improvements constructed as part of a redevelopment. Not for use on green field construction. Business must have fewer than 25 employees.
Term: Maximum of 10 years, with interest rates determined by market conditions at time of closing.
For: Site improvements, such as parking lots, signs, trash enclosures, fences and landscaping. Exterior building improvements such as additions, windows, awnings, masonry repairs and exterior finishes. Demolition of existing buildings, parking areas or signs. Though this program is not generally intended for interior improvements the EDA will consider code required interior upgrades or upgrades that are the result of change of use associated with redevelopment of a site or building. The loan cannot be used for M&E or real estate.
Amount: Maximum loan amount of $75,000. At least 50% of the financing must come from a private lender or private equity. Funds will be set up as a revolving loan fund with $250,000 initially allocated from the EDA general fund.
Collateral: Typical the EDA would be in a second position to any primary loan. Real estate and personal guarantees will be used for collateral.
Business/Property: Must be current on property taxes and utilities. Must not have any outstanding code violations.
Underwriting and Review:
Tier 1: Loans between $20,000-$75,000
• Full underwriting by CMDC with a recommendation and approval by the EDA.
• Fee to applicant is $1,500 which covers the underwriting fee.
Tier 2: Loans between $5,000 - $19,999
• Credit and background check completed by CMDC with basic underwriting completed by EDA staff with recommendation and approval by the EDA.
• Fee to applicant is 7.5% of the loan amount.
Recommendation
Approve the attached resolution and authorize the use of $250,000 of existing EDA general fund dollars to fund the program.
Body
WHEREAS, one of the primary purposes of the Blaine Economic Development Authority is to encourage expansion of business and tax base in the community; and
WHEREAS, the Blaine Economic Development Authority recognizes that city financial assistance is a tool available to assist businesses in completing an investment in a property; and
WHEREAS, similar programs have been established by neighboring communities; and
WHEREAS, the Blaine Economic Development Authority has reviewed and discussed establishment of a Blaine Small Business Loan Program; and
NOW, THEREFORE, BE IT RESOLVED, that the Blaine Economic Development Authority hereby approves establishment of a small business loan program and authorizes $250,000 of EDA general fund dollars to be used to establish the program.
NOW, THEREFORE, BE IT FURTHER RESOLVED, that the Blaine Economic Development Authority hereby directs the executive director and staff to create the necessary documents and forms for implementation of the program.
PASSED by the Blaine Economic Development Authority this 15th day of November, 2018.