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CCR1991109COMMON COUNCIL - CITY OF MUSKEG0 RESOLUTION #log-91 APPROVAL OF REVOLVING LOAN FUND (RLF) PLAN WHEREAS, the City of Muskego is participating in the Wisconsin Development Fund (WDF) Loan Program, and WHEREAS, the Wisconsin Department of Development requests that the City of Muskego adopt a Revolving Loan Fund (RLF) Plan, and WHEREAS, the Finance Committee has reviewed the attached Plan and has recommended approval. NOW, THEREFORE, BE IT RESOLVED that the Common Council Of the City of Muskego, upon the recommendation of the Finance Committee, does hereby approve the Revolving Loan Fund (RLF) Plan, as attached. DATED THIS 14TH DAY OF MAY , 1991. FINANCE COMMITTEE Ald. Daniel J. Hilt Ald. Edwin P. Durnke Ald. Harold L. Sanders ATTEST : City Clerk 5/91cac 5/10/91 REVOLVING LOAN FUND (RLF) PLAN CITY OF MUSKEG0 In February 1990, the Wisconsin Department of Development (DOD) awarded the Introduction City of Muskego a $330.000 Wisconsin Development Fund (WDF) grant, that, in ~ ~ turn, was loaned to the Delta Group, Inc , for a business start-up project in the City The City and the Delta Group entered into an agreement on April 16, 1990, that provided for the repayment of the business loan over a term of payment is due on November 1, 1990 Repayments on the Delta Group WDF loan, fifteen years. The loan term began on October 1, 1990, and the first loan as well as repayments on any future WDF loans, will be used to establish a low-interest revolving loan fund (RLF) that will be available to local bus- loans from the RLF. inesses The purpose of this plan is to set forth the criteria for future Purpose of the RLF The RLF has been established to create emDlovment omortunities and increase local incomes through the retention and expansion of existing, and the devel- opment of new, businesses in the City. The RLF program includes interest while providing for the recapitalization and growth of the RLF rates and loan maturities that are designed to encourage business development, .- _. Eligible Applicants Eligible applicants for the RLF will be business establishments that are located in -;he City or will locate in the City as a result of an RLF loan and cannot access the financing necessary for the start-up or expansion project through conventional sources Administration of the RLF The Citv of'Muskeeo acceots full resoonsibilitv for the amrouriate administ- - ration of the RLF program, and has designated the City Treasurer and/or Deputy City Clerk as responsible for day-to-day administration of the program. Funding decisions relative to RLF loans will be made by the City of Muskego Common Council based upon a recommendation by the City of Muskego Finance Committee. The City will establish a separate checking/savings account in November 1990, and reserve its use solely for the RLF program, On an annual basis, up to 15 percent of the RLF will be made available for administrative expenses incurred in the maintenance of the RLF .. . Availability of Funds The Finance Committee, on a semi-annual basis, will determine whether a sufficient amount of funds are available in the RLF to accept applications for new business loans A minimum of $25,000 must be available in the RLF In determination on the availability of funds, the Finance Committee will deter- order for the Finance Committee to accept new applications Following a mine the best methods for advertising the availability of the funds to the business community * -2- Application Procedures Businesses that are interested in applying for an RLF loan should submit an application, along with supporting documentation, to the Deputy City Clerk, W182 S8200 Racine Avenue, P 0, Box 903, Muskego, Wisconsin 53150 A copy of the RLF application and a list of the supporting documentation that is needed for each RLF application are included as Attachment A to this plan, Following the submittal of the application, the City staff will examine the application and supporting documentation for completeness and make a determination within 20 working days on whether or not the proposed project conforms with RLF stan- dards and policies as set forth in this plan. Once the City staff has completed its review of the application, the applicant business will be informed of any deficiencies, and requested to amend the application, if necessary. Upon receipt of a completed application, the application will be forwarded to the Finance Committee for consideration together with a staff funding recommendation. The Finance Committee will Council. consider the application and make a funding recommendation to the Common RLF Standards and Policies The following standards and policies will be utilized in the RLF program: Cost Per Job, A minimum of one full-time equivalent (FTE) job must be created and/or retained for each $20,000 of RLF investment Low- and Moderate-Income Requirement, At least 60 percent of the FTE jobs moderate-income (LMI) persons as defined in Attachment B that will be created or retained must be filled or held by low- and Recruitment: Businesses participating in the RLF program will be required to enter into an agreement with the Wisconsin Job Service and/or the local Private Industry Council to recruit MI persons for the jobs to be created as a result of the loan. will be required for each dollar of RLF investment In addition, for Private Sector Leverage Ratio: One dollar of private sector investment each dollar of RLF working capital funds the recipient business will be required to provide one dollar of private sector working capical funds Private sector investment is defined as financing from a private lending institution, public sector business loan programs other than the WDF program, or new equity that is injected into the business as a part of the expansion project Eligible Activities, Activities eligible for funding through this program include b) building acquisition; a) land acquisition; d) building rehabilitation or renovation; c) building construction, including site preparation and demolition; e) machinery and equipment acquisition, with a depreciable life of at least seven years; -3- f) leasehold improvements, where the lease period is for the term of g) working capital (direct labor and inventory only); and h) buyouts by purchase of assets or stock, the RLF loan or five years, whichever is less; 6 Loan Size: A minimum loan size of $25,000 and a maximum loan size of $400,000 for each individual borrower. 7. Standard Terms Standard terms for RLF loans will be as follows a) machinery and equipment--2 to 10 years, b) buildings and land--up to 10 years; and c) working capital--1 to 7 years. The specific term for an individual borrower will be based on the useful life of the asset, as well as the terms offered by the private sector financial institution participating in the project However, the Finance Committee retains the right to adjust individual loan terms in order to facilitate a successful RLF project 8. Interest Rate, The rate of interest may range from a minimum of 4 percent to a maximum of the "market" rate (defined as the prime rate of inter- est--as published in the Midwest Edition of the Wall Street Journal--plus will only be provided if the earnings before tax is below the industry 2 percent). However, any reduction in interest below the market rate average as evidenced by the applicant's financial projections. At such time as the projected earnings before tax exceeds the industry average, the interest rate will increase to the market rate for the balance of the loan term. The interest rate will be fixed for the entire term of the loan at the time a loan agreement is signed with the City 9 Deferral of Principal and Interest. The RLF program has the option of deferring principal and interest payments during the first two years of However, the deferral of principal and interest payments will only be the loan term upon demonstration of need by the recipient business used when a firm's financial projections demonstrate that a deferral is required for the firm to be competitive within ics industry Interest will accrue during the deferral period and may be paid in one lump sum at the end of the deferral period or added to the principal of the loan and amortized over the remaining term of the loan. 10 Equity Requirements: The RLF program may require an equity injection for viduals that have made substantial equity commitments to the applicant each RLF loan, when appropriate Consideration will be given for indi- business, as well as to individuals who do not have sufficient financial resources to contribute to the RLF project. 11. Collateral Requirements. The collateral requirements will be determined on an individual basis by the Finance Committee and the Common Council and may include mortgages on land and buildings, liens on machinery and equipment, and liens on accounts receivable and inventory This collat- eral may be subordinated to private sector financial institutions -4- 12 13 14 15 16 participating in the RLF project, if required. Personal guarantees from the principals of the business will be required. In addition, key-person life insurance coverage naming the City as a beneficiary, with a declin- all corporate assets may be used where appropriate ing balance equal to the outstanding loan balance, and junior liens on Finally, businesses receiving loans for fixed assets will be required to obtain liability insurance for the appraised value of the property being financed, and have the City of Muskego listed as an additional insured on the insurance policy General Policies for Restructuring RLF Loans: RLF loans may be restruc- tured when restructuring will improve the borrower's ability to repay the RLF loan, as long as the business is financially viable as evidenced owner(s) of the business to determine the need for restructuring, and, if through a business credit analysis. The City staff will work with the appropriate, the Finance Committee and the Common Council may restructure the RLF loan to improve cash flow within the business Restructuring can include deferring principal and interest payments, adjusting the rate of interest, or providing additional working capital Coordination with SBA 504 Program: When a loan package includes both U S Small Business Administration (SBA) 504 and RLF participation, the funds that will be provided by these two programs will not exceed 50 percent of the total project costs Loan Application Fee: The City will require a loan application fee of $250 to be paid at the time of loan application The loan application fees will be identified as WDF program income and deposited in the RLF account These funds will then be used to pay for administrative costs associated with the RLF program, Loan Origination Fees: The City will require a loan origination fee equal to 1 percent of the loan amount plus payment of the City's attorney fees for the RLF loan closing, not to exceed $2,000 per loan. The fees may be added to the principal amount of the loan and paid with RLF funds All loan origination fees, including attorney's fees, will be identified as WDF program income and deposited in the RLF account These funds will then be used to pay for administrative costs associated with the RLF program, Availability of Funds; In those instances where the number of requests for RLF funds exceeds available funding, RLF applications will be priori- tized based upon the date of receipt of all requested application materi- private sector leverage that is included in the project. When feasible, als, the number of jobs to be created and/or retained, and the amount of the amount of RLF funds contributed to each project will be reduced in order to facilitate as many RLF loan requests as possible Program Requirements The following program requirements will apply to all projects that are ap- proved for funding: 1 Loan Agreement: RLF loan recipients will be required to enter into a loan agreement with the City of Muskego 2 Labor Standards: All activicies subjecc to federal labor standards will comply with requirements regarding prevailing wage rates, payroll re- cords, permissible payroll deductions, and overtime pay 3 Job Creation and Retention; Recipient businesses will be required to create all new jobs within 18 months of the signing of the RLF loan agreement and to retain all existing jobs immediately following the signing of the RLF loan agreement. All jobs created and/or retained must be maintained for a minimum of 12 months 4 Penalty for the Failure to Create or Retain Jobs: For each job that .is not created or retained and for each LMI job that is not created and or retained during the specified time period as described above, the inter- est rate of the loan may be increased, retroactive to the date of the loan agreement, proportionately with respect to the total number of jobs that were to 'be created or retained, with the upper limit of the interest agreement was signed plus 2 percent. Interest penalties may be paid in rate increase equal to the prime rate of interest at the time the loan one lump sum or added to the principal of the RLF loan and amortized over the remaining term of the loan, 5 Records. Loan recipients will maintain those records that are necessary for the City to determine if the performance of the business complies with the terms of the loan agreement The records will include, but may not be limited to, purchase orders, invoices, records of payments, cancelled checks, and payroll records for new or retained employees that are a part of the project The City will have access to all records pertinenc to the project for the purposes of examination and transcrip- t ion, 6 Nondiscrimination: Recipient businesses will not discriminate against any employee or applicant for employment on the basis of race, color, reli- gion, sex, national origin, age, or handicap 7 Environmental Review: Recipient businesses will comply with all state and and the City will, when necessary, conduct an environmental review of the federal environmental regulations regarding the use of RLF loan funds, proposed project to determine compliance with these regulations 8. Progress Reports, Loan recipients will be required to submit semi-annual progress reports during the outstanding term of the loan that includes: business plan; and 3) financial statements for the preceding six months 1) a description of current and projected employment; 2) an updated The City will also make annual on-site inspections The City staff will progress reports to the Wisconsin DOD. submit semi-annual progress reports to the Common Council and annual -6- RLF Plan Amendments This RLF ulan may be amended to meet the chaneine conditions or the future .. needs of the City of Muskego only through a written agreement between the City and the Wisconsin DOD "" ****x -7- Attachment A CITY OF MUSKEGO Revolving Loan Fund Application 1 Business Name Address Contact Person: Telephone No. ; 2 Brief Project Description: 3 Source and Use of Funds a) Land Purchase b) Building Purchase . c) Building Construction . d) Building Renovation . . e) Machinery & Equipment f) Working Capital .. TOTAL PROJECT COSTS 4. RLF Assistance Requested a) Loan Amount ........ . b) Interest Rate (percent) c) Loan Term (years) . ... RLF Financing $ $ $ $ $ $ Debt Financing $ $ $ $ $ $ Equity Financing $ $ Total $ -8- 8 5. Source of Private Debt Financing Name : Address: Contact Person Telephone No. 6. Job Creation and Retention New Jobs Retained Jobs Number Pay Range Number Pay Range Full-time Jobs .. $ $ Part-time Jobs $ $ TOTAL JOBS . . 7 Date Project Will Begin: I hereby certify that the information provided above and in the attached supporting documentation is to the best of my knowledge true and correct Applicant Signature Date For additional information about the City of Muskego RLF program, please contact the Deputy City Clerk at (414) 679-4100. ~ Please submit the RLF application and supporting documentation to Deputy City Clerk W182 S8200 Racine Avenue City Hall Muskego, Wisconsin 53150 P. 0. Box 903 ***** -9- CITY OF MUSKEGO REVOLVING LOAN FUND PROJECT DOCUMENTATION Please include the following supporting documentation along with each economic development loan fund application. All information must be signed and dated, 1. A current business plan that includes the proposed expansion or start-up project (see Note 1 for business plan requirements). 2. Financial statements for the past three years and a current interim ments that are compiled by an independent accountant in accordance with financial statement, including balance sheets and profit and loss state- of all significant assumptions (see Note 2 for business credit guidelines generally accepted accounting principles (CAAP) and include a discussion to be used in evaluating loan fund projecns). 3 Financial projections for the first three years of the project, including balance sheets and profit and loss statements that are prepared by an independent accountant in accordance with GAAP and include a discussion of all significant assumptions (officers' compensation and direct labor costs should be listed separately). In addition, start-up businesses should provide quarterly financial projections for the first two years (see Note 2 for business credit guidelines to be used in evaluating loan fund projects) 8 4 Personal financial statements for the principals of the business 5 A statement of the anticipated benefits to be derived from the proposed without funding from the loan fund program, loan fund project and the reasons why the project will not take place 6 A letter of commitment from the financial institution or other source of debt financing for the amount of debt financing that is a part of the project 7 Documentation of the availability of funds for the private equity injec- tion that is a part of the loan fund project 8 A letter from the chief executive officer committing the business to the proposed project 9. Cost estimates for all machinery and equipment purchases, land and building acquisition, and building construction or renovation that is a part of the loan fund project. 10 A lease or pre-lease agreement for rental property or an Offer to pur- chase for fixed assets that are a part of the project. 11 A schedule of the jobs to be created and/or retained, with job titles and a description of the qualifications required for the new jobs. -10- 8 12. A memorandum of agreement between the City, the recipient business, and the local Private Industry Council or the Wisconsin Job Service document- ing the commitment to recruit low- and moderate-income (MI) persons for the jobs to be created. 13 Documentation that the project is in compliance with local and state building codes and zoning regulations and other applicable local and state ordinances. 14 A map showing the exact location of the project. 15 Other documentation that may be required by the Finance Committee that is deemed important relative to a determination regarding the loan fund project The business plan should present a detailed description of the busi- ness that includes the following level of detail 1 2 5 6 7 8 9. 10 A description of the firm, including a 4-digit SIC Code A description of the ownership--corporate officers, shareholders with number of shares owned, articles of incorporation, partnership agree- A discussion of the management team and its experience ments, agreements with other businesses, etc. A discussion of the marketing strategy, composition of the customer base, identification of major competitors, and a list of all in-state competi- tors A discussion of projected sales growth and the financing and capital requirements necessary to achieve the projected growth, A discussion of accounting methods applied to inventory and the aging of inventory A discussion of terms offered to customers and the aging of accounts receivable A discussion of agreements with suppliers and other trade accounts and the aging of accounts payable A description of the debt structure, the status of outstanding debts, a listing of all assets currently pledged as security, and a debt service schedule for all debt during the five-year projection period A discussion of working capital needs and how working capital is generat- ed, -2: Historical financial statements and financial projections will be examined to determine whether the applicant business conforms with the indus- aces. Annual Statement Studies, or other generally recognized source of try standards as set forth in the most recent edition of Robert Morris Associ- examined to determine whether or not there is sufficient cash flow to cover industry financial information. In addition, the proposed project will be debt service and the additional expenses that will be generated as a result of the project The following business credit guidelines will be used to evalu- ate the financial statements and financial projections of the applicant business: * -11- Balance Sheet Analysis 1 Does the business adequately collect on its accounts receivable? * days accounts receivable vs terms offered to customers * trends in days accounts receivable over time. 2 Does the business pay its vendors in a timely fashion? * days accounts payable vs terms offered to vendors * trends in days accounts payable over time. * days inventory vs inventory cycle * trends in days inventory over time 4. Are .the officers committed to the business? * owners’ equity in the business * profit after tax vs. retained earnings. * notes payable to officers * notes receivable to officers. * growth in retained earnings. * debt to equity ratio 3. Does the business control inventory? 5 Does the business have a positive operating history? Profit and Loss Statement Analysis 1 Is the business growing? 2 Does the business control profitability? * historical sales growth * cost of goods sold as a percentage of sales * gross profit margin. * selling, general h administrative expenses as a percentage of sales * use of selling, general & administrative expenses * earnings before tax less other income. * earnings before tax as a percentage of sales. * cost of goods sold as a percentage of inventory * depreciation expense * excess officer compensation, * interest expense * rent expense 3 Does the business control expenses? 4 Is the business truly profitable? 5. Does the business have hidden cash flow? ****x Attachment B 1990 LOW- AND MODERATE-INCOME LIMITS WISCONSIN DEVELOPMENT FUND WAUKESHA COUNTY. WISCONSIN Household Size Household Income __________________""""""""""""""" 1 Person 2 Persons 3 Persons 4 Persons 5 Persons 6 Persons 7 Persons 8 Persons or More $22,450 25,700 28,900 32,100 34,100 36,100 38,150 40,150 """""__"""__"""""""""""""" Note This income schedule will be updated annually Source: Wisconsin Department of Development and SEWRPC.