11-63 Resolution No. 11-63
RESOLUTION
APPROVING RENAMING THE CENTER CITY SPECIAL
BUSINESS LOAN PROGRAM AND
ADOPTING AMENDED GUIDELINES THEREFOR
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN,ILLINOIS,that it
hereby approves renaming the Center City Special Business Loan Program to the Downtown
Business Loan Interest Subsidy Program.
BE IT FURTHER RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN,
ILLINOIS,that the attached Downtown Business Loan Interest Subsidy Program guidelines,dated
April 13, 2011, are hereby adopted and approved by the City Council as the City of Elgin's
guidelines for such program.
s/Ed Schock
Ed Schock, Mayor
Presented: April 13, 2011
Adopted: April 13, 2011
Omnibus Vote: Yeas: 7 Nays: 0
Attest:
s/Diane Robertson
Diane Robertson, City Clerk
ELGIN
THE CITY IN THE SUBURBS'
DOWNTOWN BUSINESS LOAN
INTEREST SUBSIDY PROGRAM
PURPOSE:
The City of Elgin has established the Downtown Business Loan Interest Subsidy Program ("Program")for building improve-
ments and business development in the Center City to stimulate expansion, 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 ID-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 operating facilities,the pur-
chase 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: 8D percent of second year interest costs
Third year: 70 percent of third year interest costs
Fourth year: BD 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
LI.S.Small Business Administration(SBA)504 Loans
City's Monthly Interest and SBA Program Fee Payments. Interest payments and the SBA program fee payments commonly
referred to as the SBA Small Business Administration fee (covering a loss reserve for the program), the CSA Colson Ser-
vices Corporation fee (covering charges by Colson Services Corporation to handle payment processing and loan account-
ing) and the CDC Certified Development Company fee (covering servicing the loan and enforcing the terms of the loan doc-
uments)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 and eligible SBA fee costs
Second year: 80 percent of second year interest and eligible SBA fee costs
Third year: 70 percent of third year interest and eligible SBA fee costs
Fourth year: 60 percent of fourth year interest and eligible SBA fee costs
Fifth year: 50 percent of fifth year interest and eligible SBA fee costs
Limitations
Notwithstanding anything to the contrary in this Program,the maximum amount of interest and any eligible related loan fee
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 following criteria:
1. Location: The business must be located in Elgin's "Center City." as depicted in the areas outlined in the accom-
panying target area map.
2. Type of Business: The business must be engaged in retailing, wholesaling, distribution, professional services,
technology industry and other types of general commercial 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 agreement for the contractor must be
supported by two,different contractor bids.
3.Any business which is approved and is to receive benefits under the Program must execute 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
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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:
I.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 accordance 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 approval.
CORRESPONDENCE:
Inquiries regarding this program may be directed to: Tanya Hudson, Executive Director, Downtown Neighborhood Associa-
tion of Elgin, 847.488.1458 or Richard G. Kozal,Assistant City Manager, City of Elgin, 847.931.8833.
(Revised April 13,2011)
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1i! ,
REPORT TO MAYOR & MEMBERS OF CITY COUNCIL E LG I N
THE CITY IN THE SUBURBS
AGENDA ITEM: F
MEETING DATE: March 23, 2011
ITEM:
Amendment to Center City Special Business Loan Program Renaming Program and Clarifying
Eligibility for U.S. Small Business Administration 504 Loans
(No Cost to the City)
OBJECTIVE:
Renaming the City Special Business Loan Program to more accurately reflect the nature of the
program and clarifying the eligible reimbursement for 504 loans originated by the U.S. Small
Business Administration
RECOMMENDATION:
Approve the amendment to the Center City Special Business Loan Program renaming the pro-
gram to the "Downtown Business Loan Interest Subsidy Program" and clarifying eligibility for
U.S. Small Business Administration 504 loans
rk BACKGROUND
The Center City Special Business Loan Program (program) has been providing financial assis-
tance to downtown businesses for more than ten years. The program pays a portion of the in-
terest 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 inter-
est 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 cur-
rent 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 first 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 expan-
sion 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 in-
terest to $200,000 from $150,000.
The program guidelines were amended again in November 2010 to 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 recommended that the program guidelines be amended to authorize 20-
year amortizations solely in the case of SBA 504 loans.
The SBA's CDC/504 loan program is a long-term financing tool, designed to encourage econom-
ic development within a community. The 504 Program accomplishes this by providing small
businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or
modernization.
A Certified Development Company (CDC) is a private, nonprofit corporation which is set up to
contribute to economic development within its community. CDCs work with SBA and private
sector lenders to provide financing to small businesses, which accomplishes the goal of com-
munity economic development. Typically, a CDC/504 project includes:
• A loan secured from a private sector lender with a senior lien covering up to 50 percent
of the project cost
• A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture) with a
junior lien covering up to 40 percent of the project cost
• A contribution from the borrower of at least 10 percent of the project cost (equity)
This type of setup means that 100 percent of the project cost is covered either by contribution
of equity by the borrower, or the senior or junior lien.
Proceeds from 504 loans must be used for fixed asset projects, such as:
• The purchase of land, including existing buildings
• The purchase of improvements, including grading, street improvements, utilities, park-
ing lots and landscaping
• The construction of new facilities or modernizing, renovating or converting existing facil-
ities
• The purchase of long-term machinery and equipment
The 504 Program cannot be used for working capital or inventory, consolidating or repaying
debt, or refinancing.
In recognition of the current lending environment, the November 2010 amendments to the
program guidelines also lowered 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 ac-
cordingly reduces the maximum amount of interest payments by the city to $70,000 (from
$92,000)for any single business.
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OPERATIONAL ANALYSIS
The Center City Special Business Loan Program has been instrumental in attracting new busi-
nesses to the downtown. In the recent past, the program has provided the Public House, Ton-
gue 'n Chic, Mad Maggie's and the Red Bar with critical financial assistance during the formative
years of their respective businesses.
The title of the Center City Special Business Loan Program does not accurately reflect the na-
ture of the program. The current title §uggests that the city is providing business loans for
downtown businesses when, in fact,the city is only subsidizing the interest payments on certain
eligible loans obtained from private sector lenders or the U.S. Small Business Administration
(SBA). For this reason, it is being recommended that the program name be changed to the
"Downtown Business Loan Interest Subsidy Program." This title clearly communicates the pur-
pose of the program and will reduce misunderstandings about the program's benefits.
SBA 504 loans have low interest rates. But they also impose three associated fees codified in
the Code of Federal Regulations at 13 CFR Sections 120.971 and 120.972: the SBA (Small Busi-
ness Administration) fee covers a loss reserve for the program; the CSA (Colson Services Corpo-
ration) fee covers charges by Colson Services Corporation to handle payment processing and
loan accounting; and, the CDC (Certified Development Company) fee covers servicing the loan
aio Wry on loan
amountnd enforc, the ng additional the terms cost of is the minimal loan d . By cuments.example, the hile fees these associated fees va depending with the SBA 504 the loan
for the Leath Partners, LLC property at 164-66 E. Chicago Street (being considered under Agen-
da Item G) raise the 3.1 interest rate for that SBA 504 loan by only one-half percent to an effec-
tive 3.6 percent rate.
It is recommended that the Downtown Business Loan Interest Subsidy Program allow for the
subsidy of the interest and the associated fees for SBA 504 loans. As more small businesses are
granted SBA 504 loans, this program allowance will give the city an economic development ad-
vantage to attract these businesses to downtown.
Recognizing the SBA 504 loans for eligibility within the program has already provided business
persons seeking to establish or expand operations within the downtown with an additional fi-
nancial resource for their business operations. Leath Partners, LLC will be utilizing an SBA 504
loan to create new tenant spaces targeting high-tech businesses in the former Leath Furniture
building at 164-66 E. Chicago Street. Given the current restrictive lending environment, provid-
ing potential and existing downtown businesses with a new, financial resource is critical to the
continued renewal of the downtown.
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INTERESTED PERSONS CONTACTED
Tonya Hudson, Executive Director of the Downtown Neighborhood Association of Elgin pro-
posed 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 addi-
tional 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, and the proposed amendments are not
seeking any additional funding for the program.
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.
ALTERNATIVES
The city council may choose not to amend the Center City Special Business Loan Program to
make the fees associated U.S. Small Business Administration 504 loans eligible for reimburse-
ment or rename the program as the "Downtown Business Loan Interest Subsidy Program."
NEXT STEPS
Incorporate the proposed amendments to the Center City Special Business Loan Program in the
program's guidelines.
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Originators: Richard G. Kozal,Assistant City Manager
Final Review: Colleen Lavery, Chief Financial Officer
William A. Cogley, Corporation Counsel/Chief Development Officer
Richard G. Kozal,Assistant City Manager/Chief Operating Officer
Approved:
/rte!
Sea 'R. Stegall, City Ma 4•ger
ATTACHMENTS
A. Downtown Business Loan Interest Subsidy Program Guidelines(incorporating proposed
amendments)
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EC1N
THE CITY IN THE SUBURBS`
DOWNTOWN BUSINESS LOAN
INTEREST SUBSIDY PROGRAM
PURPOSE:
The City of Elgin has established the Downtown Business Loan Interest Subsidy Program
("Program") for building improvements and business development in the Center City to
stimulate expansion, reinvestment and business retention. Interest on loans, up to a maxi-
mum 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
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lJ
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 (SBA) 504 Loans
City's Monthly Interest and SBA Program Fee Payments. Interest payments and the SBA
program fee payments commonly referred to as the SBA Small Business Administration
fee (covering a loss reserve for the program), the CSA Colson Services Corporation fee
(covering charges by Colson Services Corporation to handle payment processing and loan
accounting) and the CDC Certified Development Company fee (covering servicing the loan
and enforcing the terms of the loan documents) 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
(11.6' Fifth year: 50 percent of fifth year interest costs
In addition to the monthly interest payments made by the city for an SBA 504 loan, the city
will also
Limitations
Notwithstanding anything to the contrary in this Program, the maximum amount of interest
and any eligible related loan fee 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.
2
GENERAL REQUIREMENTS:
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.
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.
(Revised April 13, 2011)
4111)
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