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Home My WebLink About10-211 Resolution No. 10-211 RESOLUTION ADOPTING THE AMENDED CENTER CITY SPECIAL BUSINESS LOAN PROGRAM FOR BUSINESS DEVELOPMENT AND BUILDING IMPROVEMENTS BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN,ILLINOIS,that it hereby adopts the amended Center City Special Business Loan Program for Business Development and Building Improvements dated November 17, 2010, for business development and building improvements in Center City Elgin, a copy of which is attached hereto and made a part hereof by reference. s/Ed Schock Ed Schock, Mayor Presented: November 17, 2010 Adopted: November 17, 2010 Omnibus Vote: Yeas: 7 Nays: 0 Attest: s/Diane Robertson Diane Robertson, City Clerk T Ah ELGIN THE CITY IN THE SUBURBS" CENTER CITY SPECIAL BUSINESS LOAN PROGRAM PURPOSE: The City of Elgin has established the Center City Special Loan Program ("Program") for building improvements and business development in the Center City to stimulate expan- sion, reinvestment and business retention. Interest on loans, up to a maximum of $200,000, may be subsidized by the city for the first five years of the loan. LOAN TERMS: Interest Rate: The interest rate for an eligible loan may not exceed ten percent (10%) interest. The eligible loan's interest rate must be at or above the prime rate of interest. Terms of Loan: Eligible loans may not exceed a 10-year amortization. U.S. Small Business Administration (SBA) "504" loans shall not exceed a 20-year amortization. Collateral: First or second mortgage on property. Maximum Loan: Up to $200,000 per building project. Purpose of Loan: Eligible loans shall be used solely for the acquisition or lease of oper- ating facilities, the purchase of equipment or fixtures, space built out or inventory. Conventional Commercial Loans City's Monthly Interest Payments. Interest payments made by the city under the Program shall be at the following rates payable over a period of five (5) years: First year: 90 percent of first year interest costs Second year: 80 percent of second year interest costs Third year: 70 percent of third year interest costs Fourth year: 60 percent of fourth year interest costs Fifth year: 50 percent of fifth year interest costs Home Equity and Second Mortgage Loans City's Monthly Interest Payments. Interest payments by the city under the Program shall be at the following rates payable over a period of five years: First year: 85 percent of first year interest costs Second year: 75 percent of second year interest costs Third year: 65 percent of third year interest costs Fourth year: 55 percent of fourth year interest costs Fifth year: 45 percent of fifth year interest costs U.S. Small Business Administration 504 Loans City's Monthly Interest Payments. Interest payments made by the city under the Program shall be at the following rates payable over a period of five (5) years: First year: 90 percent of first year interest costs Second year: 80 percent of second year interest costs Third year: 70 percent of third year interest costs Fourth year: 60 percent of fourth year interest costs Fifth year: 50 percent of fifth year interest costs Notwithstanding anything to the contrary in this Program, the maximum amount of interest payments by the city for any loan shall be in the maximum amount of$75,000. ELIGIBILITY REQUIREMENTS: To be eligible to apply for the Program, the applying business must satisfy both of the fol- lowing criteria: 1. Location: The business must be located in Elgin's "Center City," as depicted in the areas outlined in the accompanying target area map. 2. Type of Business: The business must be engaged in retailing, wholesaling, distri- bution, professional services, technology industry and other types of general com- mercial and retail lines of business consistent with those business uses identified as desirable in the city's adopted Riverfront/Center City Master Plan. GENERAL REQUIREMENTS: 1. The Program does not include financing for furniture, standard office equipment (i.e. personal computers and related equipment) or operating capital. 2. Building improvements must be completed by an independent contractor. The agree- ment for the contractor must be supported by two, different contractor bids. 2 • , 3.,Any business which is approved and is to receive benefits under the Program must ex- ecute a written agreement with the city in a form as directed by the city which shall include the terms necessary to comply with the provisions of the Program requirements, an agreement by such business to complete building improvements within a specified time period, and an agreement by such business to continue operating at the specified location for a period of not less that three years. If the business is required to vacate the Center City location due to action directed or supported by the city, the business must relocate within the Center City in order to retain the benefits of the Program. 4. Participants in the Program must provide annual financial statements to the city during participation in the Program. QUALIFYING STANDARDS: 1. The applicant business and owner must have an acceptable credit history with a record of timely loan payments. 2. Business profits and cash flow must be sufficient to support loan payments in accord- ance with the customary loan (with the loan to value ratio not to exceed 75 percent to 80 percent) unless other collateral or financial strength is provided. APPLICATION PROCESS: Eligible businesses should request a complete copy of the Program guidelines and a loan application form. Once the loan is conditionally approved and structured by the lending institution, the lender shall complete a loan proposal for submission to the city for final ap- proval. CORRESPONDENCE: Inquiries regarding this program may be directed to: Tonya Hudson, Executive Director, Downtown Neighborhood Association of Elgin, 847.488.1456 or Richard G. Kozal, Assis- tant City Manager, City of Elgin, 847.931.6633. 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I Eve_____ -- It # K� 7 ] --- -- A . il I 9 A `k >t# x �r Y� 'S — # • la REPORT TO MAYOR & MEMBERS OF CITY COUNCIL_ E LG I N THE CITY IN THE SUBURBS' MEETING DATE: November 3, 2010 INITIATIVE D: Amendment to Center City Special Business Loan Program Creating Eligibility for Certain U.S. Small Business Administration Loans COMMUNITY GOAL • Economic Growth and Diversified Tax Base OBJECTIVE • Amending the Center City Special Business Loan Program to make certain loans originated by the U.S. Small Business Administration eligible for participation in the program PURPOSE • Providing incentives for building improvements and business development in the Center City to stimulate expansion, reinvestment and business retention RECOMMENDATION • Approving the amendment to the Center City Special Business Loan Program making certain loans originated by the U.S. Small Business Administration eligible for participation (no additional cost to the city) BACKGROUND The Center City Special Business Loan Program (program) has been providing financial assistance to downtown businesses for more than ten years. The program pays a portion of the interest on certain business loans not exceeding $200,000 for a period of five years to assist downtown businesses during their first critical years of operation or business expansion. Depending on the type of loan the business obtains, the city pays up to 90 percent of the interest on the loan during the first year; 80 percent in the second year; 70 percent in the third year; 60 percent in the fourth year; and, 50 percent in the final year of program eligibility. Under current program guidelines, eligible loans must be amortized over a ten-year period, must be at or above the prime rate of interest and may not exceed 15 percent interest. The program also caps interest payments paid by the city to any participating business at$92,000. The city council last amended the program guidelines in 2003.The amendments enacted at that time made home equity loans and second mortgages used to fund the creation or expansion of a business eligible for participation in the program, raised the interest cap of eligible loans to 15 percent and increased the maximum loan amount on which the city would pay interest to $200,000 from $150,000. The proposed amendments to the program guidelines will make what is commonly referred to as U.S. Small Business Administration (SBA) "504" loans eligible for participation in the program. The SBA's 504 loan program is funded by the sale of SBA guaranteed debentures on Wall Street and these government-guaranteed bonds enable 504 borrowers to obtain low, fixed interest rates on 10 or 20-year loans. Because the SBA's 504 loans contemplate 20-year amortizations, staff is recommending that the program guidelines be amended to authorize 20- year amortizations solely in the case of SBA 504 loans. In recognition of the current lending environment, the proposed amendments to the program guidelines also lower the maximum interest rate on an eligible loan to 10 percent from the current 15 percent. This reduction in the maximum interest rate for eligible loans accordingly reduces the maximum amount of interest payments by the city to $70,000 (from $92,000) for any single business. OPERATIONAL ANALYSIS The Center City Special Business Loan Program has been instrumental in attracting new businesses to the downtown. In the recent past, the program has provided the Public House, Quizno's, Tongue 'n Chic, Mad Maggie's and the Red Bar with critical financial assistance during the formative years of their respective businesses. Recognizing the SBA 504 loans for eligibility within the program will provide business persons seeking to establish or expand operations within the Center City with an additional financial resource for their business operations. Given the current restrictive lending environment, providing potential and existing Center City businesses with a new, financial resource is critical to the continued renewal of the downtown. INTERESTED PERSONS CONTACTED The Downtown Neighborhood Association of Elgin was consulted regarding the recommended amendments to the Center City Special Business Loan Program. FINANCIAL ANALYSIS The proposed amendments to the Center City Special Business Loan Program create an additional class of eligible loans for participation in the program that may result in more businesses seeking to participate. Participation in the program is ultimately governed by the amount of funds budgeted for the program by the city council. The proposed amendments are not seeking any additional funding for the program however, given the reduction in the maximum participation amount, a greater number of business may be able to participate. BUDGET IMPACT FUND(S) ACCOUNT(S) PROJECT#(S) AMOUNT AMOUNT BUDGETED AVAILABLE N/A N/A N/A N/A N/A LEGAL IMPACT None. ALTERNATIVE COURSES OF ACTION The city council may choose not to amend Center City Special Business Loan Program so that U.S. Small Business Administration 504 loans with 20-year amortization are not eligible for participation in the program. This alternative will remove a potential funding source for businesses seeking to establish or expand operations in the Center City. NEXT STEPS 1. Incorporate the proposed amendments to the Center City Special Business Loan Program in the program's guidelines. J `r� 3 Prepared by: Richard G. Kozal, Assistant City Manager/Chief Operating Officer Reviewed by: Sean R. Stegall, City Manager Reviewed by: Colleen Lavery, Chief Financial Officer Reviewed by: William A. Cogley, Corporation Counsel/Chief Development Officer Final Review by: Richard G. Kozal, Assistant City Manager/Chief Operating Officer Approved by: ê. StegaiLOty & ATTACHMENTS A. Center City Special Business Loan Program Guidelines (incorporating proposed amendments) ELGIN THE CITY IN THE SUBURBS" CENTER CITY SPECIAL BUSINESS LOAN PROGRAM PURPOSE: The City of Elgin has established the Center City Special Loan Program ("Program") for building improvements and business development in the Center City to stimulate expan- sion, reinvestment and business retention. Interest on loans, up to a maximum of $200,000, may be subsidized by the city for the first five years of the loan. LOAN TERMS: Interest Rate: The interest rate for an eligible loan may not exceed ten percent (10%) interest. The eligible loan's interest rate must be at or above the prime rate of interest. Terms of Loan: Eligible loans may not exceed a 10-year amortization. U.S. Small Business Administration (SBA) "504" loans shall not exceed a 20-year amortization. Collateral: First or second mortgage on property. Maximum Loan: Up to $200,000 per building project. Purpose of Loan: Eligible loans shall be used solely for the acquisition or lease of oper- ating facilities, the purchase of equipment or fixtures, space built out or inventory. Conventional Commercial Loans City's Monthly Interest Payments. Interest payments made by the city under the Program shall be at the following rates payable over a period of five (5) years: First year: 90 percent of first year interest costs Second year: 80 percent of second year interest costs Third year: 70 percent of third year interest costs Fourth year: 60 percent of fourth year interest costs Fifth year: 50 percent of fifth year interest costs Home Equity and Second Mortgage Loans City's Monthly Interest Payments. Interest payments by the city under the Program shall be at the following rates payable over a period of five years: First year: 85 percent of first year interest costs Second year: 75 percent of second year interest costs Third year: 65 percent of third year interest costs Fourth year: 55 percent of fourth year interest costs Fifth year: 45 percent of fifth year interest costs U.S. Small Business Administration 504 Loans City's Monthly Interest Payments. Interest payments made by the city under the Program shall be at the following rates payable over a period of five (5) years: First year: 90 percent of first year interest costs Second year: 80 percent of second year interest costs Third year: 70 percent of third year interest costs Fourth year: 60 percent of fourth year interest costs Fifth year: 50 percent of fifth year interest costs Notwithstanding anything to the contrary in this Program, the maximum amount of interest payments by the city for any loan shall be in the maximum amount of$75,000. ELIGIBILITY REQUIREMENTS: To be eligible to apply for the Program, the applying business must satisfy both of the fol- lowing criteria: 1. Location: The business must be located in Elgin's "Center City," as depicted in the areas outlined in the accompanying target area map. 2. Type of Business: The business must be engaged in retailing, wholesaling, distri- bution, professional services, technology industry and other types of general com- mercial and retail lines of business consistent with those business uses identified as desirable in the city's adopted Riverfront/Center City Master Plan. GENERAL REQUIREMENTS: 1. The Program does not include financing for furniture, standard office equipment (i.e. personal computers and related equipment) or operating capital. 2. Building improvements must be completed by an independent contractor. The agree- ment for the contractor must be supported by two, different contractor bids. 2 3. Any business which is approved and is to receive benefits under the Program must ex- ' ecute a written agreement with the city in a form as directed by the city which shall include the terms necessary to comply with the provisions of the Program requirements, an agreement by such business to complete building improvements within a specified time period, and an agreement by such business to continue operating at the specified location for a period of not less that three years. If the business is required to vacate the Center City location due to action directed or supported by the city, the business must relocate within the Center City in order to retain the benefits of the Program. 4. Participants in the Program must provide annual financial statements to the city during participation in the Program. QUALIFYING STANDARDS: 1. The applicant business and owner must have an acceptable credit history with a record of timely loan payments. 2. Business profits and cash flow must be sufficient to support loan payments in accord- ance with the customary loan (with the loan to value ratio not to exceed 75 percent to 80 percent) unless other collateral or financial strength is provided. APPLICATION PROCESS: Eligible businesses should request a complete copy of the Program guidelines and a loan application form. Once the loan is conditionally approved and structured by the lending institution, the lender shall complete a loan proposal for submission to the city for final ap- proval. CORRESPONDENCE: Inquiries regarding this program may be directed to: Tonya Hudson, Executive Director, Downtown Neighborhood Association of Elgin, 847.488.1456 or Richard G. Kozal, Assis- tant City Manager, City of Elgin, 847.931.6633. 3 I I I I LJLJ L _I L— ___I H ' / 1 1 MI N Center City . \ , M a p \\7,, n CBD Boundary rh \ St Map prepared by City of Elgin .t. 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