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�"�H17E - CITV CLERK r � J�
PINK - FINANCE GITY OF SAINT PA�TL Council � ,�r
CANARV - DEPARTMENT p ���� - �
BLUE - MAVOR File NO.
o i Resol '
Presented By •
Referred To Committee: Date
Out o# Committee By Date
RESOLUTION RECONIl�IENDING ESTABLISHMENT OF A CITY-WIDE
DEVELOPMENT COMPANY
WfiEREAS, it is desirous c�f the Council to continue supporting City
programs that stimulate employment and provide investment, expand the tax
base, increase business opportunities and encourage neighborhood business
revitalization.
WHEREAS, the Small Business Administration's (SBA's) 502 program,
which had been successful in providing low-interest, long-term, second
mortgage fixed-asset financing to the City's small businesses, has been
terminated.
FURTHERMORE, a need exists to finance small industrial businesses
(that cannot feasibly be financed by St. Paul's Port Authority) and small
businesses that are not located within neighborhood local development
companies, especially the West Side and Selby Avenue in which there is a
higher concentration of minority businesses.
WHEREAS, the newly enacted SBA program will assist in filling the
financing void that has been created by record high interest rates and
the termination of SBA-502 program.
THER.EFORE, be it resolved, that the council support the use of City
staff to establish and administer a City-wide non-profit development company,
to be known as "Saint Paul Development Company", to process SBA-503 loans,
as required by the Small Business Administration.
FURTHERMORE, be it resolved that a one-time $1,000 be approved as
start-up costs for the Saint Paul Development Company.
COUIVCILMEN Requested by Department of:
Yeas Nays �
tler Hunt Planning and Economic Development
H za Levine � In Favor
H Maddox Y/
vine �� _ __ Against BY
;� addox S�� Ja es J. lus, Director
�, Showalter , JAN 2 7 1981
Tedesc Tedesco
i�sa Form Approved by City Attorney
Adopted ouncil: �Date
C �fied Pass y Co cil S crttary BY
t#pp by lNav • JAIl?g 19g� Approved by Mayor for Submission to Council
By By
�"�.t��`� �:,e.:' �' , .
OM O1: 12/1975
• - Rev. : 9/8/76 '
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EXPLANATION OF ADMINISTRATIVE ORDERS,
��s��b�
RESOLUTIONS, AND ORDINANCES
Aate: January 5, 1981
T0: MAYOR GEORGE LATIMER
FR: Alan Emory � '��
RE; RESOLUTION RECOMMENDING THE ESTABLISHMENT 0� A
CITY-WIDE DEVELOPMENT COM�ANX (LDC)
ACTION REQUESTED:
Approve the use of City Sta�� to establish and adm�nister a City--Wide LAC. Approve
the one-time appropriation (source: UDAG Program Income) of $1,000.00 for start-up
costs.
PURPOSE AND RATIONALE FOR THIS ACTION:
To enable SBA-503 Loan availability to neighborhood businesses throughout the City
of Saint Paul. This new program will take the place of the terminated SBA Direct-502
Loan Program and is needed to fill the long-term financing gap for Saint Paul's small
businesses. Specifically, a need exists to finance small industrial businesses
(that cannot feasibly be financed by St. Paul's Port Authority) and small businesses
that are not located within neighborhood local development companies, especially the
West Side and Selby Avenue in which there is a higher concentration o£ minority
businesses. �
ATTACHMENTS:
1. 1 copy of Council Resolution_-
2. City-Wide 503 Loan Program Explanation
U�`�t•tti�c.t lii, 1'i:iU
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CITY-jvTIDE "503" DEVELOP:tENT CORPORATION
STATE�IENT OF NE�D AND PURPOSE 0:' ESTABLISHING A CITY-tdIDE LDC
General: The SBA-502 Program was established to stimulate employment and private
investment, expand the tax base, increase business opportunities and neighborhood �
busiiiess revitalization. [dith the termination of this federally funded program ;
and �aith the current all time high interest rates for fixed asset capital to small
businesses, there e:cists a need in Saint Paul for a long-term, lower interest,
second mortga;e or subordinate financi.ng program.
The newly enacted SBA-503 Program will fulfill sucti a need. Because of this
serious financing gap/the SBA's strict LDC certification requirements for the 503
Program and the Ci�y's needs�it is essential that a City-iJide LDC be establist�ed
immediately. � '
S ecific: The following are specific needs which the SBA-503 Program �oi11 meet:
.�'ehicle to which to finance small size industrial compc3nies where it is
infeasible to use Saint Paul's Port Authority as the financing vehi.cle
.Vehicle to which to finance small size businesses that are located in
areas not represented by a SBA-503 certified I.ocal Development Company.
Selby-Snellino
. Selby-llale
Selby-j.Testern
Rice Street/University Avenue (Capital Area ApProach)
[dest Side "Concord Street"
Robert Street
Smith-Dodd and North Wabasha Street
Do�,mtot��n Small. Businesses
Other Corunercial and Spot Areas
.Vehicle to which to finance minority owned and/or operated small businesses.
.Vehicle to which to finance small businesses that are located in existing
Saint Patil Neighborhood Local Development Companies that are not "SBA-503"
certi.fied.
City-��ide "503" Development Corporation - 2 - �
DESCRIPTION OF SB�-503 PROGRAM r'�`�����
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The 503 Program is established to replace the direct loan portion of the Local
Development Compan}� 502 Program. There cai11 still be a first mortgage offered
to a bank and a second mortgage for the SBA portion. The bank will itiject 40 to
50 percent of the project cost, the City-��'ide LDC will inject 40 to SO percent
of the project cost (through the sale of debentures by the federal financing
bank, which are secured by a 100 percent SBA Guaranty) , and the doc,m-payment
requirement from the business will be 10 percent. The term on these loans
will be up to 25 years for both the bank and the LDC's injections and the interest
rate will blend out at 2 to 4 percentage points under prime as an effective rate.
Therefore, the program provides 90 percent long-term financing at Uelow market
rate interest. The same criteria as used for the 502 Program will be used to
determine eligibility for eacti individual business. The eligible financing under
this program caill be for plant acquisition, construction, conversion or expan's,�}on,
acquisition of land, and may include the acquisition and installation of machinery
and equip�nent (�vith at least a 15 year life) . Therefore this loan will onl}� be
for fixed-asset financing.
CRITERIA FEQUIRED FOR ESTABLISHING A SB�'1-503 CERTIFIED CITY-tdIDE LDC
Forming a City-jdide LDC is quite similar to a neighbor.hood LDC, except that there
will be more oroups incorporated into the structure and in this case a professional
staff is needed. The following is a list of items for a City-��'ide I,DC:
1. The membership requirements for the LDC is 25 or more members. Of this
, membership 5 to 9 Officers and Di.rectors �aill be elected to serve on the
Board of Directors. SI3A Forms 912 and Brie.f Resumes �aill be needed for
all of the Officers and Airectors.
2. A Plan of Operation which includes the following:
a. The professional �unctions of the LDC must be identifed including
packaging, processing, closing and servicing capabilities of the
applicant, as �aell as legal and accounting capacity.
b. An Organizational Chart showing the internal operating structure
of the LDC as �aell as the relationship of individuals of the
professional staff to the operation of the LDC. An attached narrative
should discuss the authority and responsibility of each segment of
the chart.
c. A for�aard business plan identifying prospective projects and their
sources of financing in the applicant's first two years of operation.
d. The LDC's funding sources.
e. A plan for involving private sector participation in pro3ects they
assist.
f. The relationship of the LDC to other community development/economic
development organizations in its area of operation.
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, g. A detailed explanation of the LDC's role in providing the professional
serviccs �ahich include evaluatino, processing, closing, disburseing,
servicing and provide a Floca Chart for each sub-system.
3. The operating area of the LDC is to be defined providing a descr.iption of
the area. Also, the description of type and size of ttie preFl�ises to be
occupied by the LDC, its address, telephone numUer, and the services avail-
able at this location is to be defined.
4. Financial Statements �oill be required on each loan updated to within 60 days.
S. Articles of Incorporation and By-Laws will be dra�an-up and ceritified by
the Secretary of State.
6. A Resolution from the Board of Directors designating the person(s) autl��rized
to execute this application on behalf of the LDC.
7. A Declaration certifying the above submitted information are not false
statements or misrepresentation and that no employee of the SBA or any
memher or the SBA Advisory Council has or has had any part direct or
indirect financial interest in thn Local Development Corporation.
HOW THE CITY tJILL SATISFY TH� ABO��E CRITERIA
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Satisfied Criteria are the following: �'
1. The Office of the LDC will be 25 idest Fourtli Street, 13th Floor, and
, the telephone number 292-6167.
2. The By-Lacos and Articles of Incorporation have been dra�an-up in draft form.
3. A Plan of Operation is completed in draft form. "
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4. The Operating Area has been defined as City-tdide. •'.
5. An Organizational Chart has been completed in dra£t form,
The following items need to be satisfied:
1. The makeup of tlie Local Development Corporation membership and Board of
Directors (this should inclucle current neighborhood LDC members, merchant
groups, financial sector, accountants, City staff, commtinity groups, etc.
2. The data required on the Officers and riembers to certify the LDC is
needed, such as resumes, 912 forms, etc.
3. The financial statements are to be prepared including any sot►rce of
funding for start-up capital needs.
y City-[Jide "503" Developmen�t Corporation - 4 - �'��,. �-� �,
4. Certification by the Secretary of State of the Articles and By-Laws passed
by the Board of Directors.
5. A list of inemberships includinb name, address, telephone and occupation.
After the above items are submitted to the SBr1 Local Office they are forwarded to the
National SBA Office for final approval. tJtien this approval is .granted the debentures
can then be issued.
FUNDING, START-UP COSTS, PROrI0TI0N
There will be certain start-up capital needs of the City-TJide LDC. It is estimated
that $1,000 �vill be needed to fill the financin� needs. Tlie foll.o�aing is a breakdown '
of the financial requirements for the City-jdide LDC:
a. By-La�as and Articles of Incorporation need to be filed at the Secretar�►.�of
State and certified copies obtained for SBA use (this should cost an}�c�i�ere
from 30 to 50 dollars.)
b. Postage and miscellaneous items caill incur costs in mailin� to the general
membership.
c. A brochure descriUing the 503 Program made-up in a similar form as the
Commercial Ret�ab Brochure �oill be needed to puUlicize tlie program.
d. Ttie SBA will require a minimal cash balance in order to show that the LDC '
is able to meet its' day-to-day financing costs and run efficiently.
e: For eacli loan certified copies of the Certificate of Good Standing ��ill be
required.
The above costs will be incurred before the first loan is issued. After this the
City-Ldide Local Development Corporation should be totally self-sufficient because
of the fees that can be charged on each loan. These fees include �iie following:
1. .Up to 12% up front charge (similar to an origination fee) on the amount of
the debenture issued by the LDC. �
2. Up to 1/2% annual charge on the outstanding balance of the debenture.
3. The payment will be collected monthly from the business, however, payment
to the SBA is quarterly. Therefore some interest �oill accrue to the LDC.
An example of a typical $1,000,000 loan and the fees which can be charged are
the following:
a. The debenture amount will equal $500,000 .
b. The up-front charge can be up to $7,500.
c. The 1/2% charged on ttie annual balance the first year will equal approxi-
mately $2,000 (and declining each year after)
d. Interest collected from the float hetween collecting tlle payment from the
busi.ness and paying the debt quarterly to the 'SBA will accrue to the LDC.
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City-t�ide "503" Developme�nt Corporation - 5 - .. , � , , ,-'`
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SPECIFIC FUNCTIUNS AND RESPONSIBILITI�S OF THE CITY-tdIDE LDC
The short term functions and responsibil_ities of the Local Development Corporation
will be to a�prove tl�e 503 Loans and professionally pacicape, close, and service
these loans. 'lhe LDC coil.l have a responsibility to screen the loans for credit i
�aortlliness and project feasibility. Tliese decisi.ons will be based on collateral
and repayment ability of the small business concern. The lono-term functions of
the I,DC can be in the areas of attracting foundation contributions and other sources
of funds for major projects. Another .function could be to deal with City-�Jide
business concerns etc. Ho��ever in the shortrun this Development Corporation �aill
be mainly concerned with financing, growing,healthy and expanding businesses �aithin
the boundaries of. the City of Saint Paul. !
SCH�DULE OF STEPS REQUIRED FOR EACH 503 SBA L0.'1N �
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The 503 Loan process is nearly identical to the 502 process. The package is submitted
to the local office where the 502 Loan Officer reviews the credit and gets district/
regional approval. The following are the steps involved in each individual project:
1. The project is identified by the staff of the LDC through various avenues.
The flo�a of deals will be very similar to our present program (such as
bank, neighborhood groups and business contacts) .
2. After the project is identified, ttie bank of account c�ill Ue approached for
bank approval.
•3. After the bank has approved the loan, the necessary community groups
will review tlie application,such as the distr.ict councils where necessary
and the iieighborhood Local DevelopMent Corporations cahen the project falls
within tlleir area of operation.
4. At this point the package will be completed for all the SBA forms and
information required for their approval.
5, The project caill be submitted by staff to the Board of Directors for City-Wide
LDC approval.
6. The project is submitted to the District 503 Loan Officer who reviews the
credit and gets District Kegional approval.
7. The project is forwarded to the SBA Central Office from th� District Office.
8. The SBA Central Office issues the commitment letter, this letter should be
issued �aithin one �aeek.
9. Witti this commirment letter the small business concern contains interim
financing from tt�e bank and acquires the building, rehabs and/or constructs
the building.
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City=[Jide "503" Developmerit Corporati.on - 6 - ,% � � '
10. Upon completing the project the LDC's legal counsel will execute tt�e LDC's
documents with the bank and SBA District Council.
11. The SBA District Council will �orite an opinion stating the loan has been
properly closed. �.
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12. The SB11 District Office fonaards a second transmittal memo to SBA Central ~
Office. This step should occur 2 ��eeks prior to the sale of the debentures
to the federal financing bank.
13. The SBA Central Office for�oards a 3rd transmittal mer�o to the federal
financing bank. This step should occur one weelc prior to sa]e.
14. The day prior to the transfer of funds the federal financing bank will`-.�
notify the SBA of the interest rate. The funds will be tr.ansferred to the
Local Development Corporation in order to close the end financing with the
bank and the LDC and pag down the interim loan.
The LDC and District Office should close the loan at least two weeks prior to the
debenture sale and this is forwarded to the Central Office �aliere the Central Office
for�aards the debenture to tlie federal financing bank one week prior to the sale of
the bond. The federal financing bank �aill then notify the SBA ancl LDC of tlie interest
rate and sell the bond and transt-er the funds for the final closinb. `fiiese bonds
will be sold once a munth, therefore, the above timing is crucial if inrerim fin-
ancing is not available. Once the bond is sold ttie interest rate on tlie debenture
is fixed. Ho�aever, a floating interest rate can be negotiated witli tiie banks
40 to' S0 percent of thc loan where desired.
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