Business Development RLF Information

Program Implementation Summary and Plan

Concept of "Gap Financing"

The Revolving Loan Fund (RLF), as established by the MIDAS Council of Governments and the U.S. Department of Commerce, Economic Development Administration (EDA), is designed to encourage new or expanded development activities in the Northcentral Iowa Counties of: Calhoun, Hamilton, Humboldt, Pocahontas, Webster, and Wright. The purpose of the RLF is to support business activities for which credit is not otherwise available. It is the intent of MIDAS to work in conjunction with traditional lending institutions to help facilitate a project through gap financing rather than becoming a “primary lender.” In addition, MIDAS will not act in a venture capitalist capacity. By providing financial assistance to development opportunities, the Revolving Loan Fund will bridge the financial gap that exists between owner equity and the amount traditional lending institutions are willing to commit to facilitate the project. It is not the intent of MIDAS to fund a project that is not supported by a primary loan.

Prior to initial grant disbursement, loan implementation documents will be reviewed by counsel to ensure protection of RLF interests. To finance this activity MIDAS will receive an “Application Fee” of $50 and the borrower shall pay the costs for legal review of security documents and the filing of such documents, if the loan is approved by MIDAS and accepted by the borrower. These fees may be added to the amount borrowed from the MIDAS RLF.

Part I - Revolving Loan Fund Strategy:

Economic Adjustment Overview (Coordination to CEDS): MIDAS has prepared a Comprehensive Economic Development Strategy Plan (CEDS) to target its planning and economic development service delivery programs. The CEDS was completed with local input/visioning that identified the following regional deficiencies:

  • Lack of venture and investment capital;
  • Limited public funds for vitally needed projects to enhance the area for economic development and quality of life amenities;
  • A low per capita income;
  • Strengths of the region mean little to small communities that do not share in the benefits of the business growth in larger Iowa communities; and
  • A no-growth attitude is prevalent within many areas of the region.

The primary recommendation of the CEDS was that there is an apparent need for MIDAS to encourage regional cooperation to:

  • Close the digital divide;
  • Encourage the entrepreneurs;
  • Leverage the "New Agriculture;"
  • Preserve the rural landscape; and
  • Boost the human capital.

A “regional partner” (Mid Iowa Growth Partnership) has developed work plans consistent with MIDAS philosophy in their support for the following priorities:

  • Support a local program of entrepreneurship based upon support to existing industries/businesses and growth of future business start-ups from within; and
  • Provide a regional marketing strategy that is targeted to specific “compatible” industries identified through county cluster groups operating underneath a larger six county umbrella.

Business Development Strategy

  • New or Expanding Businesses in Specified Counties: The MIDAS RLF is designed to encourage new or expanded development activities in the Northcentral Iowa Counties of: Calhoun, Hamilton, Humboldt, Pocahontas, Webster, and Wright.

Activities to be Financed: Activities financed by the RLF will generally be, but not limited to, fixed assets financing (i.e., land acquisition, building, equipment and inventory loans). Renovation, construction, and refurbishing of plant and equipment are included as eligible activities. Working capital is an eligible activity, but not preferred because of the limited ability to provide collateral for the loan.

Eligible activities may include industrial or commercial projects that are legal permitted uses for the commercial/industrial local zoning districts within which they are to be located. The priority will be granted to industrial activities, with commercial activities being funded if money is available. In reviewing commercial applications MIDAS will discourage funding activities that will provide a duplicative or excess capacity within the local economy.

Activities not to be Financed: Prohibited activities will include requests that are purely speculation in nature (i.e., land banking, speculation building, construction, etc.). MIDAS will not provide funding for refinancing unless such activity is part of a larger scale development, and then the amount being refinanced cannot be assisted by MIDAS funds.

The MIDAS RLF Program Financing Strategy

  • MIDAS will fluctuate its interest rate to the specific needs of the applicant, but in no case will the interest rate be less than 4% below the current prime rate quoted by the Federal Reserve Bank – New York Branch. In no case can the interest rate be less than 4%. All loans will carry fixed, continuous compounding rates for the term of the loan.
  • The maximum loan amount MIDAS will make to a single applicant is $70,000. The minimum loan amount will be $5,000.
  • The maximum loan term shall be ten years.
  • Amortization of the loan will be made in equal monthly installments. Balloon installments will not be considered.
  • An equity investment on the part of the applicant must equal at least 10% of the total project amount provided.
  • Applications from Calhoun, Pocahontas, and Wright Counties will be required to submit a local match contribution to the MIDAS RLF fund equal to 10% of the RLF amount requested from MIDAS. The local match must be provided by the sponsoring local development corporation, city council, or board of supervisors of the respective county. This contribution becomes a nonrefundable contribution by that entity to the MIDAS RLF portfolio.

Financing Policies

  • MIDAS RLF funding is contingent upon application support from a Local Development Organization. Therefore, applicants for RLF assistance are encouraged to begin the application process with a discussion of their project and funding needs with the staff of the Local Development Organizations.
  • The MIDAS goal will be to attain a 1st position on loans with discretionary ability to negotiate lesser positions if the project or potential collateral position warrants. MIDAS can negotiate a subordinate position to any recognized government regulated lender.
  • MIDAS will consider the impact on the long-term unemployed. This will be accomplished by asking the applicant to discuss job training assistance with the Job Training Partnership Act, H.F. 623, and Promise Jobs programs of ICCC and Iowa Workforce Development. MIDAS will consider the project impact of loan applicants who meet the needs of the target population by providing permanent jobs and training opportunities for unskilled and semi-skilled workers.
  • In all cases MIDAS will require a variety of collateral agreements, such as:
    • Personal guarantee(s) (required for all loans);
    • Mortgage;
    • Lien(s);
    • UCC filing (required for all loans) supported by Security Agreement;
    • Current Articles and Bylaws of Corporation (including current authorized signature resolution);
    • Trust or Parnership Agreements (including documentation of authorized signers);
    • Others as may be required by MIDAS

Portfolio Standards and Targets

Performance Measure Target Amount Loans to Date
Average Loan Amount $50,000 $38,676
Number of Initial Jobs 50 453
Dollars of RLF Funds/jobs Created $5,000 $1,195
Private Leveraging $2 160
Private Loan Requests 85% 100%
New Companies 25% 27%
Expansions 50% 73%
Locally Owned 70% 93%
Small Business 90% 93%
Industrial 85% 53%
Commercial 15% 47%
Retention 25% 7%
Traditional Activities 75% 100%
New Technology 25% 7%

Loan Selection Criteria: The following criteria will be utilized for ranking of applications in cases where funds are not available to fund all "fundable" applications:

  • Need and impact of the project: consideration is to include local employment conditions, resultant new economic activity, use of available other public incentives, project schedule, and property tax enhancement and other effects on the local tax base;
  • Ability of the applicant to repay the loan;
  • Number of jobs per dollars requested;
  • Number of jobs to be created/retained;
  • Percent of funds other than MIDAS RLF in the project;
  • Quality and completeness of application materials.

Performance Assessment Process: In order to achieve the economic objectives of the RLF and to address the financial problems of the LTD Counties, certain standards have been adopted. In implementing the RLF program. MIDAS will attempt to diversify its loan portfolio to enhance the identified targets.

The RLF Loan Review Committee will monitor the following criteria and review potential adjustments to strategy on a yearly basis:

  • Number of jobs created/retained;
  • Cost per new job;
  • Percent of private funds leveraged;
  • Delinquency rates;
  • Wages of jobs created; and
  • Skill levels of jobs created.

Part II - Operational Procedures:

Organizational Structure

Loan Review Committee: The MIDAS staff will provide day-to-day intake, processing, and communication for all RLF applicants. A Loan Review Committee has been designated by the MIDAS Executive Committee and is composed of the six members, one member to be from each of the six MIDAS member counties. The MIDAS Executive Committee, when designating Loan Review Committee Members, should consider the advantage of placing individuals with economic development, loan, or banking experience. If such expertise is not available, the Loan Review Committee may be expanded by up to two members to acquire that expertise.

The loan review committee is charged with reviewing applications and suggesting recommendations for funding. Their recommendations are forwarded to the Executive Committee, which will act as the loan approval agency. The Loan Review Committee will be responsible for loan modifications (or waivers) and loan foreclosure actions. In addition, the Loan Review Committee will be charged with providing input to the staff and Executive Committee as to proposed changes to this Plan and any other operational procedure of the MIDAS RLF program.

Conflict of Interest for Member of Loan Review Committee or a member of the Executive Committee – A member who has a conflict of interest (according to MIDAS Code of Conduct) shall designate that conflict at the beginning of any Loan Review Committee or Executive Committee meeting. The member with the conflict of interest may participate during the meeting, but shall not vote on the issue for which the conflict is present.

Funds for MIDAS Administration: MIDAS proposes to target approximately 1/2 of the program income to fund administrative costs.

Brochures to be Created: Staff will prepare brochures to explain the program and its application procedures. The brochure is to be general in nature. Advertisement will be to the six local development organizations, local financial lenders, and the Small Business Development Center. Other marketing techniques may be used if deemed necessary.

Submittal of Applications: Applications shall be submitted on forms provided by MIDAS and may include the following elements:

  • Business Plan
  • Cash-Flow Summaries and/or Profit/Loss Statements
  • Credit Reports
  • Appraisal Reports
  • Environmental Reviews
  • Collateral Requirements
  • Equity Requirements
  • Statement of no displacement of other funds

Reviews and Screening Applications: The MIDAS staff will be responsible for reviewing loan documentation prior to submittal to the Loan Review Committee. The loan packaging process is as follows:

  1. Meetings and interviews with applicant to gain an understanding of the proposed project. Initial contact is to explain program and determine if project meets program and goals, as well as review other possible alternatives.
  2. Applicants that are determined eligible for RLF assistance are required to submit financial statements and other information necessary to complete the application. All applicants, whether or not qualified for RLF moneys will be referred to additional sources of funding and management assistance such as SBA USDA/RD, State of Iowa Values and CDBG/EDSA funding. When appropriate, applicants will be referred to qualified financial advisors such as bankers or accountants.
  3. Information will also be supplied to applicants concerning agencies that can supply market feasibility studies, conducting labor and resource surveys, making environmental impact assessments, and job training programs.
  4. Applications will be submitted to the Loan Review Committee for consideration. The Staff will provide a write-up of the minutes of that meeting.
  5. The Loan Review Committee will provide a funding/no funding recommendation to the MIDAS Executive Committee.

Timeline for a Funding Decision: A funding decision will be made by MIDAS within approximately 30 days upon receipt by MIDAS of a complete application. No costs incurred on the proposed project prior to authorization by the MIDAS Executive Committee are reimbursable under this program unless agreed upon by the Executive Committee.

Loan Servicing Procedures

Monthly invoice statements will be provided to all borrowers as the primary method of collection, with such payment being due on the 1st of each month. ACH payment withdrawals will be required for loan payments. Deposits relating to the RLF will be deposited in a federally insured account established by MIDAS. A $25 late penalty fee will be assessed on all payments that are late after the 15th of each month. Loans that are in arrears, or in default, will be referred to legal counsel for collection procedures and other available remedies according to the terms and conditions of the appropriate document entered into by the parties, such as the loan agreement, mortgage, promissory note, personal guaranty, security agreement, or other document as the case may be.

MIDAS must report loan statistics to its funding agency, the U.S. Department of Commerce, Economic Development Administration. Therefore, MIDAS and the borrower must develop a yearly reporting process to provide statistics by which MIDAS can complete EDA reports. Annually, the business will be required to submit cash flow statements, balance sheets, and job counts. Additionally, the business will be required to provide documentation of insurance renewals. Site visits will be conducted at least annually during the course of the loan. Provisions for walk-in visits and financial reviews by the MIDAS staff will be included as conditions of the loan.

Administrative Procedures

RLF borrowers will be required to comply with all federal statutory and regulatory requirements which include, but are not limited to:

  • Environmental protection;
  • Civil rights;
  • Davis-Bacon wage rates, if applicable when funds are used for construction activities;
  • Handicap access on construction projects;
  • Relocation of jobs from one labor market to another.

Federal requirements, as applicable, will be included in each RLF's standard loan agreement to ensure compliance.

Prior to initial grant disbursement, loan implementation documents will be reviewed by counsel to ensure protection of RLF interests. To finance this activity MIDAS will receive an “Application Fee” of $50 and the borrower shall pay the costs for legal review of security documents and the filing of such documents, if the loan is approved by MIDAS and accepted by the borrower.