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HomeMy WebLinkAboutR-2002-144 Commercial Development Loan Fund Policy amendment (Section 108 Loan Guarantee Program)RESOLUTION NO. R-2002- 144 A RESOLUTION 1) To amend the policies of the Commercial Development Loan Fund to reduce the minimum loan amount from $250,000 to $100,000; 2) Authorizing the City Manager to submit an application for funding from the Section 108 Loan Guarantee Program of the United States Department of Housing and Urban Development (HUD) to capitalize the Commercial Development Loan Fund. (This application includes loan requests totaling $3,150,000 from two businesses, Trail Wagons, Inc. and Essencia Bakery & Chocolaterie, LLC, to be included in the Section 108 Loan Program application to HUD.) WHEREAS, the City of Yakima has been awarded a $1 million Economic Development Initiative (EDI) grant from the U.S. Department of Housing and Urban Development (HUD); and WHEREAS, the grant award from HUD is conditioned upon submittal of a $4 million application to the HUD Section 108 loan guarantee program; and WHEREAS, the EDI grant was awarded for expansion of the Yakima Mall and the rehabilitation of the Great Western Building; and WHEREAS, the expansion of the Yakima Mall and the rehabilitation of the Great Western Building has been determined to be not economically feasible; and WHEREAS, HUD has approved the conversion of EDI and 108 funds to capitalize the Yakima Commercial Development Loan Fund; WHEREAS, the City has worked with the National Development Council in developing the guidelines for the program that at provides more flexibility and opportunity for development; and WHEREAS, in the course of developing and program and evaluating potential applicants, it has been determined that lowering the minimum loan amount from $250,000 to $100,000 would provide additional flexibility and opportunity for development; and WHEREAS, the modified project, the Yakima Commercial Development Loan Fund (CDLF), will meet the same eligibility requirements as the original project; and WHEREAS, economic development is a priority for 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, portions of the City of Yakima have been designated a federal Renewal Community by HUD, providing numerous federal tax incentives and priority for federal funding; and WHEREAS, under Section 108 of the Housing and Community Development Act of 1974, federal loans are available for the purposed of funding property rehabilitation for economic development activities that will create new and stable jobs for low and moderate -income residents; and WHEREAS, the Yakima Commercial Development Loan Fund will leverage over $3 million in private investment and create 145 new full time equivalent jobs, at least 51 percent of which shall either be filled or made available to low and moderate income persons as defined in the Community Development Block Grant regulations; now therefore BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA: 1) The policies of the Commercial Development Loan Fund are amended to reduce the minimum loan amount from $250,000 to $100,000; and 2) the City Manager is hereby authorized to execute and submit an application for funding from the Section 108 Loan Guarantee Program of the United States Department of Housing and Urban Development to capitalize the Commercial Development Loan Fund. (This application includes loan requests totaling $3,150,000 from two businesses, Trail Wagons, Inc. and Essencia Bakery & Chocolaterie, LLC, to be included in the Section 108 Loan Program application to HUD.) The City Manager is hereby designated as the official representative of the City to act in connection with that funding application and is authorized to take such additional actions as may be necessary and prudent to complete the application process. ADOPTED BY THE CITY COUNCIL this _26th_ day of November, 2002. ATTEST: 4<euxi-v,i , City Clerk 1.7774‘ 4,41 Place, Mayor CITY OF YAKIMA APPLICATION FOR LOAN GUARANTEE FROM U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR AN ECONOMIC AND COMMUNITY DEVELOPMENT LOAN FUND IN THE AMOUNT OF $4,000,000 NOVEMBER 14, 2002 ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON Project Description The purpose of this Section 108 application is to assist with economic and community development activities m the City of Yakima. The guaranteed loan funds will be used to create a loan pool targeted to projects that will have positive economic and community development benefits within Yakima's federally designated Renewal Community. A previously approved and amended companion EDI grant in the amount of $1,000,000 will be used to support the activities funded from the loan pool and help assure loan repayment. Individual projects will be evaluated by City of Yakima staff, as well as by consultants expert m financial underwriting. Loans will be structured using a combination of loan loss reserves and early year interest subsidies. The City has identified two projects that are ready to proceed as soon as funding can be assured. The first of these is Trail Wagons, Inc, a recreational vehicle manufacture The loan will be for operating capital in the amount of $3,00,000 Trail Wagons will use the loan proceeds for working capital, the acquisition of chassis and to retool for the introduction of two new motor home models. Trail Wagons, Inc. was incorporated m 1976 in Yakima, WA. as a sub chapter S Corporation. The company's president and founder is Gary Lukehart. Mr. Lukehart owns 97 percent of the company's original stock. Trail Wagons is located in Yakima's Renewal Community. The busmess operates as a recreational vehicle manufacturer of high-end Class C motor homes, which are marketed under the brand name of Chinook RV. The expansion will create 121 new fulltime manufacturmg jobs within three years of loan closing. The majority of these jobs will be created within 18 months of loan closing. The second project, Essencia Artisan Bakery and Chocolaterie LLC is a new business locatmg in a vacant storefront at 6 N Third Street in downtown Yakima. The project is located within the Yakima Renewal Community. The loan amount is $150,000 and will be used to refinance a short-term line of credit. The line of credit was secured to purchase the necessary baking equipment and complete tenant improvements in the storefront. The principals of the bakery are Ivone and George Petzmger, Judy Bartlett-DiBarr and John DiBari. Ivone Petzmger is a graduate of Johnson and Wales Culinary University of Providence, Rhode Island. She has 5 years of experience in creating cakes, pastries breads and all types of deserts and selling to commercial accounts in the Yakima area. The business will create 4 full time jobs. Section 108 Submission Requirements A. Community Development Objectives The Section 108 loan fund will result in lending for economic and community development m Yakima. In doing so the loan fund will further the City of Yakima's Economic Development Goals as listed in the City's 2000 — 2004 Consolidated Plan. The Strategic Plan section of the Consolidated Plan states that: "The City of Yakima is committed to combatmg poverty on all fronts. The chief weapon in this battle is economic development. This has been identified by our city council as our number one priority. We are actively engaged in fostermg and pursuing new partnerships with both public and private organizations to create new employment opportunities and better utilize our limited resources to meet community needs." Stated in the Strategic Plan is the expectation that the City of Yakima will directly assist businesses and development projects with Section 108 loans. B. Description of how the Proposal meets one of the Criteria in 24 CFR 570.200(a)(2) - National Objectives. Section 570.200(a)(2) lists the National Objectives that must be met by all Community Development Block Grant and therefore Section 108 projects. This section requires that all funded activities meet one of three national objectives. These objectives are: 1) benefit to low and moderate income families; 2) aid m the 2 ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON prevention or elimination of slums or blight; and 3) meeting other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community where other financial resources are not available. Section 570.208 defines the criteria under which an activity may meet the requirements of Section 570.200(a)(2). Each project funded through the Section 108 loan fund will meet one of the National Objectives listed in Section 570.200(a)(2) as detailed in Section 570.208. The City of Yakima's Section 108 / EDI loan fund will create jobs for low and moderate income persons, provide services to a low income area and/or eliminate conditions of blight as defined in Section 570.208 The first two loans within the Economic Development Loan Fund will specifically meet the requirements of Section 570.208(a)(4) and (a)(4)(iv). Section 570.208(a)(4) defines activities that meet the requirements of 570.200(a)(2) through the creation or retention of jobs. The subsection states that to qualify as a job creation or retention activity the project must "create or retain permanent jobs where at least 51 percent of the jobs, computed on a full time equivalent basis, involve the employment of low -and moderate -income persons." Sections 570.208(a)(4)(i) & (ii) specify that to qualify under Section 570.208(a)(4) the jobs created or retained must be either held by or be available to low- and moderate -income persons. Section 570.208(a)(4)(iv) lists minimum standards for the presumption that jobs will be "held by or made available to low- and moderate -income persons." Finally Section 570.208(a)(4)(v) states that a census tract will qualify for the presumption permitted under paragraph (a)(4)(iv) if it meets the following criteria: A: It has a poverty rate of at least 20 percent as determined by the most recently available decennial census infoiniation; B: It does not include any portion of a central business district, as this term is used in the most recent Census of Retail Trade, unless the tract has a poverty rate of at least 30 percent as determined by the most recently available decennial census information; and, C. It evidences pervasive poverty and general distress by meeting at least one of the following standards. (1) All block groups in the census tract have poverty rates of at least 20 percent; (2) The specific activity bemg undertaken is located m a block group that has a poverty rate of at least 20 percent; or (3) Upon written request of the recipient, HUD determines that the census tract exhibits other object determinable signs of general distress such as high mcidence of crime, narcotics use, homelessness, abandoned housing, and deteriorated infrastructure. Both Trail Wagons and the Essencia Bakery are located m census tracts with over 40 percent poverty and within a block group with greater than 20 percent poverty the project will qualify for the presumption test available under 570.208(a)(4)(iv). C. Community Development Block Grant Eligibility In addition to furthering National Objectives, all Section 108 loans must also meet the eligibility requirements of the Community Development Block Grant program. All activities funded through the City of Yakima's Section 108 loan fund will meet the program eligibility requirements as set forth in Sections 570.201,202,203 or 204. The first projects, Trail Wagons and Essencia Bakery both meet the eligibility requirements of Section 570.203(b). Under 24 CFR 570.203 (b) the City can provide assistance to private for-profit business, including, but not limited to, grants, loans, loan guarantees, interest supplements, technical assistance, and other forms of support, for any activity where the assistance is appropriate to carry out an economic development project, excluding those described as ineligible in Section 570.207(a). In addition, all activities funded under Section 570.203 must the guidelines provided in Section 570.209 (Guidelmes for evaluation and selecting economic development projects). Section 570.207(a) excludes: buildings or portions thereof, used for the general conduct of government, general governmental expenses and political activities. None of the projects to be assisted with Section 108 proceeds will include buildings used for the general conduct of government, general governmental expenses, nor for political activity. 3 ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON Section 570.209 Guidelines Guidelines and Objectives for Evaluating Project Costs and Financial Requirements. All activities eligible under Section 570.203 must meet the requirements of Section 570.209. This section outlines guidelines for ensurmg that a proposed project carries out an economic development objective in an appropriate manner. These guidelines under 570.209(a) are not mandatory but serve as a framework for financially underwntmg economic development projects. In evaluating proposed projects benefitmg from the Section 108 Economic Development Loan Fund the City of Yakima will use the following criteria. Project Management The City of Yakima, Depaitiuent of Community and Economic Development (DCED) will administer the fund. DCED will underwrite all loans and will use the National Development Council (NDC) to advise on project feasibility. NDC has a more than 35 -year track record of assisting local governments in structuring and implementing economic development and housing projects. Underwriting Standards for City of Yakima EDI / Section 108 Loan Fund 1. National Objective All loans shall meet a national objective as specified in 24 CFR 570.208. No loan shall be approved without verification of compliance with the national objective requirements, specified in 24 CFR 570.208, by the Washington State Office of the United States Depai tment of Housing and Urban Development. 2. Eligibility In addition to meeting one of the program's National Objectives all projects assisted through the loan fund must fall within one of the eligible activities listed in 570.703. 3. Guidelines for evaluating and selecting economic development projects For all activities eligible under 570.703(i), economic development activities, the project will be required to meet the guidelines listed under 570.209: Guidelines for evaluating and selecting economic development projects. No loan shall be approved without verification of compliance with the public benefit standards as specified in 24 CFR 570.209(b) by the Washington State Office of the United States Department of Housing and Urban Development. 4. Financial Underwriting In loan underwriting the City shell adhere to the follow criteria. A. Real Estate Loans Real Estate Loan shall be evaluated based on: 4 ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON Ability to Repay Collateral Development Team Capacity and Experience Developer Commitment Character of the Developer Ability to Repay Projects to be funded will have at least a 1.1 projected debt coverage ratio. If the project includes more than a small percentage of its rental income from start- up or financially weak tenants then a higher debt coverage ratio shall be required. Collateral Projects to be funded should have a loan to value ratio of not greater than 80 percent. This value must be supported by an appraisal prior to fundmg. If greater than an 80 percent loan to value ratio is proposed, outside collateral sufficient to provide an 80 percent loan to value shall be required. In certam cases outside guarantees may suffice for additional collateral. Development Team Capacity and Experience Projects funded shall have a development team that has both the capacity and experience to complete the project as demonstrated by past projects and fmancial strength. Developer Commitment Developer commitment can take many forms. While each project is likely to be different the forms of developer commitment that can be expected include: adequate equity, guarantees of completion, guarantees to fund shortfalls or guarantees of minimum cash flow. Character Projects to be funded should have developers with good credit histories, demonstrated integrity, and quality references. B. Business Loans Business Loans shall be evaluated based on: Ability to Repay Collateral Guarantees Financial Strength Management Experience Character of the Principals ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON Ability to Repay All businesses funded with the program shall have existmg cash flow (profits after tax, plus deprecation, plus excess officers mcome, plus rent savings if applicable) sufficient to repay the loan. Projections must be supported by strong evidence that they will materialize. Collateral All business loans must be supported by collateral. Real Estate must be supported by an appraisal and will be generally accepted up to 80 percent of its value. Machinery and equipment depending on its nature will be accepted from 40 percent to 60 percent of its fair market value. Accounts receivable and inventory will normally be used to secure operating debt and will generally not be taken as collateral. Outside collateral such as personal residences shall be valued up to 90 percent of their fair market value Guarantees All principals with 20 percent or more or a controlling interest, if less than 20 percent, shall provide personal guarantees. Financial Strength Three years of fmancial statements on the business plus a personal financial statement on all principals of the busmess shall be analyzed to determme if the company is well run and has the ability to manage its accounts and pay its obligations. Management Experience The management must have experience in the business or in a similar business, be able to demonstrate an ability to manage and have the depth in management to withstand unforeseen transitions. Character of the Principals The personal financial statements and credit history of the principals must demonstrate honesty and trustworthiness. D. Eligibility under 24 CFR 570.703 Each of the projects to be assisted with Section 108 guaranteed loan funds and Economic Development Incentive grant funds must meet one of the eligibility requirements listed in 24 CFR 570.703. The mitial two projects detailed in this application are eligible under 570.703(i), - economic development activities eligible under Section 570.203. Other projects to be funded under the program may also qualify under 570.703 (a)(b)(c)(d) (e)(f) (h) &(1). 6 ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON E Project Evaluations 1. Project Underwriting - Trail Wagons, Inc. a. Ability to Repay Trail Wagons is a 28 -year-old successful company. During those 28 years only m 2001 did sales fail to grow.. The company has indicated that this was a result of the economic downturn and the effects of September 11, 2001 on travel. Sales have rebounded in 2002. Analyses of the company financial statements show a Debt to Equity Ratio at year- end 2001 of 1.36. This is very good. Similarly the other ratios indicate an ability to repay. The Working Capital is strongly positive with a Current Ratio of 1.37. The company has shown steady sales growth with the exception of 2001 when sales fell. They are projecting a rebound for 2002 that will exceed their 2000 sales level and are on schedule to meet their projections. Their accounts receivable days have growth over the past 4 years showing a less aggressive collection policy, but at 49 days the company's receivables are not out of line. Their days inventory spiked up m 2000 and 2001 but on the interim statements it is back to a very reasonable 47 days. Then- accounts payable has remained steady in the range of 45 to 50 days. Their ratios of cost of goods sold and selling and general administration to sales have remained steady Their earnings before tax has remained steady with the exception of 2001. Their interum statement shows a return to profitability consistent with their pre 2001 performance. Their projections for the next three years show continued profitability as they introduce two new motor homes models. The first of these two new products has been shown at trade shows and the company has booked orders consistent and exceeding its projections. The second prototype is currently under construction. Overall the company shows an ability to repay the loan as structured. b. Collateral The loan will be supported by real property collateral supported by appraisals. The collateral will be valued at 80 percent of its appraised value net of all existing debt. c. Guarantees Gary Lukehart owns 97 percent of Trail Wagons. He will personally guarantee the loan. d. Financial Strength In evaluating the loan consultants to the City reviewed 4 years of financial statements plus an interim statement, personal financial statements, 3 years of tax returns, projections, aging of accounts receivable and payable. They also made several site visits. e. Management Experience The company has a strong management teams that is both experience and stable. f. Character of the Principals The company's principal is a long standing member of the Yakima community and held in the highest of esteem. 7 ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON Project Underwriting - Essencia Artisan Bakery and Chocolaterie a. Ability to Repay The Essencia Bakery is a start-up business. As such its ability to repay is must be based on a strong business plan, projections, experience of the owners, the owners understanding of the market and its risks and properly structured capitalization. The owners of Essencia have developed a well thought out business plan. The baker and CEO is experience and trained as a pastry chef with an Associate Degree in Pastry and Arts from the Johnson and Wales Culinary University of Providence, Rhode Island. She has 5 years of experience in baking and marketing her products on a custom sales basis in the Yakima area. Her partner is an experience business consultant. The business will be located in downtown Yakima. It has successfully negotiated a lease that will meet the business's needs both for baking and retail sales of its product. The location has both easy of access and adequate parking. The landlord has agreed to lease the space rent-free for the first 12 months in exchange for the tenant undertaking its own tenant improvements. The business has already established commercial accounts generating $1,200 average monthly revenue. And finally of the four principals, only one will work in the business and she does not anticipate the need to receive a salary. The other three principals are employed outside the business and will remain so. The owners will provide $20,000 in cash equity and will personally guarantee repayment. They have the ability to meet the loan repayment terms from income outside of the business. b. Collateral The loan will be collateralized by personal homes of the principals. The collateral value exceeds the programs requirements. c. Guarantees All principals will personally guarantee the loan. d. Financial Strength In evaluating the loan consultants to the City reviewed the business plan, personal financial statements, projections, reviewed the collaterals and have evaluated the site. e. Management Experience The company has a strong management teams that is both experience and stable. f. Character of the Principals The company's principals are long standing members of the Yakima community and held in the highest of esteem. 2. Section 570.209 Guidelines for evaluating project costs and financial feasibility a. Reasonableness of the Proposed Project Costs Each use of loan funds shall be evaluated to ensure the reasonableness of proposed project costs. The scope of this evaluation shall depend on the size and nature of each project. Care will be taken to use third party evaluations of costs wherever appropriate, 8 ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON and particular attention will be exercised when an activity involves a non -arms -length transaction. Staff and consultants to the City have reviewed the proposed project costs for both the Trail Wagons, Inc. and Essencia Bakery loans. With Trail Wagons the loans proceeds will be used for operating capital, re -tooling for a new motor home model Ime, and chasse inventory. With Essencia the loan will refinance a short-term personal Ime of credit used to buy equipment and to undertake tenant improvements. In both cases the cost associated with the loans are reasonable. b. Commitment of all Sources of Funds. The City and its consultants shall review every project to verify that all sources of funding are committed and available prior to approval of an activity to be funded by the Section 108 / EDI fund. With both loans the City and its consultant is satisfied that all other funding necessary for the two projects are available to the borrowers. c. Substitution of CDBG funds for Private Sources. City staff assisted by consultants will review all projects to msure that each loan minimizes the use of CDBG funds. It is in the City of Yakima's self interest to insure that there be no substitution of CDBG funding for non-federal funding. Given the limited availability of federal funds, the city staff will work diligently to maximize the use of private, non-federal funding in all projects. All projects will be reviewed to insure that private sources of fmancmg have been maximized and that the rate of return on equity is reasonable and within general standards. For both loans the nature of the projects require loan terms that are only available through a program such as the Section 108/ EDI loan fund. Trail Wagons is introducing a new line, doubling its product mix. It has maximized its available commercial line of credit. The new line will require nearly doubling its operating capital. To undertake this expansion the company needs long working capital which is not commercial available. In addition to properly manage the risk of new product mtroduction, it needs a stable and affordable interest rate. The program will allow the company a 10 -year term. The interest rate will be initially set at 4 percent and maintained at 4 percent as long as the allocated portion of EDI funds can mamtam that rate. When EDI funding is exhausted the loan's interest rate will float equal to the City of Yakima's underlying Section 108 interest rate. In addition to subsidizing the mterest rate a portion of EDI funds will be used to fund a programmatic loan loss reserve. There are no private funding programs that can provide comparable terms. Essencia Bakery is a start-up as such it needs both low interest and loan term debt. Its will also receive a 10 year terms and a similarly structured 4 percent rate and benefit from a loan loss reserve. Again there are no private sources that can provide comparable terms to the program and as such there is no substitution of CDBG for private funds. ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON d. Feasibility of the Project. All projects seeking assistance under the Section 108 / EDI loan fund shall be evaluated as to project feasibility. The scope of each evaluation will depend on the nature of prospective projects. For existing businesses, three years of financial statements will be reviewed and analyzed, projections evaluated and project costs verified. For business start-ups, projections will be compared to mdustry averages and evaluated by others experienced in the line of business. In addition, at risk capital will be required on the part of the borrower. For real estate projects, appraisals will be required and reviewed, appropriate pre -leasing levels will be set and prospective tenants' credit worthiness will be evaluated. In some cases formal market feasibility studies will be required. In other cases less formal evaluations will be sufficient. In all cases the prospective borrowers' experience and capacity to perform will be reviewed. Please refer to the discussion under project underwriting above. e. Return on owner's equity. Staff will evaluate all projects to determine the owner's return on equity and compare this projected return to industry norms. The loan fund will seek to participate in projects where its participation will help secure the owner a return commensurate with the risk. Projects where the return on equity is high will need to demonstrate why the fund's involvement is necessary, or why its participation should not be lessened. Projects where the return on equity is low will need to further justify feasibility and accuracy of costs. It shall be the goal of the fund to maintain a viable portfolio of loans with the mmimum fund involvement. For both Trail Wagons and Essencia Bakery the projected return on equity is neither unreasonable nor excessive. f. To the extent practicable the Section 108 funds should be disbursed on a pro rata basis It shall be a goal of the fund to disburse funds on a pro rata basis with other funds being used in specific projects. In those situations where pro rata disbursement is not followed, staff will justify the procedure and seek alternative means to mitigate risk. The City will fund based on invoices and cost reimbursement. 2. Standards for evaluating public benefit All projects eligible under Section 203 and Section 204 will be required to comply with Section 570.209. Section 570.209(b)(1) establishes the standards for evaluatmg public benefit in the aggregate, Section 570.209(b)(2) applies those standards and 570.209(b)(3) establishes the standards for individual activities. All projects funded through the Section 108 / EDI loan fund will comply with the standards of subsections 570.209(b)(1), (2) & (3). All projects funded through the loan program will be required to meet the individual standard of Section 570.209(b)(3). The City of Yakima anticipates qualifying projects under both 570.209(b)(3)(i)(A) & (B) - the creation or retention of at least one full-time equivalent permanent job for every $50,000 of CDBG assistance and the provision of goods and services to low- and moderate -income persons where the CDBG assistance does not exceed $1,000 per low- and moderate -income person to which goods or services are provided by the activity. 10 ECONOMIC DEVELOPMENT LOAN FUND YAKIMA, WASHINGTON Projects assisted with the loan fund will be located within the federally designated Renewal Community. Within this area all census tracts have levels of poverty exceeding 40 percent. Section 570.209(b)(2)(v)(F) exempts activities from meeting the aggregate standard for public benefit if the activity provides assistance to businesses that operate within a census tract that has at least 20 percent of its residents who are in poverty. If a project should fall outside of this area, it will be required to meet the aggregate standard as well as the individual standard. Both Trail Wagons and Essencia Bakery are within the Renewal Community boundary. As such they can be exempted from the aggregate standard. Because of the strong job generation projected for Trail Wagons the City of Yakima does not anticipate needing to exempt either loan from the aggregate standard. Trail Wagons will create 121 new full time jobs and Essencia will create 4 new full-time jobs. Both projects exceed the minimum individual job creation standard and together they exceed the aggregate standard. D. A Description of the Pledge of CDBG Guarantee The City of Yakima understands that if the participants in this Section 108 loan fund fail to make timely payments and the City of Yakima therefore fails to make a required payment on its notes, HUD will deduct that payment from the City of Yakima's CDBG Letter of Credit and in accepting this loan guarantee, the City of Yakima has pledged its CDBG funds and all other applicable grants as security for the guarantee. (Please refer to Attachment A - Certifications.) E. A Schedule for Repayment of the Loan In requesting approval of this loan guarantee fund the City of Yakima is requesting a commitment for a 20 - year term. Please use the following principal repayment Year Principal Repayment August 2003 $ 0 August 2004 $ 145,000 August 2005 $ 150,000 August 2006 $ 155,000 August 2007 $ 160,000 August 2008 $ 165,000 August 2009 $ 170,000 August 2010 $ 175,000 August 2011 $ 185,000 August 2012 $ 195,000 August 2013 $ 205,000 August 2014 $ 215,000 August 2015 $ 225,000 August 2016 $ 235,000 August 2017 $ 245,000 August 2018 $ 255,000 August 2019 $ 265,000 August 2020 $ 275,000 August 2021 $ 285,000 August 2022 $ 295,000 F. Certifications Please see Attachment A - Certifications. 11 BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. I For Meeting Of: November 26, 2002 ITEM TITLE: Consideration of a resolution to: 1) Amend the policies of the Commercial Development Loan Fund to reduce the minimum loan amount from $250,000 to $100,000; and 2) authorize the City Manager to execute and submit an application for funding from the Section 108 Loan Guarantee Program of the United States Department of Housing and Urban Development to capitalize the Commercial Development Loan Fund. SUBMITTED BY: ehTel Morales, Grants Officer CONTACT: Michael Morales, 575-3533 SUMMARY EXPLANATION: Attached is the final draft of the Section 108 Loan Program application that the City Council must approve prior to submittal to the U.S. Department of Housing and Urban Development (HUD). The $4 million application is required to access the $1 million Economic Development Initiative (EDI) grant to establish the Commercial Development Loan Fund (CDLF). The request to amend the use of EDI funds was approved by HUD in October. In anticipation of HUD approval, the City ran advertisements requesting letters of interest from businesses to gauge demand for the CDLF, and to begin gathering information from projects that were ready to proceed. Based on meetings with applicants conducted with the John Finke of NDC, and CED staff, two projects were identified as being ready to proceed as soon as funding can be assured from HUD. CONTINUED ON FOLLOWING PAGE Resolution _X Ordinance _ Contract _ Other: Application for loan funds Funding Source: U.S. Department of Housing and Urban Development Approval for Submittal: o City Manager STAFF RECOMMENDATION: Staff recommends approval of the resolution. BOARD RECOMMENDATION: Council Economic Development Committee recommends approval. COUNCIL ACTION: Resolution adopted. RESOLUTION NO. R-2002-144 1 The first of these projects is Trail Wagons, Inc, a recreational vehicle manufacturer. The loan request is for operating capital in the amount of $3,000,000. Trail Wagons will use the loan proceeds for working capital, the acquisition of chassis and to retool for the introduction of two new motor home models. Trail Wagons is located in the Renewal Community, and their expansion will create 121 new full time manufacturing jobs within three years of loan closing. The majority of these jobs will be created within 18 months of loan closing. The second project, Essencia Artisan Bakery and Chocolaterie, LLC is a new business locating in a vacant storefront at 6 N. Third Street in downtown, also within the Renewal Community. The requested loan amount is $150,000, and will be used to refinance a short term line of credit. The line of credit was secured to purchase the necessary baking equipment and complete tenant improvements in the storefront. The principals of the bakery are Ivone and George Petzinger, Judy Bartlett-DiBari and John DiBari. Ivone Petzinger is a graduate of Johnson and Wales Culinary University of Providence, Rhode Island. She has 5 years of experience in creating cakes, pastries breads and all types of deserts and selling to commercial accounts in the Yakima area. The business will create 4 full time jobs. The complete analysis of each project begins on page 7 of the attached Section 108 loan application to HUD. The City Council approved the CDLF guidelines and policies prior to submittal of the EDI amendment request. Those loan policies included a $250,000 minimum loan request. Upon reviewing letters of interest to the program and meeting with potential applicants, it has become apparent that there is considerable demand for financing in the $100,000 to $200,000 range. For this reason, staff is recommending an amendment to the loan policies to lower the minimum loan amount to $100,000. This amendment is necessary to accommodate the Essencia Artisan Bakery and Chocolaterie project. The City's consultant to the CDLF has reviewed and negotiated the financial strength and collateral of the applicants, and has recommended approval. Staff is requesting endorsement of both the Section 108 loan application, and the accompanying projects for approval by the City Council on November 26, 2002. 2