HomeMy WebLinkAbout10/07/1997, 6 - AGREEMENT WITH THE ECONOMIC VITALITY CORPORATION (EVC) FOR A REVOLVING LOAN FUND (RLF) council
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CITY O F SAN LUIS O B I S P O
FROM: Ken Hampian,Assistant City Administrative Officer.
Prepared By: Diane Sheeley,Economic Development Manager -�S
SUBJECT: AGREEMENT WITH THE ECONOMIC VITALITY CORPORATION
(EVC)FOR A REVOLVING LOAN FUND(RLF)
CAO RECOMMENDATION
Approve an agreement with the Economic Vitality Corporation (EVC) of San Luis Obispo County
in the amount of$150,000 for a Revolving Loan Fund.
DISCUSSION
Background
At the January 21, 1997, Council meeting the Economic Vitality Corporation (EVC) of San Luis
Obispo County briefed Council on its plans to establish and administer a Revolving Loan Fund
(RLF)to increase jobs in San Luis Obispo. The EVC also asked that the City consider participating
in the program through an allocation of $200,000 in Community Development Block Grant
(CDBG) funds. The use of CDBG funds is very common for programs of this kind, since the jobs
to be created must go to low or moderate income persons.
Council expressed interest in the program, and ultimately set aside $150,000 in CDBG fimds, but
indicated that it preferred a"tighter" loan-to-jobs ratio than the program's standard $35,000:1 level.
Council also asked for more information on the relationship of the program to low income persons.
During the budget process, and after receipt of information from the Private Industry Council(PIC)
concerning their role in linking the new jobs to low income persons and long-term unemployment,
the City Council approved the program,subject to an acceptable agreement
Proposed Agreement
In order to respond to Council direction, staff has negotiated the attached agreement with the EVC.
The agreement assures that borrowers utilizing the RLF must, at a minimum, retain or create one
job for each low/moderate income individual per $25,000 in CDBG fiends used (although the
Federal government's guideline is one job per$35,000 in CDBG funds). The Administrative Plan
to the agreement (Attachment 2) outlines the role of the PIC in linking the program to
unemployment and lower income persons.
In terms of private sector investment, the portfolio standard leveraging ratio is established at one
private dollar to every one RLF dollar, a 1:1 ratio. Private dollars may consist of financing from
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Council Agenda Report-EVC Contract
Page 2
conventional and/or other private sources, including cash equity investment on the part of owners
and stockholders. This ratio may vary in individual cases, but the loan portfolio as a whole will
maintain the standard ratio of 1:1 public-to-private dollars. It is estimated that 100% of the RLF
loans will be made to small businesses,as defined by the U.S. Small Business Administration.
Eligible applicants include private, for-profit firms to include corporations, partnerships, sole
proprietorships, and cooperatives organized for the purpose of business. Low-to-moderate income
households will be targeted. The Private Industry Council is the lead agency in assessing the low-
to-moderate income thresholds. The RLF will finance activities for the start-up, retention, and
expansion of businesses located within the City of San Luis Obispo, including minority-owned
businesses. Eligible activities that may be financed include the following:
• Land costs, including engineering, legal, grading, testing, site mapping, related costs
associated with acquisition,and preparation of land.
• Building costs, including real estate, engineering, architectural, legal, and related costs
associated with acquisition, construction, and rehabilitation of buildings including
leasehold improvements.
• Machinery and equipment costs, including delivery, installation, engineering,
architectural, legal, insurance, and related costs association with acquisition and
installation of machinery and equipment.
• Adequate contingency reserves.
• Working and start-up capital.
A borrower is eligible for financing only when credit is not otherwise available on terms and
conditions which would permit completion and/or the successful operation or accomplishment of
the project activities to be financed. The RLF will normally require documentation from outside
sources which may include bank rejection letters or other outside documentation substantiating the
grantee's written analysis. The written analysis will document that a "financing gap" exists with
the borrower of the RLF and that the loan is"necessary"and the terms of the loan"appropriate"for
the project to go forward.
The Loan Review Committee members include:
• Howard Carrol,CPA
• Reese Davies, Sr. Exec.V.P.,First Bank of San Luis Obispo
• Elizabeth Frisch,V.P., Santa Lucia National Bank
• Bill Hockey,President,Pacific West Steel
• Wayne Longcrier,CPA,Barbich,Longcrier,Hooper&King
• Tom Reese, Exec.V.P.,Mid-State Bank
While staff is only informally involved in the loan decision-making process, the Economic
Development Manager will work closely with EVC loan administrators to encourage loans to
businesses that are consistent with the City's recently adopted business recruitment priorities. The
City will receive written quarterly activity reports from the EVC regarding loan activity.
Council Agenda Report-t,,/C Contract
Page 3
FISCAL EMPACT
$150,000 was appropriated by Council from 1997-98 Community Development Block Grant
(CDBG) funds (page E-2 of the 1997-99 Financial Plan). The administrative elements of the
program include marketing and outreach, borrower evaluation and loan packaging, loan servicing
and reporting, and many other activities. The full range of administrative requirements are outlined
under Section H of the Administrative Plan. Administrative costs will be tracked, but the
administrative fee may not exceed 20%.
While the initial investment in this program may seem low in terms of impact, if the program is
successful, subsequent allocations may be made. However, because the program will generate
income over time (as loans are repaid and funds "revolve"), after three or four years it may not be
necessary to further invest in this program. In any case,no added investment will be made without
an evaluation of the first year of program operation and formal Council action.
ALTERNATIVES
Do nothing. We can continue to operate our economic development program without the RLF.
The RLF program will provide a financing tool not presently available to the City's Economic
Development program, but common in programs elsewhere. Through the EVC, the City of San
Luis Obispo can use the Revolving Loan Fund (RLF) to create private sector jobs in targeted
industries that might otherwise not be available due to a lack of financing. Because of the emphasis
on serving lower income persons and the long term unemployed,the program will impact segments
of the economy that will diversify and strengthen the economic base.
Use in house staff resources. Although we may possess the staff capabilities to perform the RLF
in-house,this would be a major staff project consuming considerable resources, which would mean
that the day-today services would suffer. This approach would require evaluating and
repriontizing existing activities. Based on existing staff resources and commitments, this
alternative is not recommended.
ATTACHMENTS
1. Revolving Loan Fund Agreement
2. CDBG Revolving Loan Fund Administrative Plan
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ATTACHMENT 1
SUBRECIPIENT AGREEMENT FOR CDBG FUNDS BETWEEN
THE CITY OF SAN LUIS OBISPO AND THE ECONOMIC
VITALITY CORPORATION OF SAN LUIS OBISPO COUNTY
THIS AGREEMENT is made and entered into in the City of San Luis Obispo on this day
of , 1997, by and between the CITY OF SAN LUIS OBISPO, a charter city,
incorporated in the State of California, hereinafter referred to as City, and the Economic Vitality
Corporation of San Luis Obispo County, a non-profit corporation, hereinafter referred to as EVC;
jointly referred to as Parties.
WITNESSETH:
WHEREAS, the incorporated cities of San Luis Obispo County have agreed to participate
and support the establishment of a regional economic development effort; and
WHEREAS, the City desires to diversify and expand its industrial, retail, commercial,
recreational,and general business services economic base;and
WHEREAS, the EVC is charged with the mission "to stimulate the economic vitality of
San Luis Obispo County, generate jobs and increase financial investment within the County by
promoting the retention,expansion,and attraction of business and industry to the area"; and
WHEREAS,the EVC is organized for such economic development activities on behalf of
the City and is in a position to accomplish such goals and purposes of the City in an efficient and
economical manner, and
WHEREAS,the Government Code of the State of California authorizes the expenditure of
public funds by a municipal corporation for economic development activities as therein provided;
and
WHEREAS,the City, has entered into grant agreements with the Federal Department of
Housing and Urban Development, hereinafter called "HUD", to implement the Housing and
Community Development Act of 1974, herein called the"Act." Said Act is omnibus legislation
relating to federal involvement in a wide range of housing and community development activities
under the Community Development Block Grant(CDBG)Program; and
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WHEREAS, the San Luis Obispo County Board of Supervisors has recommended
establishing a non-profit Economic Vitality Corporation to have primary lead responsibility for
planning, implementation and monitoring of economic, business and job development programs
in San Luis Obispo City and County; and
WHEREAS, the EVC has been incorporated as a private, non-profit corporate entity
under the Nonprofit Corporation Law of the State of California and pursuant to section 501(c) of
the Federal Internal Revenue Code to have primary lead responsibility to conduct economic
development activities in the County of San Luis Obispo, specifically including but not limited
to the following:
a. To develop and manage a coordinated, Revolving Loan Fund to expand, retain
and attract desirable firms to provide financing, employee recruitment and training,
technical and management assistance, etc.;
b. To develop job, employment, training and business opportunities for residents of
San Luis Obispo City and County, especially for targeted low and moderate income
residents through the attraction,retention and expansion of private sector finis;
C. To plan and manage economic development implementation activities, programs
and projects which would attract and create new firms, and retain and expand existing
businesses, including but not limited to those owned by targeted low and moderate
income residents of San Luis Obispo City; and
WHEREAS, the City and HUD have approved and allocated $150,000 of 1997-98
program year CDBG fiords for implementation by the EVC of specific activities eligible under
the Act and set forth herein in furtherance of benefit to low and moderate income person; and
. WHEREAS, the Parties' participation in the programs funded by the Act is pursuant to
compliance with all applicable federal laws,regulations and executive orders; and
WHEREAS, according to federal regulations 24 C.F.R. part 570.503, before disbursing
any CDBG funds to a"Subrecipient,"a written agreement shall be signed by the "Recipient" and
"Subrecipienf'; and
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WHEREAS, this Agreement shall remain in effect throughout the implementation of
projects specified in the 1997 CDBG Final Statement and 1997 Consolidated Plan and any
amendments thereto.
NOW, THEREFORE, in consideration of their mutual promises, obligations, and
covenants hereinafter contained,and pursuant to the provisions of Title 24, Chapter V of the Code
of Federal Regulations,the Parties agree as follows:
1. TERM. The term of this Agreement shall become effective on the date of
execution hereof by both parties, and shall continue in effect until June 30, 1998, provided,
however, that this Agreement may be renewed each year hereafter, for.periods of one year,
commencing July 1 through June 30 of the succeeding year, by action of the City Council and
EVC's acceptance of said renewal.
2. CITY'S OBLIGATIONS. For managing the City's Revolving Fund as specified
in this Agreement,City will pay and EVC shall receive therefor compensation in a total sum not to
exceed $150,000, including no more than 20% for administrative fees. The amount shall be
allocated as follows: on an"as-committed"basis.
3. EVC's OBLIGATIONS. For and in consideration of the payments and
agreements herein before mentioned to be made and performed by City, EVC agrees with City to
do everything required by this Agreement and the said specifications:
a. That the foregoing recitals are true and correct and constitute statements of fact
herein.
b. EVC shall manage the City's Revolving Loan Fund as follows:
1. Retain or create at least one (1) full-time permanent position for every
$25,000 loaned.
2. Request input from Economic Development Manger prior to making a loan.
3. Provide written quarterly reports to the Economic Development Manager.
4. Perform outreach efforts to market available Revolving Loan Fund
assistance.
5. Screen applicants,review and underwrite applications for assistance;prepare
any necessary agreements-
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6. Monitor assisted activities; provide (or arrange for provision of) services
involved in screening, referring, placement and training for persons filling
employment opportunities generated by the CDBG economic development
assistance.
7. Conduct micro-lending program in accordance with 24 CFR 50.201 (ii)(o).
4. INSURANCE. EVC shall procure and maintain for the duration of the contract
insurance which meets the requirement of Attachment A. As evidence of this insurance EVC shall
provide the City with a Certificate of Insurance and an Endorsement naming the City as
"Additional Insured".
5. AMENDMENTS. Any amendment, modification, or variation from the terms of
this Agreement shall be in writing and shall be effective only upon approval by the Council or the
City Administrative Officer of the City.
6. FEDERAL REGULATIONS. All references in the Agreement to "federal
regulations" refer to numbered sections of Title 24, Chapter V, of the Code of Federal
Regulations,April 1, 1994 edition,unless otherwise indicated.
7. STATEMENT OF WORK. The statement of work in attached Attachment B
provide sufficient detail to give a sound basis for the City to effectively monitor performance of
all activities being implemented under this Agreement. Attachment B addresses the eligible use
of 1997 CDBG funds according to federal regulation outlined in 24 CFR Sections 570.201
through 570.203. Attachment B includes a description of the activities, related tasks, target
completion dates and a budget EVC may request modification of the tasks, schedules or budgets
in writing to the City. The City shall review each request to modify tasks, schedule or budget on
a case-by-case basis and will respond to the EVC within 14 days of the request. The EVC may
make budget revisions within the budgeted amounts shown in Attachment B without prior
approval of the City, provided that any increases or decreases in the total amounts of CDBG
funds shown in Attachment B shall remain subject to approval by City.
8. RECORDS. According to federal regulation 570.503 (b)(2), records that the
EVC must maintain, and the reports that must be submitted to assist the City in meeting its
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record keeping and reporting requirements, shall be specified in this Agreement. To effectively
monitor projects for compliance with CDBG regulations, all records must be available for
review, or may be required for submittal to the City. All records required by section 570.506 of
federal regulations shall be maintained by the EVC and shall be, on the request of the City,
submitted to the City.
9. REPORTS. All reports required by federal regulations 570.502 and 570.507
shall be prepared and maintained by the EVC. The following reports shall be maintained by the
EVC to the City:
a. The EVC shall submit an annual performance and evaluation report no later than
30 days after the completion of the most recent program year showing the status of all
activities as of the end of the program year.
b. Quarterly reports shall be submitted by the EVC to the City on, or before, the 15th
day following the.quarter end. The quarterly report shall include a complete description
of the approved activities completed, including loan to job ratio, any problems
encountered and corrective actions taken.
C. The EVC agrees to provide access by City to its accounting records and
documents and to provide non-financial assistance needed by City in the performance of
its monitoring function.
d. The EVC will contract with an independent certified public accountant to conduct
a financial audit of their whole organization each year and will include an audit with a
separate report of the projects funded by CDBG funds in accordance with federal OMB
Circular No. A-133, "Audits of Institutions of Higher Education and Other Non-profit
Institutions."
e. Copies of any audited financial reports and the single audit report will be provided
to the City.
f. The EVC will require each of its non-profit contractors that receive at least
$25,000 of CDBG funds to procure audits of their financial records in accordance with
OMB Circular No. A-133.
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g. Other reports and information may be required as determined necessary by HUD
to carry out its responsibilities under the Act or other applicable laws. The EVC agrees to
provide any HUD required reports.
10. PAYMENTS. The EVC may request payments on an"as-committed"basis. The
form required by HUD for cash disbursements shall be used by the EVC to request payment from
the City. The City shall review payment claims for compliance with the statements of work and
other provisions of this Agreement. All payments of claims are subject to the availability of
funds to the City from HUD. In order to cover costs of acquiring required insurance and related
tasks, EVC may request an initial cash advance of no more than $20,000 in 1997 CDBG funds
immediately upon execution of this Agreement. If.claims are approved, the City shall make
payment to EVC according to the following schedule:
a. If the EVC submits a cash request on or before the 10th of the month,payment
shall be made by the City to the EVC by the 20th of the month.
b. If the EVC submits a cash request on or before the 20th of the month, payment
shall be made by the City to the EVC by the 13th of the month.
11. PROGRAM INCOME-SECTION 570.504(c).
a. The EVC shall notify the City on a quarterly basis of any income generated by the
expenditure of CDBG funds and received by the EVC. Such income may be retained by
the EVC subject to the provisions of this Agreement, the Act, and its regulations. Any
program income retained by EVC shall be used only for eligible activities in accordance
with all CDBG requirements.
b. EVC shall assist City in monitoring the use of program income and reporting the
use of such income to HUD. In the event of grant close-out as defined in section 570.509
of the federal regulations or change of status of EVC, all program income on hand or
received by the EVC subsequent to the close-out or change of status shall be paid to the
City.
12. OTHER ADMINISTRATIVE REQUIREMENTS. The EVC shall comply
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with the requirements and standards of MOB Circular No. A-122, "Cost Principals for Non-
profit Organizations,"applicable provisions of OMB Circular No. A-133, "Audits of Institutions
of Higher Education and Other Non-profit Institutions" (as set forth in 24 C.F.R., part 45), and
applicable provisions of OMB Circular No. A-110(as set forth in 24 C.F.R.part 84).
13. OTHER PROGRAM REQUIREMENTS. The EVC shall carry out each
activity in compliance with all federal laws and regulations described in subpart K of the federal
regulations, except that the EVC does not assume the City's environmental clearances described
in federal regulations section 570.604; and EVC does not assume City's responsibility for
initiating the review process under the provisions of 24 C.F.R. part 52 per federal regulation
570.503(5)(ii). The EVC is responsible for spending all funds in compliance with all applicable
regulations, laws and executive orders, and warrants it will do so. In the event that the EVC
violates any such regulations, laws and/or executive orders, and such violation(s) result in the
City incurring expenses and/or making payments to HUD attributable to some or all of the funds
received by EVC, then the EVC shall pay City, on the demand of City, all of the said expenses
incurred by City and all of the payment made by City as a result of EVC's said violation(s).
14. SUSPENSION AND TERMINATION. If City determines that EVC has
incurred obligations or made expenditures for purposes which are not permitted or are prohibited
under the terms and provisions of this Agreement, or if City determines that EVC has failed to
fimlfill its obligations under this Agreement in a timely and professional manner, or if EVC is in
violation of any of the terms or provisions of this Agreement, or if City is given notice by HUD
that HUD is terminating its Grant Agreement with the City, or if EVC should be adjudged to be
bankrupt, or if EVC makes a general assignment for the benefit of the EVC's creditors, or if a
receiver should be appointed in the event of EVC's insolvency, then City may elect to suspend or
terminate this Agreement with EVC. Termination shall have no effect upon the rights and
obligations of the parties arising out of any transaction occurring prior to effective date of such
termination. If City's termination of EVC for cause is defective for any reason, including but not
limited to City's reliance on erroneous facts concerning EVC's performance, or any defect in the
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notice thereof, City's maximum liability shall not exceed the amount payable to EVC under
Attachment B of this Agreement.
Nothing in this Agreement shall prevent EVC form requesting a hearing before the San
Luis Obispo City Council to seek relief from any decision of City pursuant to this paragraph to
suspend or terminate this Agreement.
15. REVERSION OF ASSETS-SECTION 570.503. All transfers of assets are
subject to the provisions of this Agreement. Upon termination or expiration of this Agreement,
the EVC shall transfer to the City any CDBG funds on hand at the time of such termination or
expiration and any accounts receivable attributable to the use of CDBG funds. Any real property
under EVC's control that was acquired or improved in whole or in part with CDBG funds in
excess of$25,000 (whether in the form of a grant or loan) must be used to meet one of the
national objectives in federal regulations section 570.208 until five years after the expiration or
termination of this Agreement. If EVC chooses not to use the real property to meet one of the
national objectives for five years, then EVC shall pay City upon expiration or termination or this
Agreement an amount equal to the current market value of the real property less any portion of
the value attributable to expenditures of non-CDBG funds for the acquisition of, or improvement
to, the property.
16. INDEMNIFICATION. EVC shall defend, indemnify and save harmless the
City, its officers, agents and employees, from any and all claims, demands, damages, costs,
expenses,judgments or liability arising out of this Agreement or attempted performance of the
provisions hereof, including but not limited to those predicated upon theories of violation of
statute, ordinance, or regulation, professional malpractice, negligence, or recklessness including
negligent or reckless operation of motor vehicles or other equipment, furnishing of defective or
dangerous products or completed operations, premises liability arising from trespass or inverse
condemnation, violation of civil rights and also including any adverse determination made by the
Internal Revenue Service or the State Franchise Tax Board with respect to EVC's "independent
contractor" status that would establish a liability for failure to make social security and income
expressly allocated under the terms of this Agreement.
20. CONTRACTORS AND SUBCONTRACTORS. EVC agrees to, and shall
require its subcontractors to agree to:
a. Perform the work in accordance with federal, state and local housing and building
codes as applicable.
b. Comply with the labor standards described in 24 C.F.R. 570.603 and with the
provisions of the California Labor Code, as applicable.
C. Comply with the applicable equal opportunity requirements described in 24
C.F.R. 570.607.
d. Maintain at least the minimum state-required workers' compensation insurance
for those employees who will perform the work or any part of it.
e. Maintain, if so required by law,unemployment.insurance,disability insurance and
liability insurance in an amount to be determined by the State which is reasonable to
compensate any person, firm, or corporation who may be injured or damaged by EVC or
any subcontractor in performing the work or any part of it.
21. COMPLIANCE WITH COUNTY AND STATE LAWS AND
REGULATIONS. EVC agrees to comply with all County and State laws and regulations that
pertain to construction,health and safety, labor,fair employment practices, equal opportunity and
all other matters applicable to EVC, its subcontractors,and the work.
22. NO ASSIGNMENT WITHOUT CONSENT. Inasmuch as this Agreement is
intended to secure the specialized services of EVC, EVC shall not have the right to assign or
transfer this Agreement, or any part hereof or monies payable hereunder, without the prior
written consent of City, and any such assignment or transfer without the City's prior written
consent shall be considered null and void.
23. LAW GOVERNING AND VENUE. This Agreement has been executed and
delivered in the State of California, and the validity, enforceability and interpretation of any of
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tax withholding payments, failure to comply with workers' compensation laws, or any act or
omission to act, whether or not it be willful, intentional or actively or passively negligent on the
part of EVC or its agents, employees or other independent consultants directly responsible to
EVC, providing further that the foregoing shall apply to any wrongful acts or any active or
passively negligent acts or omissions to act, committed jointly or concurrently by EVC or EVCs
agents, employees or other independent contractors and the City, its agents, employees or other
independent contractors. Nothing contained in the foregoing indemnity provision shall be
construed to require indemnification from claims, demand, damages, costs, expenses or
judgments resulting solely from the conduct of the City.
17. EQUAL EMPLOYMENT OPPORTUNITY. During the performance of this
Agreement, EVC agrees that it will not discriminate against any employee or applicant for
employment because of race, color, religion, sex, or national origin, and specifically agrees to
comply with the provisions of Section 202 of Presidential Executive Order No. 11246.
18. ENTIRE AGREEMENT AND MODIFICATION. This Agreement sets forth
the full and entire understanding of the Parties regarding the matter set forth herein, and any
other prior or existing understandings or agreements by the Parties, whether formal or informal,
regarding any matters are hereby superseded or terminated in their entirety. No changes,
amendments, or alterations shall be effective unless in writing and signed by all parties hereto.
EVC specifically acknowledges that in entering into and executing this Agreement, EVC relies
solely upon the provisions contained in this Agreement and no others.
19. FUNDING FOR ADDITIONAL SERVICES. Funding of any programs,
projects, or services beyond the term of this Agreement, by any new agreement or amendment or
extension of this Agreement, has not been authorized and will depend upon Recipient's
determination of satisfactory performance of this Agreement by EVC and upon the availability to
City of additional grant funds allocated for such purposes. Neither City nor any employee of
City has made any promise or commitment, express or implied, that any additional funds will be
paid or made available to EVC for the purpose of this Agreement over and above the funds
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the clauses of this Agreement shall be determined and governed by the laws of the State of
California. All duties and obligations of the Parties created hereunder are performable in San
Luis Obispo County, and such County shall be the venue for any action, or proceeding that may
be brought,or arise out of, in connection with or by reason of the Agreement.
24. ENFORCEABILITY. In any term, covenant, condition or provision of this
Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the provisions hereof shall remain in full force and effect and shall in no way be
affected,impaired or invalidated thereby.
25. BINDING ON SUCCESSORS IN INTEREST. All provisions of this
Agreement shall be binding on the parties and their heirs,assigns and successors in interest.
26. EFFECT OF WAIVER City's waiver or breach of any one term, covenant or
other provision of this Agreement shall net be a waiver of a subsequent breach of the same term,
covenant or provision of this Agreement or of the breach of any other term, covenant or
provision of this Agreement.
27. PATENTS AND ROYALTIES.
a. EVC shall provide and pay for all licenses and royalties necessary for the legal
use and operation of any of the equipment or specialties used in the projects funded with this
Agreement. Certificates showing the payment of any such licenses or royalties, and permits for
the use of any patented or copyrighted devices shall be secured and paid for by the EVC and
delivered to the City upon completion of the projects funded by this Agreement, if required.
b. EVC shall assume all costs arising from the use of patented materials, equipment,
devices, or processes used in or incorporated in the Project and agrees to indemnify and hold
harmlc:s the City and its duly authorized representatives, from all suits of law, or actions of
every nature for or on account of the use of any patented materials, equipment, devices, or
processes.
28. COMPLETE AGREEMENT. This written Agreement, including all writings
specifically incorporated herein by reference, shall constitute the complete agreement between the
parties hereto. No oral agreement, understanding, or representation not reduced to.writing and
speccally incorporated herein shall be of any force or effect, nor shall any such oral agreement,
understanding, or representation be binding upon the parties hereto.
29. NOTICE. All written notices to the parties hereto shall be sent by United States
mail,postage prepaid by registered or certified mail addressed as follows:
City City Clerk
City of San Luis Obispo
990 Palm Street
San Luis Obispo, CA 93401
Contractor Gregg Goodwin, CEO
Economic Vitality Corp. of San Luis Obispo County
412 Higuera Street, Suite B
P.O.Box 5257
San Luis Obispo,CA 93403-5257
Any Party may change such address by notice in writing to the other Party.
30. AUTHORITY TO EXECUTE AGREEMENT. Both City and EVC do covenant
that each individual executing this agreement on behalf of each party is a person duly authorized
and empowered to execute Agreements for such party.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed
the day and year fust above written.
ATTE':'.T: CITY OF SAN LUIS OBISPO,
A Municipal Corporation
By:
City Clerk Mayor
APPROVED AS TO FORM: ECONOMIC VITALITY CORPORATION
By:
i tto
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ATTACHMENT A
INSURANCE REQUIREMENTS: Consultant Services
The Contractor shall procure and maintain for the duration of the contract insurance against claims
for injuries to persons or damages to property which may arise from or in connection with the
performance of the work hereunder by the Contractor, its agents, representatives, employees, or
subcontractors.
Minimum Scope of Insurance. Coverage shall be at least as broad as:
1. Insurance Services Office Commercial General Liability coverage (occurrence form CG
0001).
2. Insurance Services Office form number CA 0001 (Ed. 1/87)covering Automobile Liability,
code 1 (any auto).
3. Workers' Compensation insurance as required by the State of California and Employer's
Liability Insurance.
4. Errors and Omissions Liability insurance as appropriate to the consultant's profession.
Minimum Limits of Insurance. Contractor shall maintain limits no less than:
1. General Liability. $1,000,000 per occurrence for bodily injury, personal injury and
property damage. If Commercial General Liability or other form with a general aggregate
limit is used, either the general aggregate limit shall apply separately to this project/location
or the general aggregate limit shall be twice the required occurrence limit.
2. Automobile Liability: $1,000,000 per accident for bodily injury and property damage.
3. Employer's Liability. $1,000,000 per accident for bodily injury or disease.
4. Errors and Omissions Liability: $1,000,000 per occurrence.
Deductibles and Self-Insured Retentions. Any deductibles or self-insured retentions must be
declared to and approved by the City. At the option of the City, either. the insurer shall reduce or
eliminate such deductibles or self-insured retentions as respects the City, its officers, officials,
employees and volunteers; or the Contractor shall procure a bond guaranteeing payment of losses
and related investigations, claim administration and defense expenses.
Other Insurance Provisions. The general liability and automobile liability policies are to contain,
or be endorsed to contain,the following provisions:
1. The City, its officers, officials, employees, agents and volunteers are to be covered as
insureds as respects: liability arising out of activities performed by or on behalf of the
Contractor, products and completed operations of the Contractor, premises owned,
occupied or used by.the Contractor,or automobiles owned, leased,hired or borrowed by the
Contractor. The coverage shall contain no special limitations on the scope of protection
afforded to the City,its officers,official,employees,agents or volunteers.
2. For any claims related to this project, the Contractor's insurance coverage shall be primary
insurance as respects the City, its officers, officials, employees, agents and volunteers. Any
insurance or self-insurance maintained by the City, its officers, officials, employees, agents
or volunteers shall be excess of the Contractor's insurance and shall not contribute with it.
3. Any failure to comply with reporting or other provisions of the policies including breaches
of warranties shall not affect coverage provided to the City, its officers, officials,
employees, agents or volunteers.
4. The Contractor's insurance shall apply separately to each insured against whom claim is
made or suit is brought, except with respect to the limits of the insurer's liability.
5. Each insurance policy required by this clause shall be endorsed to state that coverage shall
not be suspended, voided, canceled by either party,reduced in coverage or in limits except
after thirty (30) days' prior written notice by certified mail, return receipt requested, has
13 ���
been given to the City.
6. Coverage shall not extend to any indemnity coverage for the active negligence of the
additional insured in any case where an agreement to indemnify the additional insured
would be invalid under Subdivision(b)of Section 2782 of the Civil Code.
Acceptability of Insurers. Insurance is to be placed with insurers with a current A.M. Best's rating
of no less than A:VII.
Verifiention of Coverage. Contractor shall famish the City with a certificate of insurance showing
maintenance of the required insurance coverage. Original endorsements effecting general liability
and automobile liability coverage required by this clause must also be provided. The endorsements
are to be signed by a person authorized by that insurer to bind coverage on its behalf. All
endorsements are to be received and approved by the City before work commences.
14
ATTACHMENT B
STATEMENT OF WORK
Contract Amount: $1509000
Administration Amount: Not to exceed 20% of the$150,000
Description of Work: EVC Revolving Loan Fund
The EVC will act as a subrecipient of$150,000 of the 1997-98 program year CDBG funds from
the City and will implement the Revolving loan Fund(RLF)through EVC staff. Of the
$150,000,20%may be used for administration. The work will include financial and other forms
of assistance to micro-enterprises and other eligible businesses pursuant to applicable CDBG
regulations. The EVC will enter into agreements with the assisted businesses to document that
the CDBG-funded assistance will result in the retention or creation of one full-time job from an
eligiblo low or moderate income resident of the City of San Luis Obispo for each$25,000 in
CDBG funds utilized in this business assistance program. The EVC will also assist the City by
providing adequate information for the City to meet its environmental review responsibilities
under 24 DVR 58 et seq. Repayments of loans of CDBG funds will be made directly to the EVC
and be deposited into the RLF city pool,consistent with CDBG regulations. Other tasks
involved in the Revolving Loan Fund include:
1. Retain or create at least one(1) full-time permanent position for every$25,000 loaned.
2. Request input from Economic Development Manager prior to making a loan.
3. Provide written quarterly reports to the Economic Development Manager.
4. Perform outreach efforts to market available Revolving Loan Fund assistance.
5. Screen applicants,review and underwrite applications for assistance; prepare any
necessary agreements.
6. Monitor assisted activities;provide(or arrange for provision of)services involved in
screening,referring,placement and training for persons filling employment opportunities
generated by the CDBG economic development assistance.
7. Conduct micro-lending program in accordance with 24 CFR 570.201 (ii)(o).
15 6•./�
ATTACHMENT 2
COUNTY OF SAN LUIS OBISPO
CDBG REVOLVING LOAN FUND
ADMINISTRATIVE PLAN
December 1996
TABLE OF CONTENTS
Page
I. ADMINISTRATIVE PLAN
AGoals and Objectives.................................................................................................................l
B. Identification ofthe Area's Financing Problems.......................................................................1
C. Targeting Criteria...................................................................................................................2
D. Standards for the RLF Portfolio
1. Eligible Projects&Activities...............................................................................................3
2. Ineligible Projects&Activities............................................................................................4
3. Eligible Costs........................................................................................................................4
4. Ineligible Costs.....................................................................................................................4
5. Loan Criteria........................................................................................................................5
E. Financing Policies......................................................................................................................9
1. Average Size.........................................................................................................................9
2. Fixed Assets&Working Capital.........................................................................................9
3. Repayment Terms................................................................................................................9
4. Interest Rates........................................................................................................................9
5. Special Financing Techniques..............................................................................................9
6. Equity and Collateral Requirements .................................................................................10
7. Modifying or Restructuring Loans.....................................................................................10
8. Use of Interest Payments from RLF Activity.....................................................................10
9. Fees and Charges................................................................................................................11
10.Cooperation with Other Financing Programs....................................................................1 l
F. Related Activities....................................................................................................................11
1. Technical and Management Assistance.............................................................................11
2. Loan Packaging and Referral............................
3. Linking Jobs with Long-Tenn Unemployment..................................................................I l
H. ADMINISTRATIVE ELEMENTS OF THE PLAN
A. Loan Committee....................................................................................................................12
B. Staff Capacity........................................................................................................................12
C. Loan Selection and Approval Process..................................................................................13
D. Loan Servicing......................................................................................................................15
E. Sources of Funding to Cover Admin. Costs.........................................................................17
F. Other Requirements..............................................................................................................17
G. Amendments..........................................................................................................................18
I.ADMINISTRATIVE PLAN
A. GOALS AND OBJECTIVES
The County of San Luis Obispo will use the Revolving Loan Fund (RLF) to create private sector
jobs in selected sectors of the economy that have promise for increasing employment opportunities
and diversifying and strengthening the economic base. The RLF targets funds to businesses that are
unable to secure suitable private financing.
The long-term adjustment goal of the County of San Luis Obispo RLF is to strengthen the resource
base industries and diversify the economy.
The RLF alone cannot accomplish the long-term adjustment goal. It must and will be used together
with other economic development activities of the San Luis Obispo County area to stimulate new
investment in plant and equipment and the retention and creation of private sector jobs. These
programs include the following:
• Business Retention & Expansion: The County of San Luis Obispo, through the Economic
Vitality Corporation (EVC), is conducting an on-going business retention and expansion
program. The program is designed to provide mechanisms for identifying the needs and
concerns of individual business and to provide direct technical assistance and financial
analysis or loan packaging, if appropriate. The County of San Luis Obispo is a sponsor of
the Economic Vitality Corporation (EVC) which provides outreach to businesses in the
community.
B. IDENTIFICATION OF THE AREA'S FINANCING PROBLEMS
Banking practices in the County of San Luis Obispo could be classified as cautious. Even though
few bank failures have occurred in the region, most banks are demonstrating the economic
imperative of lending to low risk businesses. It is common practice for area banks (a mixture of
state,national, and independent banks)to favor investment loans for the expansion of profitable and
stable businesses rather than to loan money for higher risk and new businesses.
The region has experienced some bank branch office closures in recent years and several bank
mergers have occurred; however, no lack of competition exists among the lending institutions. If
anything, banks are competing for investments that are low-risk and project a profitable return on
investment.
Industrial and commercial borrowers in the area have faced the following kinds of situations:
• In smaller business deals of$300,000 or less, lenders have not been willing to provide more
than 60-65 percent of the project, but borrowers have not been able to come up with more
than 15 percent equity, leaving a financing gap of 20-25 percent.
• Many start-up and expansion requests for small loans (i.e., $10,000 $20,000) typically are
not well received by institutional lenders or by the Small Business Administration.
�,.�
G -zi
Turnaround firms face roadblocks in obtaining equipment financing even though the firms
have rebounded
A credit gap exist in the region. It exist because conventional lenders prefer some kind of loans over
others. (Venture capitalists show little interest in investing in the San Luis Obispo County area).
The area's commercial banks lend short. They prefer to lend to customers they know. They like
existing, profitable businesses. They routinely ask for 50 percent equity. They dislike small loans,
due to high transaction cost in relation to the risk and return, except to their good customers with
whom they have strong relationships.
There is a need for longer term loans, for loans with lower equity requirements, for loans in the
$25,000 - $100,000 range, for start-up capital, for expansion capital for frons without existing
banking relationships(firms that have begun with owner's equity only,for example). The gap exists
not because the firms are poor investments but because they are not the preferred investment of the
banks.
Through careful screening of applicants and creative loan structuring, the RLF program can reduce
the reluctance of conventional lenders to meet the credit needs of riskier, but still credit worthy
firms.
The RLF is designed to meet the credit needs for firms not serviced by conventional lenders but at
the same time encourage these lenders to complete project financing. Lenders are willing to
participate in the program when they have a shared risk in the project. The management of the RLF
program will continue to seek out this participation with lenders in the area.
C. TARGETING CRITERIA
The comprehensive goal of the County of San Luis Obispo RLF program is to create private sector
jobs in selected segments of the economy and to diversity and strengthen the economic base. The
RLF seeks to give priority to the manufacturing sector, which can create jobs by adding value to
existing resources, (e.g. produce) and which has the potential for expanded domestic and
international markets.
In order to maximise the effectiveness of the limited dollars of the RLF, and meet the demand for
loans in the service area the following targeting criteria will be used to guide staff in screening
potential loan applications of the RLF and in the lending decisions of the Loan Committee:
• Sector: The RLF will be targeted to manufacturing, tourism and business services funis,
which would include food processors, packagers, general manufacturing concerns, hotels,
restaurants, recreation firms, software development, business support, research and
engineering funis. Clients are likely to be identified from such sources as the retention and
expansion program, and California Certified Development Corporations(CDC's).
RLF support will be available for retail and service firms when they meet one or more of
these criteria:
1. Projects creating a significant number of CDBG-TIG permanent jobs suitable to the
local labor force.
2
i.ovs.�t
2. Projects providing a vitally needed service.
3. Projects that involve historic preservation and re-use of commercial buildings.
4. Projects providing a good or service that was formerly purchased from outside the
area.
S. Projects having the potential for capturing income from outside the area.
6. Projects which are necessary for downtown revitalization efforts and which will have
positive spill-over effects on these efforts.
• Location: Priority will be given to firms that are expanding, newly locating, or remaining in
areas where the public sector is concentrating development or revitalization efforts.
Commercial loans will be considered in downtown areas where revitalization development
(historic preservation)strategies are in place.
D. STANDARDS FOR THE RLF PORTFOLIO
Eligible applicants include private, for-profit firms, including corporations, partnerships and sole
proprietorships,and cooperatives organized for the conduct of business.
Ineligible applicants are entities and organization other than those describe above.
I. Eligible Proiects and Activities
The RLF program will finance activities for the start-up, retention, and expansion of businesses
located in eligible areas. Activities that may be undertaken include the following:
• Acquisitions and assembly of owner-occupied land and facilities and existing businesses.
• Acquisition of machinery, equipment,furniture,fixtures and leasehold improvements.
• Acquisition of abandoned properties with redevelopment potential where a project will put
them to immediate use, i.e.,non-speculative, owner/operator only.
• Working capital needs.
Refinancing of debt that threatens the financial stability of a business.
2. Ineligible Proiects and Activities
They include:
• Projects involving the relocation of any firm from one commuting area to another in such a
manner as to cause unemployment at the location where such work previously was
performed.
1. 95.rlf 3
• Projects outside ofthe County of San Luis Obispo.
• Projects for which funds are judged to be otherwise available from private lenders or other
public agencies on terms which will permit the accomplishment of the project.
• Projects on which there is not reasonable assurance of repayment of the proposed loan(s)
3. Eligible Costs
They include:
• Land costs, including engineering, legal, grading, testing, site mapping, related costs
associated with acquisition, and preparation of land.
• Buildings costs, including real estate, engineering, architectural, legal and related costs
associated with acquisition, construction, and rehabilitation of buildings including leasehold
improvements.
• Machinery and equipment costs, including delivery, installation, engineering, architectural,
legal, insurance, and related costs associated with acquisition and installation of machinery
and equipment.
• Adequate contingency reserves.
• Working and start-up capital
4. Ineligible Costs
They include:
• Costs incurred prior to approval of loan application
• Subsidy of interest payment on loans.
5. Loan Criteria
The standards described below apply to the performance of the RLF as a whole.. The selection of a
business as a recipient of RLF monies will be based on its ability to meet the loan portfolio
standards. Individual loans may vary from the loan portfolio standards. In a case where significant
economic benefit is available through assisting a particular business, less than specified performance
on one or all of these standards may be acceptable.
a. Job/Costs Ratio: As an overall portfolio goal,the RLF will target a job cost ratio of$35,000 .Z,fe
4
L*95.a
per job or less, as is consistent with CDBG program goals.
b. TIG Benefit: Borrowers using CDBG funds must, at a minimum, create or retain one job for
a low/moderate income(80%of median)individual for every$35,000 in CDBG funds used.
c. Long-term Unemvloved: The RLF will encourage the use of first source hiring agreements
for the employment of Job Training Partnership Act(JTPA)eligible and displaced workers.
d. Teves of Jobs Created/Retained: As indicated in the section on targeting,preference will be
given to businesses creating permanent, manufacturing jobs. Loans solely for retention of
jobs will be allowed only when it is clearly evident that the jobs will be lost in the imminent
firture without RLF assistance. All jobs created or retained must comply with 24 CFR
570.208 (a)(4)(i-vi).
e. Private Sector Leveraging Ratio: The private sector leveraging ratio is defined as the amount
of private dollars proposed as part of the finance package divided by the amount of the
proposed RLF loan. Private dollars may consist of financing from conventional and/or other
private sources including cash equity investment on the part of owners and stockholders.
The portfolio standard leveraging ratio is established at one private dollars to every one RLF
dollar. This ratio may vary in individual cases, but the loan portfolio as a whole will
maintain the standard ratio of 1 to 1, private to public dollars. The minimum standard ratio
for any individual project will normally be one private dollar for every dollar at risk
If other public lending sources are involved in the loan package, the maximum public
participation in such a package will not normally exceed 50 percent. It will generally not be
acceptable to replace equity dollars required in a RLF package with the proceeds from a loan
originating from a public source. The RLF will attempt to maximize the private sector
leverage ratio in order to spread the RLF to as many borrowers as possible and for the
diversification of risk
f. Costs Estimates: Fixed assets costs must be documented by third party cost estimates from
licensed architects, engineers, equipment vendors or other suppliers.
g. Site Control: Ownership or control of any land or property needed for the proposed activity
must be demonstrated at the time of application for RLF funds. Control of the site can be
documented by the applicant providing copies of:
• Executed lease agreements.
• Ownership, as evidenced by a Preliminary Title Report or Deed of Trust.
• Option to Purchase, as evidenced by a copy of the Deposit Agreement.
Resolution of Necessity and scheduled court date (where condemnation proceedings are
required
h. Management Capacity: The management capacity of the principals of the business applying
for the RLF loan will be examined to assess the ability of the business to implement its
business plan, create (or retain) TIG jobs, and repay the loan. The principals' financial and
management track record will be reviewed,which will include a review of resumes, personal
5
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financial statements,and tax statements of principals owning 20%or more of company.
i. Ratio Analysis: An independent analysis of the financial feasibility of each RLF application
will be conducted by the RLF Program's financial consultant. A review of the business'
debt-to-equity ratio, debt coverage ratio (with and without proposed RLF financing),
accounts payable and receivable aging schedules,and other quality indicators will be used in
determining the credit worthiness of the borrower standard industry averages used by banks
will be utilized in the financial analysis by the financial consultant. The debt coverage ratio
on RLF loans will be established at 125%. Credits will also be conducted on the business
and business principals.
j. Approximately Percentage Breakdown of Loan Recipients: The following is an anticipated
breakdown of loan recipients by user type. This breakdown is for RLF planning purposes
and is not a loan portfolio criteria.
• NEW COMPANIES/BXPANSION/RETENTION
RLF loans may be used for start-up businesses.
The RLF will also be used for expansion and retention projects. It has been the areas
experience that expansion and retention go hand in hand. By providing firms with
reasonably priced financing for land, building, equipment, or working capital, it is possible
to keep a firm that is in an expansion mode from leaving the area. In other cases, firms
which are in danger of contracting jobs or closing entirely were it not form RLF assistance
could become candidates for capital to expand at a later date.
• SMALL BUSINESS
It is estimated that 100 percent of the RLF loans will be made to small businesses, as
defined by the U.S. Small Business Administration for the SBA 504 program.
• INDUSTRIAL/COMMERCIAL BORROWERS
RLF funds can be used for industrial projects and for commercial projects. Commercial
projects must offer significant job creation impact. RLF loans will also be targeted to
businesses that add value to or expand markets for local agricultural products.
k. Other Economic Obiectives/Benefits: Other elements which will receive consideration in the
selection of loans for the RLF program are:
• Linkages with the area's existing economy which would permit a business to absorb
displaced or underemployed skilled workers in the area labor force.
• Companies whose market appear to indicate the opportunity for significant permanent
expansion of production and employment in the short term.
• Significant opportunities for the development and/or expansion of minority or female-
owned and operated small business concerns. 4�2b
6
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Assistance to businesses to entice them to abate pollution, mitigate sewage/drainage
problems, or to meet other environmental standards that, left unmet, could threaten a firm's
continued operation in the community.
If the area's needs change in the future, with the exception of the minimum and maximum
standards (i.e., the job/cost ratio of$35,000; the minimum 1:1 portfolio leverage ratio; and
the minimum 1:1 individual project leverage ratio,the above standards may be revised, with
proper notification and approval of the Loan Committee and State CDBG program.
1. Apnronriateness of RLF-CDBG Loan: Borrowers shall be required to provide sufficient
documentation of their inability to obtain complete financing. A Borrower is eligible for
RLF financing only when credit is not otherwise available on terms and conditions which
would permit completion and or the successful operation or accomplishment of the project
activities to be financed. Loan applicants will be informed of this requirement in the RLF
loan application.
The RLF will normally require documentation from outside sources which may include
bank rejection letters or other documentation, as appropriate, to support the claim that the
RLF loan is"appropriate"under CDBG regulations.
The program management is responsible for determining that a borrower meets this
requirement by (a) providing a written analysis in each loan file documenting the basis for
the determination, and (b) normally obtaining support documentation in the form of bank
rejection letters or other outside documentation substantiating the grantee's written analysis.
The written analysis will document that a "financing gap" existed with the borrower of RLF
funds and that the loan was"necessary"and the terms of the loan "appropriate" for the project
to go forward. The written report will identify the type of financing gap which existed with the
borrower. The types of financing gaps that the RLF program can address and document include
the following:
Lack of Total Proiect Funding: The "gap" argument is made when documentation shows
that even with a combination of private lender, equity funds and other public funds, project
financing is still incomplete. The reasons why additional private lender funds cannot be
obtained must be explained(e.g. if there is collateral risk, locational risk, insufficient equity,
poor financial rations, etc.) Evidence that the bank will not provide financing (a bank turn
down letter) is required. It must be demonstrated that other public and private financing
options, including additional equity, have been explored. The borrower should list these
potential funding sources and discuss why alternatives are not available or appropriate.
Inability to Service Debt with Conventional Financing: The Borrower must demonstrate that
even though private financing is available, the cost of the funds is prohibitive, and CDBG
funds are needed to reduce debt service.
Insufficient Rate of Return: The report must document why CDBG funds are necessary to +2- 7
I.os5i f
generate a sufficient rate of return to the principals, given other investment options. A
financial analysis will describe the rate of return with and without CDBG funds and
compare the desired rate of return to industry averages.
Lease Rates: RLF financing may be needed to write down a developer's financing so that the
project can offer affordable leases to tenants. In this case, documentation from the developer
must show that conventional financing results in higher-than-market rate rents, and would
discourage tenants. The developer should document market rents for comparable space in
the area and demonstrate that CDBG funds are necessary to make the project competitive.
The RLF program management shall document compliance with the requirement by obtaining
support documentation and by preparing a written analysis (usually in the form of a loan
summary and recommendation prepared by the RLF loan officer), which will be placed in each
loan file. The grantee's written analysis will be sufficiently detailed (and may incorporate
actual figures from the borrower's financial statements)to evidence that credit is not available
on terms and conditions.which would permit completion and/or the successful operation or
accomplishment of the project activities to be financed.
8
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E. FINANCING POLICIES
1. Average Size: The average size of RLF loans will be approximately $52,000. Loans made
under the terms of the RLF program will range between $25,000 to $150,000. Maximum
loan size shall not exceed $150,000.
2. Fixed Assets/Working Capital: RLF funds can be used for working capital. Adjustments
will be made as appropriate during the revolving stage.
3. Repayment Terms: Loan terms will generally not exceed the full useful life of the assets
being financed. However, short-tern loans will be encouraged in order to accelerate the
reuse of RLF dollars. Repayment will normally be accomplished in equal monthly
installments, including principal and interest over the life of the loan, except that up to six
months o payment may be interest only if found necessary to make the project viable.
Except in cases of loan renegotiation, standard loan repayment terms will generally be
adhered to. The term of a fixed assets loan will no be greater than the weighted average
useful life of the fixed asset in the project, and in no case be made for a term of more than 15
years.
Based on the assumption the RLF is a tool to meet a financing gap in the short tern, it is
reasonable to expect the borrower should be able to obtain private financing after three to
five years. Consequently, the RLF loans my have a shorter term call period, but be
amortized over a longer period (not to exceed the weighted useful life of the fixed assets or
five years in the case of a working capital loan). This will enable the loan to be reviewed by
the Loan Committee and provide an opportunity for the borrower to repay the RLF with
private financing.
It is intended fixed asset and equipment loans would be amortized up to the average useful
life of the assets and not exceed fifteen(15) years, but due and payable in five years. If the
borrower is unable to obtain private financing,the loan would be extended for a period not to
exceed the life of the assets of the loan.
4. Interest Rates: The minimum allowable interest rate charged in any situation is 4 percentage
points below the prime rate being charged by the money center banks as quoted in the
current Wall Street Journal for debts of similar maturity.
Interest rate for loans will ordinarily be set at rates dictated by the repayment parameters of
each respective loan. The Loan Committee may adjust these suggested rates for individual
projects when sufficient evidence of need is presented.
5. Special Financing Techniques: Loans will generally be made on a subordinated basis except
where the RLF is the primary lender. The subordinated approach will lower the risk for
commercial lenders and act as an incentive for them to approve a loan. With the
subordinated loans,the RLF may negotiate with the private lender to obtain an interest in the
assets, on a percentage basis, in the event of liquidation when this is to the advantage of the
RLF. This participation arrangement would enhance the RLF's position over the standard
subordination arrangement; both the private lender and the RLF would receive some
restitution.
9
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The RLF primarily will be participating in loan guarantee programs. If a guarantee program
offers the opportunity to diversify the RLF and spread the risk, the RLF will entertain
participation as a third party in SBA 504 and 7A deals, and the RECDS intermediate
lending program.
6. Equity and Collateral Requirements: Standard equity requirement for fixed asset loans will
range from ten to twenty percent. For working capital loans the equity requirements can be
satisfied by net working capital of borrower based on a recent financial statement.
It will be general policy to loan the minimum amount needed to elicit financing from other
sources, usually not exceeding one RLF dollar for each two dollars of private capital. The
RLF staff will ensure the overall portfolio maintains the 1:1 private RLF ratio.
An applicant's pro forma balance sheets (combining business and personal, when
appropriate), including the proposed project and financing, will generally not exceed a 6:1
debt-to-equity ratio unless additional adequate security is provided (such as grantees, other
business assets, personal assets). For purposes of this paragraph, debt means total liabilities
of a business.
Security will be required, as necessary, to adequately collaterize RLF loans, and serve as a
secondary source of payment. In the case of fixed assets loans, security will usually be, at a
minimum, liens on the assets financed. Working capital loans, will normally be secured by
receivables inventory and fixed assets. Assignments of lease will also be taken when
appropriate. Liens upon other non-project assets of the applicant may also serve to secure
loans. It will also be the general policy to require personal guarantees by the applicants
principals, secured, as appropriate, by liens on personal assets. This is intended to increase
the likelihood of repayment through liquidation, if defaulted, so as to benefit the service area
by better assurances of recapitalization and further loan activity.
7. Restructuring or Modifying Loans: Terms and conditions of existing loans may be modified
from time to time, as deemed appropriate, particularly to preserve the assets of the business
and value of loan collateral should there be a problem with loan repayment. In general,
restructuring a loan will be accomplished in manner that will reduce a reasonable
reassessment of conditions. RLF loans will be restructured only where it improves a
borrower's ability to repay.
8. Use of Interest from RLF Activity: All repayments of principal will be retained in the RLF
for recycled lending. Interest payments will be retained in the RLF for re-lending, to
establish a loan loss reserve or to defray administrative expenses connected with the RLF.
RLF capital consisting of uncommitted RLF funds will not be held for longer than twenty-
four months as documented in quarterly and annual reports to the Department of Housing
and Urban Development (HUD) The uncommitted funds will be held in an interest bearing
account at bank of record. All funds will be received and expended in accordance with 24
CFR 570.504(a)(b)(c).
9. Fees and Charees: There will normally be a 2 percent loan fee charged to successful
applicants at closing for loan packaging services based upon actual cost for these
contractual services with a local bank. io 6X30
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10. Cooperation with Other Financing Programs: RLF loans will be used to fill gaps financing
that exist for a wide range of business development purposes. This will be accomplished in
a manner complementary to other public and private sources.
Either through the direct assistance of the RLF staff or by referral to their network of
contracts, businesses in the service area will be able to take advantage of local, state, and
federal programs, including but not limited to the following:
• Loans through the Community Development Block Grant Small Cities Program
administered by the State Department of Housing and Development.
• SBA 504 long-term subordinated fixed asset loans and SBA 7A, 90 percent guarantee
loans.
• Industrial Revenue Bonds, available from the State of California and the County of San
Luis Obispo.
• Bank issued State of California Guaranteed business loans.
F. RELATED ACTr%TMS
1. Technical and Management Assistance: Borrowers that need technical and management
assistance will be referred to the area Small Business Assistance Corporation (SBAC) and
Economic Vitality Corporation (EVC) or for-profit counseling and business consulting
providers in the area,e.g., General Business Services.
2. Loan Packaging and Referrals: The Loan Officer at Economic Vitality Corporation (EVC)
will be responsible for loan packaging for the RLF based upon referrals from area banks,the
city, and State of California programs.
3. Linking Jobs with Long- Tenn Unemployment: The primary vehicle that will be used for
insuring that the long-term unemployment will be linked with the jobs created through the
RLF program will be the Job Training Partnership Act programs. The programs provide not
only training and displaced worker assistance but also can design testing programs specific
to an industry's worker's needs. These specially designed recruitment tests are tied to the
program's skill building programs for the unemployed,thereby providing direct assistance in
securing a job. Loan recipients in the RLF will be provided with a detailed description of the
services and financial benefits of participation in the JTPA program and will be referred to
the programs.
2.c95.r1f
II. ADMINISTRATIVE ELEMENTS OF PLAN
A. LOAN COMMITTEE
The Loan Committee for the RLF program will consist of 6 representatives selected by the San Luis
Obispo EVC. The Loan Committee shall include a commercial lender, business person and Tax
Attorney or CPA
The Loan Committee's responsibilities will be to set the policy for the RLF; review, select, and
approve applications submitted to the Committee for funding and to make final decisions concerning
RLF loans.
Three ofthe Committee Directors will be appointed to two-year terms and three will be appointed to
three-year terms. Committee Directors may be re-appointed to the Committee by a majority vote of
San Luis Obispo EVC Board of Directors.
The Loan Committee will meet when necessary. Any action of the Loan Committee will require a
majority vote. A commercial lender Board member must be present at all meetings in which loan
decisions are being approved or modified, or in which foreclosure action is being requested. Loan
approvals will only be made by the loan Committee.
B. STAFF CAPACITY
1. Staff Duties: The RLF staff will perform the duties listed below. While staff will make
recommendations on whether to declare loans in default or to foreclose on loans, these
decisions can only be made by the Loan Committee or bank representative if loan guarantee
is in use.
Staff duties are as follows:
a. Market to local businesses, cities, and banks, the RLF objectives criteria and
availability in the eligible areas.
b. Interview and screen potential loan applicants. Refer ineligible prospects to local or
regional entities for counseling and technical assistance.
C. Review business plan,preliminary information,financial data and projections; prepare
credit analysis; assist client with loan application;prepare loan officer's report to RLF.
d. Execute loan documents for approved loans, insure compliance with regulations,
prepare closing documents for filling.
e. Monitor loan recipients and projects, provide management and technical assistance as
needed. Review with loan recipient financial needs or revisions.
f. Service loans and prepare accounts
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g. Provide,as necessary, legal loan collections, including asset liquidation.
h. Prepare monthly financial report and status of RLF balance, portfolio and individual
account status.
2. Conflicts of Interest: To avoid conflicts of interest, any Loan Committee member, staff
persons or professional associated with RLF shall reveal to the Loan Committee any
business or personal relationship with a loan applicant.
No officer, employee, or member of the loan Committee, or person related to the officer,
employee, or member of the Loan Committee by blood, marriage, law or business
arrangement shall receive any benefits resulting from the use of the loan or grant funds. In
addition, as required by the Loan Committee conflict of interest code, a copy of which is
attached hereto, marked Exhibit C, and incorporated herein by this reference, Loan
Committee members shall file, on forms provided by the San Luis Obispo EVC, initial and
annual statements disclosing financial interests
In the event representatives from the financial community on the Loan Committee have a
separate financial interest (excluding regular checking and savings accounts) in a loan
applicant, such member will not participate in loan deliberations.
C. LOAN SELECTION AND APPROVAL PROCESS
The loan selection and approval process includes the following four stages:
1. Marketing
Target Markets: Enterprise Zone, Banks, CPA's lawyers, city staff, private industry
councils, chambers of commerce, economic development organizations, business
associations/organizations, and businesses will be target markets for information on the
program.
Publici Media coverage/news releases will be prepared for all print and air media,
including minority media, for eligible areas. With assistance of the Loan Committee, staff
will meet with editors, program directors of television and radio station managers to inform
them of availability and objectives of the RLF. At the minimum an annual notice in all local
media ofthe availability of the RLF will be required.
Advertising: Staff will prepare a brochure describing the RLF, Loan Committee, goals,
objectives and criteria for applying for the RLF. The brochure will be distributed to banks,
CPA's, cities, chambers, and training organizations. Staff will make public appearances
before development groups to inform them of the RLF and provide brochures.
2. Applications
Normal and prudent lending standards will be used in evaluation the strength and ability to
repay of both companies and individuals. However, loans will be made in some cases where,
in the Loan Committee's judgment, the employment and other benefit potential (and the
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quality of business planning) outweigh risks that more conservative lenders would likely
avoid. This would apply, for example, to viable business start-ups, which are routinely
excluded from consideration by most members of the private financial community.
Procedure and flow are as follows:
Preliminary discussion with staff representative for eligibility and fit with RLF loan
criteria. If another lending program is more appropriate,the staff will assist the prospective
borrower with that program.
- Decision by staff representative to invite preliminary written information or decline loan
request at this point. If negative, inform applicant of reasons for decline and, if
appropriate, refer applicant to a suitable entity for management or technical counseling. If
possible, review preliminary needs with applicant; provide counseling regarding
applicant's business plan, cash flow requirements, debt structure, repayment ability and
cost estimates.
• Decision by RLF sta$to invite a formal application or decline a loan request at this point.
If negative, provide a written explanation of reasons for decline. If positive, inform
applicant and schedule application conference.
Application conference and review with applicant, in detail, the RLF Application
Checklist, criteria, and subsidiary forms and financial schedules determined necessary by
staff representative.
Applicant principals authorize credit checks.
If necessary, environmental review by city.
Applicant submits formal application and all supporting documents.
Standard loan application agreement employment agreement and related documents are
attached as part of the RLF package.
Any rejections of a loan application by the staff may be appealed in writing to the Loan
Committee. The decision of the Loan Committee shall be final.
3. Review and Decision
Procedures and flow are as follows:
• Review by staff for completeness and regulatory compliance; submission of additional
information by applicant.
- Acceptance for formal application by staff representative. �
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Detailed review, staff loan report, and final recommendation to Loan Committee, based on
loan criteria, ratio analysis, strength of business and principals, management capacity,
credit worthiness, repayment ability, TIG job creation, and other factors. Terms and
conditions of the loan, based on project and repayment ability, will be recommended by
staff.
Submission of completed package, along with staff recommendations (i.e., credit memo)to
Loan Committee.
• Loan Committee reviews and evaluates loan application, staff report, (staff to be present at
meetings to answer questions). Loan Committee to recommend for vote
approval/disapproval decision based on application. If approved, set terms and conditions
including contingencies such as private lender financing. Minutes of all Loan Committee
meetings to be maintained by staff.
• Notify applicant of approval/disapproval. If declined, include reasons for denial.
4. Loan Closing
Procedures and flow are as follows:
. Upon loan committee approval, preparation of loan closing documents by staff with
attorney review as necessary.
- Loan closing by staff.
• Disbursement of proceeds by bank according to directions.
• Filing of liens as available and completion of any remaining legal, regulatory or
housekeeping matters, all to be carried out by staff.
D. LOAN SERVICING
1. The San Luis Obispo EVC staff shall be responsible for monitoring all direct RLF loans.
Loan guarantees shall be monitored jointly by staff and the participating bank Staff shall
report any delinquencies past 30 days to the Loan Committee. Staff has contract capabilities
to manage/administer and service the RLF program.
2. An amortization schedule will be provided to all borrowers.
3. Site visit/contact file will be kept on each borrower. Borrowers will be contacted at least
once a quarter for employment data.
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4. All required loan documentation and special provisions shall be monitored. A tickler file
will be established to insure that special provisions of the loan are met.
5. Loans may be restructured, modified or granted moratoria, not to exceed six months, in 6
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special circumstances by the Loan Committee if the action would increase the probability of
the borrower's success and improve the borrower's repayment ability.
6. To assist the monitoring of the RLF loans for delinquent payments, the staff will utilize a
monthly management report. The monthly management report will primarily incorporate an
aging list reporting notes which are current, 30 days, 60 days, 90 days or older for each RLF
client. Due dates and additional comments will also be incorporated.
7. If loan should become delinquent,the following will occur:
a. First notice of delinquent payment will be sent 15 days after due date.
b. Second notice will be sent 30 days after due date.
C. Third notice will be sent 60 days after due date.
d. Fourth notice will be sent 90 days after due date.
During the first 90 days of delinquency,written and oral communication as well as site visits
will be utilized to resolve the delinquency. Every effort will be made through personal
contact by the staff to remedy the delinquency.
If after 90 days a delinquency still exists and the loan has not been renegotiated or brought
current, the loan will automatically be declared in default. Recovery of the Corporation's
security will commence immediately, either through its own initiative and actions, or by its
attorney. No loan modification will be approved unless it can be demonstrated that
modification will improve the borrower's ability to repay the loan.
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E. SOURCES OF FUNDING TO COVER ADMINISTRATIVE COST
Sources of funding for administrative costs will initially include CDBG administration funds
and RLF and other loan packaging fees. Future administration costs may be derived from
interest earned on RLF loans with HUD and County approval.
All principal payments of RLF loans, as well as other funds generated from RLF activity in
excess of discretionary amounts used for administrative costs, will provide an on-going
dedicated source of funds for the RLF. New loans will be made with the principal repayment
dollars and interest earnings and fees, as soon as sufficient amounts have accumulated for this
purpose.
The RLF staff will encourage private contributions from banks, utilities and other entities which
are interested in community development.
F.OTHER REQUIREMENTS
Assurance of CDBG regulatory compliance will be obtained before a RLF loan is disbursed.
Compliance will be monitored during the payback period and, in a case of confirmed and
irremediable noncompliance, the loan will be called. Provisions will be provided in the loan
agreement to call the loan for noncompliance of any of the following:
1. TIG Job Creation/Relation: Loans will be called if the borrower does not create or retain the
specified number of jobs for the CDBG targeted income group by June 30th of the fiscal year
in which the loan is made.
2. Environment RLF loans will not be made to borrowers whose projects do not meet all
applicable federal, state, and local environmental requirements. Such clearances are
required as part of the application process and are applicable to federal regulations 24 CFR
570.604 Environmental Standards. The Environmental Assessment required as part of the
application process will identify any areas of environmental sensitivity. Actions will be
taken as appropriate based on the assessments.
3. Historic Properties: All RLF loans affecting buildings eligible for listing on the National
Register of Historic Places must receive clearance from the state Historic Preservation
Office.
4. Relocation: Loans will be called if project activity is removed from the area. Loans will not
be made to companies relocating from another labor market area into the County target area
resulting in net loss of jobs in the previous location.
5. Flood Hazard Insurance: RLF loans are not made for project activity in a flood plain unless
proof of flood hazard insurance is provided.
6. Davis-Bacon Requirements: Construction activity financed in whole or in part by the RLF
must comply with the requirements of the Davis-Bacon Act, as amended.
7. Access for the Handicapped: All RLF-financed construction projects to which the public 6--37
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will have accesswill provide access to the handicapped or loans will not be approved.
G. AMENDMENTS
TheARLF Plan may be•amended at any time by the Loan Committee with prior approval by the
Of
-San oSan Luis Obispo and the U S. State.Department of Housing and Urban.Developineitt.
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