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HRA 11/05/2015 WORKSHOP �l l C NOVEMBER 5, 2015 HRA Workshop Meeting Agenda 5:30 .m. Informational Items 1. Potential Creation of Commercial Loan Program H:wPaul's Documents�HRA�HRA Agenda Items�2015�November 5,201SNovember-2015 Agenda Outline.docxH:wPaul's DocumentslEIRA�IRA Agenda Items�2015�Novembet�5,2015V*Tovember-2015 Agenda Outline.docx -j INFORMATIONAL ITEM F ��^�,, HRA WORKSHOP �" Fridley � NOVEMBER 5, 2015 Date: October 28, 2015 To: Wally Wysopal, Executive Directo� From: Paul Bolin, Asst. Executive HRA Director Subiect• HRA Workshop — Commercia{ Loan Proaram Since mid-July the Authority has been reviewing changes and additions to our existing housing and loan programs. 1n October, the Authority approved a number of changes and additions to our housing {oan programs. Next Thursday we will ho{d a workshop to discuss the creation of, and parameters for, a commercial loan program. Though the bulk of this information has been presented in prior memos, we have not had an opportunity to discuss commercial loans in any detail: Mike Mulrooney, President of Central Minnesota Development Company (CMDC), will be at the workshop to assist in the discussion. CMDC is to city funded commercial loan programs, what CEE is to city funded housing loan programs. CMDC is a non-profit, SBA certified development company that consistently ranks in the top 20 SBA (Small Business Administration) lenders in Minnesota. Business' seeking assistance would meet with CMDC to review their project. 1f Authority assistance is needed, CMDC would do the underwriting and provide a credit memo, for review by the Authority, for approval. CMDC has the ability to manage the loan fund and provide the loan servicing. A proposal letter from CMDC, attached, provides more detail on how the partnership wouid work. As staff has been out meeting with local businesses, as part of our business retention and expansion efforts, we have heard from a number of small business owners that there is a need for low interest money to make improvements to their buiidings. Due to their age, we have many smailer retail and office spaces that are in need of new investment. Staff has also met with manufacturers that need assistance to keep their competitive advantage by adding square footage and/or specialized machinery. Partnering with CMDC will allow these businesses to enhance and maximize the private financing they are able to obtain. The Authority's fiunds would be used as gap financing for companies needing between $50,000 and $150,000. Staff will provide more in-depth infiormation on potential program parameters and details, for discussion, at next Thursday's workshop. The Authority will not be asked to take any action on a commercial loan program until December or January. , - BUSINESS FINANCING �------ -._____ SBA Loans� Financial Packaging � Federal State and Loca(Financing� Incentive Financing� Revolving Loan Funds August 13,2015 Paul Bolin Assistant Executive Director, HRA - City of Fridley 6431 University Ave. NE Fridley, MN 55432 Dear Paul: It was a pteasure to meet with you this morning to discuss the needs of the City of Fridley's Economic Development Program. CMDC is a provider of Revolving Loan Fund Management Services for units of government. You requested that I provide you and the City of Fridley with a proposal for this type of service to help you launch a Revolving Loan Fund for Fridley's business community. Below is a proposat for your review and consideration that outlines how we might work more closely with you and the City to achieve your desired economic development objectives. RLF Mana�ement • The Revolving Loan Fund would be governed by appointed representatives of The City of Fridley or its assigns as determined by the City Council or HRA. All credit decisions would be made by the City or its assigns. • Fund Management services will be provided by Central Minnesota Development Company,a locally based nonprofit SBA Certified Development Company and an "SBA Premier Certified Lender". • CMDC will provide all loan packaging, underwriting and related marketing services for the Fund. As part of the underwriting process CMDC will prepare all credit memos for distribution to the governing body. The Credit Memo will serve as the foundation for making sound credit decisions. • CMDC will also provide ongoing loan servicing including quarterly servicing reports to the City of Fridley. Whv CMDC? • Sound business and investment practices are important when managing public funds. CMDC has the professional staff,sophisticated investment analysts and seasoned management to give it the unique capacity to manage revolving loan funds for local economic development programs. This is why CMDC is the Certified Development Company that has been selected to manage the Urban Initiative Fund for the State of Minnesota and the Minnesota Department of Employment and Economic Development. �885 Station Parkway NW Andover, MN 55304 _ ___ __--. ._... ,__ _—__-------- 763•784• 3337 � f: 763•784•3338 I www•cmdcbusinessloans.com ' August 13,2015 Paul Bolin Page Two • CMDC has over 37 years of experience as a small business lender in the Northwest Metro and Greater Minnesota market. • Revolving loan funds are often managed by volunteers and/or local government staff. Many are inexperienced in economic development lending. CMDC supports local governments by providing continuity and consistency with professional experience. • Through CMDC's network and expertise,other funding programs may be available to the City to be used in conjunction with the local revolving loan fund. What are the Costs? • CMDC will assess an administrative fee to help defray costs incurred while providing program marketing services, meetings with clients, meetings with staff and the governing body. The monthly administrative fee will be 1/12 of 2%of the balance of all loans outstanding in the portfolio on the first day of each month. • CMDC will package,process and service all loans on behalf of the City of Fridley Revolving loan Fund. A loan packaging/processing fee of 1.5%of the loan amount or$1,500,whichever is greater,will be charged on all loans plus an ongoing(.5%)servicing fee. These costs are typically passed on to borrowers as their loans are processed. This fee structure is consistent with the SBA 504 Loan program. • The City and the Fund will retain all principal and interest ea�nings associated with the loan portfolio net of CMDC fees. The City in conjunction with CMDC will determine the depository for loan payments received from borrowers. Loan Amounts• • To be determined by the City—Minimums and maximums are recommended in the early stage depending on fund capitalization and community needs. • The Revolving Loan Fund should be designed to leverage other financing programs as well as . private financing provided by the commercial banking community. Eli�ible Proiects: • All projects must be located in The City of Fridley. • Borrowers must be a "for-profit" business. • Business must be complimentary to the existing business community. • It is recommended that at teast 50%of the project financing come from a private lender, private equity or both. • Borrowers must have equity injection as determined by fund management and the City of Fridley. Y August 13,2015 Paul Solin Page Three Allowab{e Use of Proceeds: • Loan proceeds would be used for fixed assets, including fand, buitding machinery and equipment. Working capital will not be provided by the Fund. tnterest Rates• • Fixed rate loans will be available,with rates determined by market conditions at loan closing. Management witl determine rate structure at the time of the establishment of the fund. loan Term len�th• • The term of each loan will be commensurate with the life of the asset being financed. Fees and Char�es Summarv: • The monthly Fund management fee wiil be 1/12 of 2%of the balance of all loans outstanding in tfie portfolio. • A 1.5%loan packaging/processing fee payable to CMDC by the City andJor borrowers at the time of loan application submission. • A servicing fee of.59'0 of the outstanding ioan balance payable to CMDC wi11 be charged on an ongoing basis and will be incorporated into the"effective" rate charged to the borrower. • Borrowers are responsible for paying all fegaf and other loan closing costs. Additional Services In addition to Fund Management,CMDC can assist the City with the design of effective underwriting guidelines-standard operating procedures and capitalization of the Fund. The estimated cost for this service would be$4,950. Fund raising assistance if needed woutd be billed at the rate of 109'0 of the capital raised. Mileage expenses wo�fd be billed at the annual prevailing rate estabtished by the 1RS which is currently set at$.575 per mile. Paul,we look forward to growing our relationship with you by providing RLF Management Services to The City of Fridley. Please feel free to contact me if you have any questions regarding our proposal. Sest regards, ',%?�.�� /�Z�!� Michael!. Mulrooney President CMDC REFERENCES FOR RLF MANAGEMENT SERVICES • The Minnesota Department of Employment and Economic Development Bart Bevins Senior loan Officer Minnesota Department of Employment and Economic Development 1st National Bank Bldg 332 Minnesota Street Suite E200 St. Paul, MN 55101-1351 (651) 259-7424 • The City of Coon Rapids , Matt Brown Economic Development Coordinator City of Coon Rapids 11155 Robinson Dr. Coon Rapids, MN 55433 (763)767-6460 • The City of Brooklyn Park Alisha Gray The City of Brooklyn Park 5200 85th Avenue N Brooklyn Park, MN 55443 (763)493-8145 . CMDC MANAGEMENT RESUMES Michael Mulroonev. President. Prior to his selection as President of CMDC, Mr. Mulrooney served under two governors as the Director of the Minnesota Department of Economic Devefopment. He is the founder of CMDC and has been associated with the company since 1978. Mr. Mulrooney has over 40 years of extensive development consulting experience. He has a{so served on the Boa�d of Directors of several trade organizations as well as technology and manufacturing companies in Minnesota. He has earned undergraduate and graduate degrees in finance from St.Cloud State University and from the University of St.Thomas. Scott Schake.Senior Vice President. Prior to joining CMDC, Mr.Schake worked for several banks in key management positions. He has previously been employed as a bank examiner for the FDIC and has served as the Chief Credit Officer for a major lender in Central Minnesota. His current responsibilities include serving as CMDC's Senior Vice President in charge of lending operations. Mr.Schake is a graduate of St.Cloud State University with a degree in economics. Kevin Weeres,Vice President. Kevin joined CMDC in the summer of 2007. He was previously employed for over 10 years as a Vice President with the First National Bank of Elk River. He has significant commerciai fending experience and a background in Mortgage Banking. Mr.Weeres is a graduate of the Minnesota Bankers Association Commercial Lending School and St.Cloud State University with a Bachelor of Science degree in Real Estate.