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HomeMy WebLinkAboutR-1997-017 Application / Washington Development Loan Fund ProgramRESOLUTION NO. R-97 17 - A RESOLUTION Authorizing and directing the City Manager to apply for City of Yakima participation in the State Development Loan Fund (SDLF) program administered by the Washington State Department of Community, Trade and Economic Development. WHEREAS, economic development is a priority of the City of Yakima, and the City intends to approach economic development on an inclusive, comprehensive basis which involves public, private and community-based efforts to achieve new investment and redevelopment in the City; and WHEREAS, the Washington State Development Loan Fund (SDLF) is authorized under Chapter 43.168 RCW to provide capital to viable, but under -financed small businesses in order to increase and maintain jobs that are sustainable in the local economy, improve the local standard of living, assist in the employment of disadvantaged workers, and develop or expand business ownership by minorities and women; and WHEREAS, the Washington State Department of Community, Trade and Economic Development (CTED) has been directed to use funding available through SDLF to address the financing needs of Minority and Women -Owned Businesses certified by the Washington State Office of Minority and Women's Business Enterprises (OMWBE); and WHEREAS, state funding appropriated to SDLF may be used by CTED only to support eligible capital projects and not to directly fund SDLF loans to businesses or administrative expenses; and WHEREAS, state funding may be used to provide an incentive to urban counties and metropolitan cities, designated as Entitlement Communities by the federal Department of Housing and Urban Development (HUD) to provide Entitlement Community Development Block Grant (CDBG) funding to directly fund loans to businesses or administrative expenses; and WHEREAS, CTED and the City of Yakima, a HUD designated CDBG Entitlement Community, desire to collaborate to increase access by OMWBE certified firms to financing opportunities available through SDLF; and WHEREAS, the City of Yakima has agreed to commit $50,000 of its Community Development Block Grant Funding for SDLF Loans to OMWBE Certified Businesses and to access CTED controlled SDLF loan funds and to administer City -sponsored loans in accordance with guidelines set forth by CTED; and WHEREAS, CTED and the City of Yakima desire to give priority to using SDLF Loan repayments to make new loans to OMWBE Certified Businesses under this initiative; and WHEREAS, CTED will permit the City of Yakima to use Program Income for reasonable administrative expenses incurred in the administration of the program; and RESOLUTION FOR APPLICATION FOR WASHINGTON DEVELOPMENT LOAN FUND PROGRAM Page 1 WHEREAS, the City's Council's Economic Development Committee has agreed to recommend participation; and WHEREAS, funding for the Program is part of the approved 1997 Consolidated Plan; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YA:KIMA: The City Manager is :hereby authorized and directed to execute and submit the attached application, including all understandings and assurances contained therein, for Washington State Development Loan Fund (SDL,F) participation. The City Manager is hereby designated as the official representative of the City to act in connection with that Program application and is authorized to take such additional actions as may be necessary and prudent to apply for City of Yakima participation in the Washington State Development Loan Fund. ADOPTED BY THE CITY COUNCIL this 21st day of January, 1997. ATTEST: 4i2 -ti-� City Clerk <�r nn Buchanan, Mayor RESOLUTION FOR APPLICATION FOR WASHINGTON DEVELOPMENT LOAN FUND PROGRAM Page 2 ADMINISTRATIVE OUTLINE for the Washington State Development Loan Fund Minority and Women -Owned Business Lending Initiative INTRODUCTION This document outlines the substantive content of the administrative agreement which will be executed between the Washington State Department of Community, Trade, and Economic Development (DCTED) and any entitlement jurisdiction electing to participate in the Washington State Development Loan Fund Minority and Women -Owned Business Lending Initiative. It also provides guidance for developing a loan management and servicing plan acceptable to DCTED and the Development Loan Fund Committee (DLFC). The loan management and servicing plan is a prerequisite to execution of the administrative agreement. PURPOSE OF THE AGREEMENT It is the intent of DCTED and the DLFC to partner with entitlement jurisdictions to make financing available to certified minority and women -owned businesses. The agreement will detail the roles, responsibilities, and authorities for each of the three partners. Although the intention is to achieve local administration of the program in entitlement jurisdictions, the program will retain its DLF identity and be marketed as part of the DLF. STATE FUNDING COMMITMENT The administrative agreement will identify the amount of state funds earmarked for constitutionally -eligible local projects. These funds will be made available on a drawdown basis as each eligible business loan is funded by the entitlement jurisdiction. These funds must be committed to projects and the projects must be underway by June 30, 1995. The earmark may be reduced at the six-month performance review, if the likelihobd of future business lending commitments can not be demonstrated. LOCAL FUNDING COMMITMENT The agreement will identify the source of funds the entitlement jurisdiction will use to make loans. As part of the loan management and servicing plan, the entitlement jurisdiction will be expected to identify the source of funds to be used for malting business loans. The plan must also identify and provide funding and a budget for administration of the loan program Page two USE OF PROGRAM INCOME The administrative agreement will require the entitlement jurisdiction to track and give priority to using loan repayments/program income to make new loans to eligible borrowers. The agreement will also permit entitlement jurisdictions to use program income (in amounts consistent with applicable federal requirements) for reasonable expenses incurred in the administration of the program. LOAN POLICIES AND TERMS AND MINIMUM UNDERWRITING CRITERIA The agreement will define borrower eligibility requirements, list minimum underwriting criteria, and contain a statement of permissible loan terms. These policies and guidelines have been standardized for uniform application statewide. This information is summarized in a separate document titled: "Policies and Loan Terms." LOAN APPLICATIONS AND LOAN :PACKAGING The entitlement jurisdiction is responsible for developing an application form and application procedures and for assisting prospective borrowers with the application process. The loan management and servicing plan must: identify who is responsible for developing the application form and procedures; describe how borrowers will be assisted;. and summarize the qualifications of individuals responsible for performing these functions. If the entitlement jurisdiction subcontracts these functions, the plan must identify the selected entity. LOAN DECISIONS The agreement will provide for local loan decision-making, utilizing a local loan committee. The entitlement jurisdiction and its local loan committee will have sole responsibility for loan making and for ensuring that loans meet minimum standards. If the entitlement community chooses to subcontract loan making functions, the loan management and servicing plan must identify the seleted entity and provide a statement of qualifications. LOCAL LOAN COMMI'I-i'hE COMPOSITION The agreement will enable the entitlement jurisdiction to create a :local loan committee or to use an existing loan committee to assist in malting loan decisions. The local :loan committee must represent a diversity of interests and expertise including: o Persons with expertise in the financing of new, innovative, small, and minority and women -owned businesses; o Persons knowledgeable about neighborhood and economic developrnen.t issues in distressed communities, including residents of these communities; Page three o Persons with knowledge of labor standards, labor practices, wage rates, training and apprenticeship programs, and other issues affecting the quality of employment created under the lending program; and o Minorities and women. As part of the loan management and servicing plan, the entitlement jurisdiction will provide a roster of local loan committee members which identifies how the members meet the above requirements. DCTED and the DLFC will review and approve the roster prior to executing the administrative agreement. LOAN DOCUMENTATION The agreement will require the entitlement jurisdiction to document loans using legally binding contracts to protect the entitlement community's rights to repayments and proceeds of liquidation and foreclosure. LOAN SERVICING The agreement will give the entitlement jurisdiction sole responsibility for all loan servicing decisions including the right to collect payments; restructure loans; negotiate other work out arrangements; sell loans; and acquire, sell and/or otherwise dispose of collateral in the event of loan default. The loan management and servicing plan must outline the servicing decisions which will be made by staff, the contracted administrative entity (if any), the local loan committee, and elected officials. DCTED and the DLFC will review the plan and approve it or request modifications prior to execution of the administrative agreement. If the entitlement jurisdiction chooses to subcontract loan servicing, the plan will identify the entity selected to perform these functions. The gu2lifications of key loan servicing staff or consultants must be described in the plan. PROGRAM MARKETING The agreement will establish minimum marketing responsibilities for the entitlement jurisdiction and DCTED. Entitlement responsibilities will include: o Making information on how to apply for the program available and providing guidelines for eligible business projects, especially to firms which are currently certified by the Office of Minority and Women's Business Enterprises (OMWBE). o Presentations at local public meetings and public hearings as may be required under CDBG regulations governing public participation. o Response to DCTED requests for information on loans to be included in state -initiated marketing efforts. Page four DCTED responsibilities will include: o Support through the Community ;Developrrient Finance Program staff far networking, development of loan making and loan packaging expertise, and informing the public and businesses of the availability of funds. o Inclusion of the entitlement jurisdiction program in state brochures and program descriptions. o Preparation of information packages for the Washington State Legislature and Governor's Office. RECORD KEEPING REQUIREMENTS The agreement will require the entitlement jurisdiction to keep records on each loan: o OMWBE certification number. o Business project purpose, location, and use of loan proceeds. o Sources and uses of funds statement. o Analysis of project viability and repayment capacity. o Credit report(s) on owner(s). o Copies of any written objections to the project received by the local loan committee. o Copies of loan documentation. o Loan servicing/repayment transactions. o Statements to show compliance with applicable federal requirements. o Job creation/retention performance documentation, if appropriate. In addition, the agreement will require the entitlement jurisdiction to keep records on the projects assisted by the expenditure of state fund:s, to include: o Description and location of project. o Total project cost. o State fund portion. o Project implementation schedule. o Project expenditures (financial/accounting). REPORTING REQUEREMFNpS The agreement will specify information DCTED will request from the entitlement jurisdiction to meet the department's legislatively mandated :responsibilities under DLF. The entitlement jurisdiction will be responsible for providing new loan :reports within 20 days of closing a new loan, a quarterly portfolio performance report, an annual job report, and a semi.-annn2l state -funded project report. The contents of these reports are described below: Page five New Loan Report (by loan) o Borrower name, address, and telephone number. o Business project location (if different). o Business project sources and uses of funds. o Loan amounts to be used for fixed assets or working capital. o Type of business (corporation, partnership, sole proprietorship). o Size of business. o Whether the business is a start-up, expansion, or retention. o Whether the business is located in a distressed area, or owned by a resident of the entitlement community. o Nature of the business (manufacturing, service, retail, or other) and SIC number. o Amount of the loan. o Date of loan closing. o Term and rate of loan. o Statement of public benefit to be realized by the loan. If jobs are to be created or retained, a statement of the number of jobs projected during the two-year period following the loan. o Specific mention if the loan assists in the creation of an employee cooperative or assists an employee buy-out to prevent the loss of existing employment. o OMWBE certification number and designation of African American, Hispanic, Asian, Pacific Islander, etc., if provided voluntarily by the borrower. Portfolio Status Report (by loan) o Name of borrower. o Original loan amount. o Outstanding principal. o Program income to date. o Loan status (current, delinquent/days or default). Job Report (by loan) o Total number of jobs created or retained. o Number of part time jobs created or retained (based on hours per week). o Number of full time jobs created or retained. o Number of jobs filled by low- or moderate -income individual (if appropriate). o Ethnicity, gender, veteran, disability status of new hires to the extent this information is provided voluntarily by the new employee. Page six Use of State Funds Report (by project) o Name and location of project. o Total cost. o State funded portion. o Status of project and expenditure of state funds. DEVELOPMENT LOAN FUND COMMITTEE The DLFC and DCTED will provide guidance as requested by the entitlement jurisdiction on decision-making under the program. The DLFC will review performance at the six- month point and twelve-month point of llocalprogram implementation, and annually thereafter to determine if the entitlement jurisdiction is administering the program consistent with the agreement. TERMINATION OF AGREEMENT The agreement will remain in place to guide administration of the program as program income is revolved to make new loans to certified businesses. If the entitlement jurisdiction fails to carry out the program in accordance with the agreement, DCTED may decline to make new state funds available until the entitlement jurisdiction makes corrections acceptable to DCTED. The entitlement jurisdiction will have the opportunity to petition for termination of the agreement if program income for relending is so insignificant so as to make administration impractical. POLICIES AND LOAN TERMS for the Washington State Development Loan Fund Minority and Women -Owned Business Lending Initiative Program Goal The goal of this initiative, incorporated as a component of the Development Loan Fund Program is to support the expansion and start-up of minority and women -owned businesses that are certified by the Washington State Office of Minority and Women's Business Enterprises (OMWBE). Administration of the Program This initiative was authorized under state law in 1993 and amends sections of the law pertaining to the Washington State Development Loan Fund under RCW 43.168. The Washington State Department of Community, Trade and Economic Development (CTED) has responsibility for overall administration of the Development Loan Fund Program and the Minority and Women -Owned Business Lending Initiative component. CTED will assist in the development of loan packages in nonmetropolitan and small city communities throughout the state. In urban cities and counties (that are designated "entitlement communities by the U.S. Department of Housing and Urban Development ), responsibility for project development, loan approval and loan servicing will rest with participating jurisdictions. Eligible Borrowers The financing assistance available through this lending initiative is targeted to businesses that are certified by the OMWBE. The certification process establishes that the firm is minority or woman -owned and controlled. Firms may be organized as proprietorships, partnerships or corporations. DLF loans to certified businesses are exempt from distressed area requirements of the regular DLF Program. These loan funds are not a substitute for private financing or financing that is available to the firm from other government -supported programs such as the Small Business Administration or the Washington State Linked Deposit Program. The underlyin: - these funds will fill credit gaps. j To be eligible to apply, a business borrower must demonstrate ability to repay the loan and show that the loan will result in the expansion of private business in the community and the creation or retention of jobs for low and moderate -income individuals. Borrowers that are undertaking a commercial venture (not governmental or nonprofit) are eligible. Page two Eligible and Ineli°ible Uses of Funds The loans under this program will generally be under $50,000, with the emphasis on loans under $25,000„ Loan funds can be requested for start-up costs, inventory, purchase of equipment, real estate (including remodeling and facade improvements), working capital, assistance in securing contractor bonding, and technical assistance in such areas as marketing, accounting, management, and others. Borrower needs that are unrelated to growth of the business (examples: refinancing equity, existing loans, east due payables or funding past operating losses or taxes) are not eligible `eirToan nds. Loans which improve the position of the another creditor are also generally not eligible. The Basics 1. LAll, borrowers must by OMWBE Certifieprior presentation of the loan to the local loan committee. 2. Loans must conform to all applicable requirements of the Community Development Block Grant Program, including job creation or retention for low- and moderate -income persons, labor standards, environmental review and others. Ability to Repay the Loan The borrower and the business plan must demonstrate the business venture is likely to be successful. The make this decision, the :following factors will be considered: 1. The borrower has direct, successful experience in the business, has developed business skills in at least some of the areas :important to its success (such as production, marketing, and fiscal management) and/or has developed skills important to this business venture through experience in a responsible management position of another firm. 2. 'The borrower has prepared a well conceived, realistic plan for the business or its expansion that shows the availability of working capital to sustain and support its growth. 3. The borrower has developed an on-going support program (such as management assistance, on-going counseling, or other) to shore up areas in which he or she Lacks experience. This technical assistance is an eligible loan expense. 4. The borrower has a credit history that demonstrates the capacity to meet commitments. (Any delinquency or default in the payment of taxes or charging off of personal, undisputed debt will disqualify the applicant). 5. The borrower is current, or is operating under a plan, in fulfilling all state and federal. tax requirements. Page three Financial Risk The borrower must have a meaningful financial investment in the business. This can be in the form of cash, equipment needed by the business that has been purchased by the borrower, real property needed by the business venture, or other investments material to the business. The amount of the borrower's investment will depend on the size of the venture, the need for working capital, and the financial circumstances of the borrower. If the borrower or business has liquid assets that are otherwise not committed or needed for working capital, they must be contributed to the project. % Other Loans If the project costs exceed $50,000, the borrower is responsible for seeking participation from other loan sources in the financing of the project. The loan packager will assist in identifying other potential sources. Security and Collateral A security interest in all reasonable personal and business collateral will be required. Examples of business collateral that will be considered to secure the loan include equipment, real estate, and inventory. All personal assets of owners with a 20 percent or greater interest in the business must also be made available to secure the loan, including homes. If all reasonable collateral available to the owner(s) and business have been pledged or offerer as security for the loan, lack of collateral will not disqualify the borrower. Personal guarantees will be required for all persons or entities holding 20 percent or greater ownership interest in the business. Loan Terms 1. Loans may range from $5,000 to $100,000 with emphasis on smaller transactions. 2. If the project cost is over $50,000, participation by other loan sources must be maximized. 3. Loan fees will include an application fee of $100. A loan fee of 1.5 percent of the loan amount is payable at closing, with credit given for the application fee. The loan fee can be financed as part of the loan so long as other financial participation requirements of the borrower have been met. 4 The interest rate is fixed at the prevailing prime rate plus 3 percent for direct loans. If another lender is participating in the project, the loan rate will be at par with that lender's rate. Page four 5. Stepped payments and deferrals may be negotiated if justified by the ;particular circumstances of the loan. 6. Loans for working capital may be repaid over a term of up to 5 years. 7. Loans for equipment may be repaid over a terra of up to 10 years. 8. Loans for real estate may be repaid over a term of up to 15 years. 9. Loans with a repayment term of over 5 years may have a balloon clause that will allow for adjustment of the loan's interest rate and encourage refinancing in the commercial market if possible. )-1 �= Y 7c `:‘ Washington State Department of Community, Trade and Economic Development WASHINGTON STATE DEVELOPMENT LOAN FUND (DLF) Minority and Women -Owned Business Lending Initiative Entitlement Funding and Administrative Contract No. SECTION 1: PURPOSE OF THE CONTRACT This contract, made and entered into by and between the Washington State Department of Community, Trade and Economic Development (hereinafter referred to as "CTED"), on behalf of the Washington State Development Loan Fund, and the City/County of (hereinafter referred to as "Entitlement Community") witnesses that: WHEREAS, the Washington State Development Loan Fund (DLF) is authorized under Chapter 43.168 RCW to provide capital to viable, but under -financed small businesses in order to increase and maintain jobs that are sustainable in the local economy, improve the local standard of living, assist in the employment of disadvantaged workers, and develop or expand business ownership by minorities and women, and WHEREAS, CTED is given responsibility under RCW 43.63.065A to administer state grants and programs assigned to the L 1'LD by the Governor or the Washington State Legislature; and WHEREAS, Chapter • directs CTED to use funding available through DLF to address the financing needs of Minority and Women -Owned Businesses certified by the Washington State Office of Minority and Women's Business Enterprises (OMWBE); and \VHEREAS, most of the firms currently certified by OMWBE are located in large urban counties and metropolitan cities of the state; and WHEREAS, state funding appropriated to DLF may be used only to support constitutionally eligible capital projects and not to directly fund DLF Loans to businesses or administrative expenses; and \VHEREAS, state funding may be used to provide an incentive to urban counties and metropolitan cities, classified as entitlement communities by the federal Department of Housing and Urban Development (HUD) to provide entitlement Community Development Block Grant (CDBG) funding for this purpose; and \VHEREAS, CTED and the Entitlement Community desire to collaborate to increase access by qualified firms that are certified by OMWBE to business financing opportunities provided through DLF; and WHEREAS, CTED has earmarked DLF Grant funding for the Entitlement Community for constitutionally eligible projects; and WHEREAS, the Entitlement Community has agreed to make an equal amount of CDBG funding available for DLF Loans to Certified Businesses and to administer these loans in accordance with guidelines set forth by (.TLD; and WHEREAS, CTED and the Entitlement Community desire to give priority to using DLF Loan repayments to make new loans to Certified Businesses under this initiative; and WHEREAS, CTED will permit Entitlement Communities to use Program Income for reasonable administrative expenses incurred in the administration of the program; and NOW, THEREFORE, in consideration of covenants, conditions, performances, and promises hereinafter contained, the parties hereto agree as follows: SECTION 2: TERMS AND DEFINITIONS A. Business :Project is the business activity that is financed by the DLF Loan. B. CDBG is the Community Development Block Grant Program of the U.S. Department of Housing and Urban Development. C. Certified Business is a minority business enterprise or women's business enterprise, certified as such by the Washington State Office of Minority and Women's Business Enterprises. D. Closing is when a new loan is documented and funds are disbursed. E. CTED is the Washington State Department of Community, Trade and Economic Development and its successors that have responsibility for providing staff to the DLF. F. DLF is the Washington State Development Loan Fund established under RCW 43.168 as it now exists or is hereinafter amended. G. DLF Committee is the Washington State Development Loan Fund Committee established by RCW 43.168. H. DLF Grant is a state-funded grant made by CED to the Entitlement Community to fund a constitutionally eligible activity. I. DLF Loan is a federally-funded loan or loan guarantee made by the Entitlement Community to a certified Minority or Women-Owned Business, using its CDBG funds under DLF. J. DLF Minority and Women-Owned Business Lending Initiative is the component of the DLF Program which has been designed to implement HB 1493 in collaboration with Entitlement Communities. K. Director is the Director of the Washington State Department of Community, Trade and Economic Development or successor agency. L. Distressed Areas are counties and census tracts that show persistently high levels of unemployment or poverty as measured in accordance with RCW 43.168.020(4). M. Entitlement Community is a community that is a recipient of a U.S. Department of Housing and Urban Development entitlement grant under the CDBG Program. N. ESHB 1493 is Engrossed Substitute House Bill 1493 adopted in the 1993 Regular Session of the Washington State Legislature which relates to Minority and Women-Owned Businesses. 0 HUD is the U.S. Department of Housing and Urban Development. F. Local Loan Committee is the loan committee established in an Entitlement C:ornmunity that advises regarding loans made under this contract. Q. Mmonr and Women-Owned Business is a minority business enterprise or wome:n's business enterprise, certified as such by the Washington State Office of Minority and Women's Business Enterprises. R. Program Income is described in CDBG regulations 24 CFR Part 570, Section 500(a). For the purposes of this contract, Program Income is monies resulting from DLF Loans including principal, interest; loan fees; miscellaneous income; proceeds of liquidation, foreclosure, or insurance claims; and any investment income earned on any of the foregoing less any fees and costs associated with the investment, collection, or custodial responsibilities for the funds. S. State-Eligible Proiect is an activity, which in the sole discretion of the Entitlement Community, satisfies the state constitutional requirements for use of DLF Grant funds. SECTION 3: STATE FUNDING COMMITMENT A. CTED has earmarked S in state DLF Grant funds to be used by the Entitlement Community for State-Eligible Projects. B. This amount will be reviewed six (6) rnonths and twelve (12) months after the Entitlement Community has implemented its DLF Minority and Wornen-Owned Business Lending Initiative arid adjusted to increase or decrease the earmark based on performance, available DLF Grant funds, and available Entitlement Community CDBG funds. C. All DLF Grant funding shall be committed and expended by the Entitlement Community no later than June 30, 1995. D. To drawdown DLF Grant funding, the Entitlement Community must submit a Washington State Invoice Voucher which identifies the State -Eligible Project that will be assisted and the amount of funds requested. The voucher must include a statement which certifies disbursement by the Entitlement Community of a DLF Loan which is equal to the amount of the DLF Grant drawdown request. E. CTED shall issue a warrant in the amount of the request within 20 days of receipt of the request. SECTION 4: LOCAL FUNDING COMMITMENT The Entitlement Community has earmarked $ in entitlement CDBG funding for use as DLF Loans for Certified Businesses. B. The Entitlement Community will track and give priority to using Program Income to make new DLF Loans to Certified Businesses. At a minimum, the Entitlement Community shall agree to commit the principal portion of DLF Loan repayments to relending under this contract. These new DLF Loans shall be made in accordance with this contract and applicable federal laws and regulations. In case of any conflict, federal laws and regulations shall prevail over this contract. The Entitlement Community has also budgeted $ C. funding to support the administrative costs of operating this DLF Minority and Women -Owned Business Lending Initiative within its jurisdiction. The Entitlement Community may charge an application fee of $100 dollars to prospective borrowers and may use borrower's interest payments and investment earnings on loan repayments for administration within the regulations and requirements of the CDBG Program. SECTION 5. SERVICE PROVISIONS A. The Entitlement Community shall use DLF Grant funds solely for State -Eligible Projects identified in Attachment A B. The Entitlement Community shall make loans which conform to the "Loan Policies and Guidelines" for the DLF Minonty and Women -Owned Business Lending Initiative set forth in Attachment B. C The Entitlement Community shall administer its program in accordance with a "Loan Management and Servicing Plan" which has been approved by CTED and set forth in Attachment C. D. The Entitlement Community shall document loans using legally binding contracts to protect the Entitlement Community's rights to repayments and proceeds of liquidation or foreclosure. SECTION 6: CONTRACT PERIOD A. The effective date of this Contract shall be the date the parties sign and complete execution of this Contract. B. The termination date of this contract shall be upon satisfaction of Entitlement Community service provisions under Section 4, or termination pursuant to Section 19. SECTION 7: DLF/CTED OVERSIGHT AND MONITORING The Development Loan Fund Committee and CTED will provide guidance as requested by the Entitlement Community on decision-making under the program. The DLF Committee and CTED will retain oversight responsibility for monitoring Entitlement Community performance under this contract. Perform ance SECTION 8: LOAN DECISIONS The Entitlement Community will utilize a Local Loan Committee to make recommendations for approving or denying DLF Loans made from CDBG funds or Program Income. The Entitlement Community and its Local Loan Committee will have sole responsibility for; loan making and for ensuring that DLF Loans meet DLF Minority and Women -Owned Business Lending Initiative "Loan Policies and Guideline" defined in Attachment B of this contract. SECTION 9: LOCAL LOAN COMMI"11LE The Entitlement Community will seek advice from. one or more Local Loan Committees) in making funding decisions on DLF Loans made from CDBG funds or Program Income. The Local Loan Cornmittee(s) can be an existing committee(s) already formed to administer revolving loan funds in the Entitlement Community that has experience in making business loans in economically distressed communities as long as the committee meets the qualifications established under Section 9.4. Members of the Local Loan Committee shall serve without compensation, but are entitled to reimbursement for actual and necessary expenses incurred in the performance of their duties. Local Loan Committee members may include employees of the Entitlement Community. C. Members of the Local Loan Committee are not individually liable to the state, to DLF, or to any other person as a result of their activities as members whether ministerial or discretionary, except for willful dishonesty or intentional violations of :law. Notwithstanding this provision, the Entitlement Community may purchase liability insurance for members and may indemnify these persons against the claims of others. D. The Entitlement Community shall ensure that the Local Loan Committee(s) provide opportunity for input: by persons knowledgeable about and having an interest in small business development, particularly in distressed communities and by minority and women -owned firms. The Local Loan Committee must represent a diversity of Interests and expertise including: (1) Persons with expertise in the financing of new, innovative, small and/or Minority and Women -Owned Businesses; (2) Persons knowledgeable about neighborhood and economic development issues in distressed communities, including resident(s) of these communities; (3) Persons with knowledge concerning labor standards, labor practices, wage rates, training and apprenticeship programs, and other issues affecting the quality of employment created under DLF, and (4) Minonties and women. E. If the Entitlement Community makes changes in the roster of the Local Loan Committee(s), new names and credentials shall be submitted within 15 days of appointment to CFED for approval to ensure that the committee(s) remains diverse. CI'ED shall have 15 days to approve changes or require additional members, or the changes will be deemed accepted as submitted. The Entitlement Community may continue to operate with its committee during the 15 -day CTED review period. SECTION 10: RECORD-KEEPING REQUIREMENTS A. Entitlement Community will keep records on each DLF Loan. These records will include: (1) OMWBE certification number. (2) Business Project purpose, location, and use of loan proceeds. (3) Sources and uses of funds statement. (4) Analysis of project viability and repayment capacity. (4) Credit report(s) on owner(s). (5) Copies of any written objections to the project received by the Local Loan Committee. (G) Copies of loan documentation. (7) Loan servicing/repayment transactions. (8) Statements to show compliance with applicable federal requirements. (9) Job creation/retention performance documentation, if appropriate. B. In addition, the Entitlement Community will keep records on the State-EIigible Projects assisted with DLF Grant funds, to include: (1) Description and location of project. (2) Total project cost. (3) State -funded portion. (4) Project implementation schedule. (5) Project expenditures (financial/accounting). SECTION 11: REPORTING REQUIREMENTS A. Intent The Entitlement Community is responsible for providing new DLF Loan reports within 20 days of Closing a new loan, a quarterly portfolio performance report, and annual job report, and a semi- annual State -Eligible Project report. These reports will be submitted to CTED to meet legislatively mandated reporting requirements. The contents of each report is detailed in the following sections of the contract. B New Loan Report (by DLF Loan) Within 20 days of the Closing of a new DLF Loan made from CDBG funds or Program Income, the Entitlement Community will provide L'aD a brief descnption of the loan containing the following information: (1) Borrower name, address (including county), and telephone number. (2) Business Project location (if different). (3) Business Project sources and uses of funds. (4) Loan amounts used or to be used for fixed assets or working capital. (5) Type of business (corporation, partnership, sole proprietorship). (E' Size of business (small, medium, large) under definitions provided by CTED. (7) Whether the Business Project is a start-up, expansion, or retention. (8) Whether the business is located in a distressed area, a timber area, or whether it is owned by a resident of the Entitlement Community. (9) Nature of the business and whether it is manufacturing, service, retail, or other. (10) SIC number. (11) Amount of the loan. (12) Date of loan Closing. (13) Term and rate of the loan. (14) Statement of the public benefit to be realized by the loan. If jobs will be created or retained, a statement of the number of jobs projected during the two-year period following the loan. (15) Recruitment plan for jobs to be filled to ensure availability to low- and moderate -income persons, including the name of the Job Services Center or Private Industry Council providing recruitment assistance and job referrals, if any. (16) Information on how the Business Project will help diversify the local economy if it is expected to do so. (17) Specific mention if the loan assists the creation of an employee cooperative or assists in an employee buy-out to prevent the loss of existing employment. (18) OMWBE certification number, and minority designation of African American, Hispanic, Asian, Pacific Islander, etc., if provided voluntarily by the borrower. C Loan Status Report (by DLF Loan) At least quarterly until the loan is paid or otherwise disposed of, the Entitlement Community will provide CTED a report that contains the following information: (1) Name of Borrower. (2) Original loan amount. (3) Outstanding principal. (4) Program Income to date. (5) Loan status (current, delinquent/days or default). D. Job Report (by DLF Loan) Each year, until the loan is closed out for purposes of the CDBG Program, the Entitlement Community will submit copies of reports that document the job creation and retention performance of any Business Project that was originally funded for the purposes of job creation or retention. At minimum, these documents will show, for each DLF Loan, the total number of jobs created and retained; whether the jobs created or retained were :part-time or full time (based on hours per week); whether the jobs (on a per job basis) were filled by a member of a low- or moderate -income household; and the ethnicity, gender, veteran status, and disability status of new hires, to the extent this information is provided voluntarily by the new employee. E. Use of State Funds Report (by State -Eligible Project) (1) Name and location of project. (2) Total cost. (3) State -funded portion. (4) Status of project and expenditure of state funds. SECTION 12: PROGRAM MARKETING A CTED will provide program marketing support to the Entitlement Community in the following ways, subject to staff and funds availability: (1) Support through the Community Development Finance Staff for networking, development of loan making and loan packaging expertise, and informing the public and businesses about the availability of funds; l2 ) Inclusion of the Entitlement Community program in state generated brochures and program descriptions; and (3 ) Preparation of informational packages for Washington State Legislators, staff and the Governor's Office B. 'The Entitlement Community will be responsible for: (1) Making information oh how to apply for the program available and providing guidelines for eligible Business Projects, especially to firms which are currently certified by OMWBE (2) Presentations at local public meetings and public hearings as may be required under CDBG regulations governing public participation. (3) Response to C1 LD requests for information on loans to be included in state -initiated marketing efforts. SECTION 13: SUBCONTRACTING A The Entitlement Community may enter into subcontracts for arty of the State -Eligible Project work contemplated under this contract without obtaining prior written approval of e1'LD. B The Entitlement Community may also enter into subcontracts for any activity described in the Loan Management and Servicing Plan (Attachment C). The Entitlement Community must not enter into any new subcontracting arrangements, not identified in the Entitlement Community's approved Loan Management and Servicing Plan without prior approval o' CTED. SECTION 14: CONTRACT MODIFICATIONS CTED and the Entitlement Community may request changes in services to be performed with the funds. Any such changes that are mutually agreed upon by CTED and the Entitlement Community shall be incorporated herein by written amendment to this contract. It is mutually agreed and understood that no alteration or variation of the terms of this contract shall be valid unless made in writing and signed by the parties hereto, and that any oral understanding or agreements not incorporated herein, unless made in writing and signed by the parties herein, shall not be binding. SECTION 15: RECAPTURE PROVISION In the event that the Entitlement Community fails to expend funds under this contract in accordance with state law and/or the provisions of this contract, CTED reserves the right to recapture DLF Grant funds in an amount equivalent to the extent of noncompliance. Such right of recapture shall exist for a period not to exceed three years following termination of this contract. Repayment by the Entitlement Community of DLF Grant funds under this recapture provision shall occur within thirty (30) days of demand. In the event that CTED is required to institute legal proceedings to enforce the recapture provision, CTED shall be entitled to its costs thereof, including reasonable attorney's fees. SECTION 16: NONDISCRIMINATION PROVISION A. Both parties agree that in fulfilling the terms and conditions of this contract that neither shall discriminate against Vietnam -era veterans or disabled veterans or any person on the basis of race, creed, color, national origin, age, sex, marital status, or the presence of a physical, sensory., or mental handicap in accordance with RCW 49.60. B. Furthermore, both parties agree to comply with the Americans with Disabilities Act of 1990, 42 L'.S.C. 12101 et seq. (ADA), and its implementing regulations. The ADA provides comprehensive civil rights to individuals with disabilities in the areas of employment, public accommodations, state and local government services, and telecommunications. SEC. -1 ION 17: OWNERSHIP OF PROTECT/CAPITAL FACILITIES CTED makes no claim to any real property improved or constructed with DLF Grant funds under this contract. and by this contract, does not and will not require any ownership interest or title to such property of the Entitlement Community. This provision does not extend to claims that CTED may bring against the Entitlement Community in the event of recapture of funds expended in violation of this contract. SECTION 18: AUDIT REQUIREMENTS A. The Entitlement Community is to procure audit services based on the following guidelines: (1) Entitlement Communities receiving less than S75,000 in state funds in a fiscal year, are exempt from compliance with the Single Audit Act or other audit requirements. However, records must be available for review by CTED. (2) Entitlement Communities receiving $75,000 or more in total state funds in a fiscal year may choose to have a financial audit as defined by Government Auditing Standards (The Revised Yellow Book), or single audit made in accordance with OMB Circular A-128 or A-133. B. As applicable, the Entitlement Community required to have an audit must ensure the audits are performed in accordance with Generally Accepted Accounting Principles; Government Auditing Standards (The Revised Yellow Book) developed by the Comptroller General, dated July 1988, the OMB Compliance Supplement for Single Audits of Educational Institutions and Local Governments, and the Compliance Supplement for Single Audits of Educational Institutions and Other Nonprofit Organizations; OMB Circular A-133 Audits of Institutions of Higher Education and Other Nonprofit Organizations; anti all state and federal laws and regulations governing, the program. C. The audit shall be conducted by the Office of the State Auditor. D. The Entitlement Community must prepare a Schedule of Financial Assistance for federal and state funds that includes: grantor name, program name, federal catalog (CFDA) number, grantor contract number, total award amount, beginning balance, current year revenues, current year expenditures, and ending balance. E. The Entitlement Community shall maintain its records and accounts in such a way as to facilitate CTED's audit requirements, and ensure that Subcontractors also maintain records which are auditable. The Entitlement Community is responsible for any audit exceptions incurred by its own organization or that of its Subcontractors. The CTED reserves the right to recover the Entitlement Community disallowed costs resulting from the final audit. F. The Entitlement Community is responsible for sending the audit report to the CTED'S Internal Audit Manager as soon as it is available, but no later than thirteen months after the end of the Entitlement Community's fiscal year. Responses to previous management findings and disallowed or questions costs shall be included with the audit report. The Entitlement Community will respond to CTED requests for information or corrective action concerning audit issues within 30 days of the date of request. G. The Entitlement Community shall include these requirement in any subcontracts. Non- governmental subcontractors are required to select a certified Public Accounting Farm to conduct the required audit. SECTION 19: SPECIAL PROVISION CTED's failure to insist upon the strict performance of any provision of this contract or to exercise any right based upon breach thereof or the acceptance of any performance during such breach, shall not constitute a waiver of nay right under this contract. SECTION 20: INDEMNIFICATION A I: is understood and agreed that this contract is solely for the benefit of the parties to the contract and gives no right to any other party. No joint venture or partnership is formed as a result of this contract. Each party hereto agrees to be responsible and assume liability for its own wrongful and/or negligent acts or omissions, or those of its officers, agents, or, employees to the fullest extent required by law, and agrees to save, indemnify, defend and hold the other party harmless from any such liability B. In the case or negligence of more than one party, any damages allowed shall be levied in proportion to the percentage of negligence attributable to each party; and each party shall have the right to seek contribution from the other party in proportion to the percentage of negligence attributable to the other party. C. This indemnification clause shall also apply to any and all causes of action arising out of the construction, rehabilitation, reconstruction, upgrading, and/or preservation of the State -Eligible Projects) acid/or the Business Project. Each contract for construction, rehabilitation, reconstruction, upgrading, and/or preservation will include a provision that CTED and the state of Washington are not liable for damages or claims from damages a:rising from any subcontractor's performance of activities under the terms of the contracts. SECTION 21: GOVERNING LAW AND VENUE This contract shall be construed and enforced in accordance with, and the validity and performance hereof shall be governed by, the laws of the state of Washington. Venue of any suit between the parties arising out of this contract shall be the Superior Court of Thurston County, Washington. SECTION 22: SEVERABILITY In the event any term or condition of this contract or application thereof to any person or circumstances is held invalid, such invalidity shall not affect other terms, conditions, or applications of this contract which can be given effect without the invalid term, condition, or application. To this end, the terms and conditions of this contract are declared severable. SECTION 23: DEFAULTS AND TERMINATION OF THE AGREEMENT A. Entitlement Community Failure If an Entitlement Community fails to carry out the program consistent with this contract, CTED may decline to make new DLF Grants to the Entitlement Community until the Entitlement Community makes corrections acceptable to CTED and demonstrates future ability to implement the program as intended under this contract. In addition, CTED may pursue its right to recapture DLF Grant funds as provided in Section 12 of this contract. B Entitlement Community Petition for Termination If the amount of funds available to an Entitlement Community as Program Income on an annual basis becomes so insignificant so as to make the relending of these funds administratively impractical, the Entitlement Community can petition CTED to allow reassignment of the remaining Frogram Income to another CDBG eligible activity, consistent with federal CDBG regulations, and for termination of this contract. CTED shall approve or deny the request within 45 days of such petition. C Termination in the Event of DLF Program Sunset If the DLF Program is no longer operated by the State of Washington, this contract shall terminate, and any Program Income thereafter received by the Entitlement Community arising from DLF Loan shall be available for use by the Entitlement Community subject to applicable federal regulations. SECTION 24. CTED AND ENTITLEMENT COMMUNITY REPRESENTATIVES A CTED's representative shall be: B. The Entitlement Community's representative shall be: SECTION 25. ENTIRE AGREEMENT ATTACHMENT A - LIST OF STATE-ELIGIBLE PROJECTS (supplied by Entitlement Community) O, 4. s ATTACHMENT B - DLF LOAN POLICIES AND GUIDELINES PROPOSED PROGRAM GUIDELINES for the Washington State Development Loan Fund Minority and Women -Owned Business Lending Initiative (Approved by the Development Loan Committee 3/4/94) Introduction The goal of this initiative, incorporated as a component of the Development Loan Fund Program is to support the expansion and start-up of minority and women -owned businesses that are certified by the Washington State Office of Minority and Women's Business Enterprises (OMWBE). This initiative was authorized under state law in 1993 and amends sections of the law pertaining to the Washington State Development Loan Fund under RCW 43.168. A. AMOUNT OF FUNDS AVAILABLE The DLF Program anticipates funding authority of up to $5,500,000 for the 1994 program year. Funding for the initiative is included in this authority. B APPLICATION GUIDELINES 1 Application Deadline Applications may be submitted any time dunng the 1994 CDBG program year after adoption of the 1994 final statement. 2. Application Requirements An application to the Development Loan Fund's Minority and Women -Owned Business Lending Initiative must be on behalf of a specific business project. An eligible jurisdiction may submit more than one application at any time. Applicants requesting $5,000 to 550,000 must meet the requirements of the initiative. Applications for more than $50,000 also require participation by another lender. Applications of $100,000 to $750,000 must meet regular DLF review and underwriting requirements. An application will consist of: a. an application signed by the authorized chief administrative officer of the local jurisdiction; b. documentation supporting the need for the assistance and job impact; c. confirmation/documentation of authority of the business to enter into the transaction; d. evidence of adherence to the jurisdiction's adopted Citizen Participation Plan, including at least two well-publicized public hearings; and e. assurance that all CDBG Program requirements will be met. Page two C. ELIGIBILITY GUIDELINES 1. Eligible Borrowers The financing assistance available through this lending initiative is targeted to businesses that are certified by the OMWBE. The certification process establishes that the firm is minority or woman -owned and controlled. All borrowers from nonentitlement areas of the state must be OMWBE certified prior to presentation of the loan to the DLF Committee. DLF loans to certified businesses are exempt from distressed area requirements of the regular DLF Program. Firms may be organized as proprietorships, partnerships or corporations. To be eligible, the certified business must be undertaking a commercial venture (not governmental or nonprofit). 2. Eligible Activities These loan funds are not a substitute for private financing or financing that is available to the firm from other government -supported programs such as the Small Business Administration or the Washington State Linked Deposit Program. The underlying policy is: these funds will fill credit gaps. The loans under this program will generally be under $50,000, with the emphasis on loans under $25,000. Loan funds can be requested for start-up costs, inventory, purchase of equipment, real estate (including remodeling and facade improvements), working capital, assistance in securing contractor bonding, and technical assistance in such areas as marketing, accounting, management, and others. 3 Inel:bible Activities Borrower needs that are unrelated to growth of the business (examples: refinancing equity, existing loans, or past due payables or funding past operating losses or taxes) are not eligible for loan funds. Loans which improve the position of the another creditor are also generally not eligible. D. METHOD OF FUNDING DISTRIBUTION Applications for DLF funds under the Minority and Women -Owned Business Lending Initiative wall be evaluated by staff who, in turn., will make recommendations to the DLF Committee for approval or denial based on the following guidelines: o Need for Assistance --the assistance requested is "appropriate" for the project. o Job Creation --permanent jobs created or retained as a result of the project will be made available to low- and moderate -income persons. o Ability to Repay the Loan --the borrower and the business plan must demonstrate the business venture is likely to be successful. The make this decision, the following factors will be considered: Page three The borrower has direct, successful experience in the business, has developed business skills in at least some of the areas important to its success (such as production, marketing, and fiscal management) and/or has developed skills important to this business venture through experience in a responsible management position of another firm. The borrower has prepared a well conceived, realistic plan for the business or its expansion that shows the availability of working capital to sustain and support its growth. - The borrower has developed an on-going support program (such as management assistance, on-going counseling, or other) to shore up areas in which he or she lacks experience. This technical assistance is an eligible loan expense. The borrower has a credit history that demonstrates the capacity to meet commitments. (Any delinquency or default in the payment of taxes or charging off of personal, undisputed debt will disqualify the applicant). - The borrower is current, or is operating under a plan, in fulfilling all state and federal tax requirements. o Financial Risk --the borrower must have a meaningful financial investment in the business. This can be in the form of cash, equipment needed by the business that has been purchased by the borrower, real property needed by the business venture, or other investments material to the business. The amount of the borrower's investment will depend on the size of the venture, the need for working capital, and the financial circumstances of the borrower. - If the borrower or business has liquid assets that are otherwise not committed or needed for working capital, they must be contributed to the project. o Other Loans --if the project costs exceed $50,000, the borrower is responsible for seeking participation from other loan sources in the financing of the project. o Secunty and Collateral --a security interest in all reasonable personal and business collateral will be required. Examples of business collateral that will be considered to secure the loan include equipment, real estate, and inventory. All personal assets of owners with a 20 percent or greater interest in the business must also be made available to secure the loan, including homes. If all reasonable collateral available to the owner(s) and business have been pledged or offered as security for the loan, lack of collateral will not disqualify the borrower. Personal guarantees will be required for all persons or entities holding 20 percent or greater ownership interest in the business. Page four E. LOAN TERMS The following loan terms apply to DLF financing made available to certified businesses: o Loans may range from $5,000 to $100,000 with emphasis on smaller transactions. o If the project cost is over $50,000, participation by other loan sources must be maximized. o Loan fees will include an application fee of $100. A loan fee of 1.5 percent of the loan amount is payable at closing, with credit given for the application fee. The loan fee can be financed as part of the loan so long as other financial participation requirements of the borrower have been met. o The interest rate is fixed at the prevailing prime rate plus 3 percent for direct loans. If another lender is participating in the project, the loan rate will be at par with that lender's rate. o Stepped payments and deferrals may be negotiated if justified by the particular circumstances of the loan. o Repayment terms will include: Loans for working capital may be repaid over a term of up to 5 years. Loans for equipment may be repaid over a term of up to 10 years. Loans for real estate may be repaid over a term of up to 15 years. Loans with a repayment term of over 5 years may have a balloon clause that will allow for adjustment of the loan's interest rate and encourage refinancing in the commercial market if possible. F USE OF DLF MINORITY AND WOMEN -OWNED BUSINESS LENDING INITIATIVE PROGRAM REVENUES Businesses receiving assistance through this DLF lending initiative are required to :make principal and interest payments. Up to two percent of program income, including principal, interest, and investment earnings received by the fund, may be used for DLF Program administration. The balance of program income will be made available for future loans through the DLF Program. ATTACHMENT C - LOAN MANAGEMENT AND SERVICING PLAN (supplied by Entitlement Community and approved by LAID) BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No,. J c For Meeting Of January 21. 1997 ITEM TITLE: Consideration of a resolution to participate in the Washington St-te Development Loan Fund. SUBMITTED BY: Glenn J. Valenzuela, Director of Community and Economic De CONTACT PERSON/TELEPHONE: Glenn J. Valenzuela, 575-6113 SUMMARY EXPLANATION: City staff met with Mr. Chris Greenlee, Community Development Finance Specialist with the State of Washington to discuss the City's participation in the Washington State Development Loan Fund, Minority and Women Owned Business Lending Initiative. The City would commit $ 50,000 of its Community Development Block Grant Funds in order to access the State's revolving loan fund. This program has been in operation since 1994 with some success in the Seattle and Spokane regions. State funding terminated in 1996, however it is this departments understanding that funds will be available during the next funding cycle. The attachments discuss the process and regulations concerning the fund. The Council's Economic Development Committee has agreed to recommend participation. Staff would further recommend that the Committee be involved in reviewing all loan packages prior to submittal to the state. Funding for the program is part of the approved 1997 Consolidated Plan. Staff would not forward any contracts to the state until state funding is in place. Funding Source Community Development Block Grant, APPROVAL FOR SUBMITTAL: - .-� City Manager STAFF RECOMMENDATION: Staff recommends approval of the resolution. BOARD RECOMMENDATION: The Council Economic Development Committee recommends approval COUNCIL ACTION: