NORTHEAST MISSOURI REGIONAL PLANNING COMMISSION and RURAL DEVELOPMENT CORPORATION
REVOLVING LOAN FUND WORK PLAN
USDA- RURAL DEVELOPMENT INTERMEDIARY RE-LENDING PROGRAM Revolving Loan Fund for
Northeast Missouri Region ADAIR, CLARK, KNOX, LEWIS SCHUYLER AND SCOTLAND COUNTIES
Revolving Loan Fund Plan
The Northeast Missouri Regional Planning Commission and Rural Development Corporation Revolving Loan Fund shall be operated under the guidance of the following revolving loan fund plan. This Revolving Loan Fund Plan will not be amended or changed without written concurrence from the USDA Rural Development (grantor).
Derek Weber, Teresa Skinner and Marla Greiner
The Northeast Missouri Regional Planning Commission and Rural Development Corporation (NEMO RPC/RDC) offers financing to support businesses, marketers or retailers and industry. This funding is provided by the USDA Rural Development Intermediary Relending Program.
Revolving Loan Strategy
The general needs of the NEMO RPC/RDC Region include:
- Increased infrastructure support to reverse population loss, stabilize the population and match population growth with the average growth of the state;
- Increased opportunities for affordable housing to accommodate the region’s workforce;
- Increase, broaden and diversify local employment opportunities;
- Continual retraining of the workforce to aid the transition from a singular agriculturally based economy to a diverse economy to include eligible agriculture, manufacturing, service, technology, medical industry and higher education services;
- Development of industrial sites and supporting facilities, and the location of new industry to broaden the economic base;
- Develop technology centers in conjunction with nearby universities to address technology development within the region;
- Decrease the number of residents that must commute outside the region for employment. Out-commuting is resulting from the lack of diversified and skilled employment opportunities, and inferior wages within the region. This trend can be reversed with a higher skilled employment opportunities and higher paying jobs;
- Increase financial resources within the region to attract new opportunities and support the necessary infrastructure expanse;
- Develop incentives to promote economic development within the region;
- Expand the available workforce by promoting the benefits of rural living, and encouraging individuals to return home to meet the skilled and non-skilled occupational demands within the region;
- Increase telecommunication infrastructure within the region, and expand calling areas to nearby markets;
- Decrease the region’s vulnerability to natural disasters;
- Development of the tourism and recreational industries;
- Encourage the development of adequate community facilities to increase quality of life;
- Improvement of transportation facilities including transit systems to address the transportation needs of the elderly and low income and to provide access to jobs and services;
- Encourage cooperative state, local and area wide development efforts.
- Identify and secure funding for economic development efforts for both public and private needs, including a revolving loan fund.
Applicants may be individuals, public or private organizations, or other legal entities, with authority to incur the debt and carry out the purpose of the loan.
- The business must be located in one of the counties of Adair, Clark, Knox, Lewis, Schuyler and Scotland in Northeast Missouri.
- Located in communities of less than 50,000 population.
- Applicants of the RLF will be required to meet their financial needs from their own resources and commercial financial institutions whenever possible. The RLF will be used to finance applicant needs that cannot be met from the above resources.
- Business must be owned by legal US citizens or legal residents. Borrower must be able to provide proof of citizenship, identity and legal Missouri residence. If the borrower employs laborers, he/she must also provide proof of enrollment and participation in the federal work authorization program.
- An individual who is a least 18 years of age, a partnership, corporation, firm or cooperative association.
- Applicant is ineligible to receive a loan if they, or their principals have any delinquent debt to the Federal Government.
- Must, along with its principal officers (including their immediate family) cannot hold any legal or financial interest or influence in NEMO RPC/RDC. Nor can the applicant, or immediate family members serve on the Loan Review Committee.
Funds must be used for various costs associated with starting, acquiring, operating or expanding qualifying businesses, such as but not limited to:
- Business construction, expansion, repair, modernization or development;
- Purchase/development of land, buildings, machinery, or supplies;
- Startup costs and working capital;
- Pollution control and abatement;
- Refinancing construction financing
Limitations on loan funds
Funds must not be used for:
- Agricultural production;
- Transfer of ownership unless the loan will keep the business from closing, prevent job loss, or expand job opportunities;
- Lending, investing, or insurance institutions;
- Any illegal activity;
- RLF loan funds will not be used to pay off any previous debt.
Applications are evaluated based on:
- Credit history of borrower
- Financial position of business
- Business history and ongoing potential and/or feasibility/marketing study results
- Location demographics (population less than 50,000, median household income, etc.)
- Business’s potential impact on the community’s economy
- The RLF project shall not make any loans to projects that do not adhere to equal opportunity compliances, state and federal environmental laws of the state of Missouri and/or the Federal Government, including flood plain regulations. Other evaluation criteria unique to the individual project
Borrower must have a professionally prepared business plan, legitimate training and/or experience both in the area of the project and business management.
- Security shall consist of the best lien available on real estate, equipment, inventory, etc. The Loan Review Committee may require personal guarantees and /or co-signors. The goal will be to retain first position on loans.
- Applicant must provide a minimum of 10% equity. Acquisition and construction loans will require mortgages and with machinery, equipment, and working capital loans requiring UCC filings. All applicants will be required to provide personal guarantees from all principals who own or control 20% or more of the company.
- Costs associated with processing the application (credit reports fees, background check fees, UCC and lien search fees, filing security documents, filing legal document fees, shall be the responsibility of the applicant).
- Each application will be accompanied with a $75.00 non-refundable application fee.
- Each application shall be reviewed individually and on its own merit. A loan decision shall be made based on the RLF’s Loan Review Committee’s analysis of the credit factors involved in the loan together with its impact on economic development of the Northeast Missouri Region and the service counties.
- In accordance with Federal Law and USDA policy, the Loan Review Committee will not discriminate on the basis of race, color, national origin, sex, religion, age, disability, or marital and family status.
- A credit check and criminal background check shall be made of each applicant company.
- If the business relocates outside of the service area, the Loan Review Committee may require immediate payoff of the loan.
Identified Financing Gaps
NEMORPC has identified the following financing gaps within the serviced counties:
- Most banks in the target area view themselves as agriculture lenders and residential lenders. This translates into a very conservative lending philosophy regarding commercial/industrial lending.
- There is a general lack of venture capital for new and/or expanding businesses throughout the serviced counties. This lack of venture capital has also had an impact on the level of research and development taking place in the region.
This section of the RLF Plan sets forth information on various financing policies and techniques to be used in making loans through the NEMO RPC/RDC’s RLF project.
One area identified as priority will be loans to existing businesses in the Northeast Missouri Region that desire to expand, but who are not able to obtain all of the financing needed for expansion. An eligible business must have a proven track record in terms of credit history, operational and management stability, and long-term commitment to the community where the business is located. This type of business will help to insure that a greater percentage of the RLF loans are made to stable companies that desire to remain in the Northeast Missouri Region, and thus, create long-term, permanent private sector jobs for the area’s available workforce.
The NEMO RPC/RDC RLF will attempt to achieve other objectives and/or benefits for the serviced counties by encouraging the growth of potential borrower companies. An additional source of benefits can be realized through review of projects that will generate additional property tax revenues and/or sales tax revenues. Other benefits can be achieved through projects that manufacture items for local consumption when those products are currently manufactured outside of the Region.
When possible the RLF program will seek to achieve the economic benefits of assisting women and minority-owned business enterprises.
The RLF Work Plan will be assessed annually by the NEMO RPC/RDC Executive Board with advisement from the Loan Review Committee and changes to the Plan will be recommended for USDA approval, as conditions warrant.
Loan Processing Procedures
In order to carry out the functions of the RLF program, to package, process, close and service loans, NEMO RPC/RDC has available experienced and professional paid staff.
Staff’s responsibilities include:
- Community and Economic Development;
- Establishing contacts with prospective loan applicants;
- Soliciting private sector participation;
- Obtaining additional private sector funding for the RLF;
- Legal closing and documentation of the RLF loans.
- Marketing/public awareness program including contact with Chambers of Commerce, business and community organizations, financial institutions, and industrial development corporations;
- Screening RLF applications and determining eligibility of loan applicants based on the RLF requirements and the ability to repay the loans;
- Loan packaging and preparing the RLF forms;
- Business credit analysis.
- Maintain all records and financial transactions related to NEMO RPC/RDC’s RLF.
It is anticipated that NEMO RPC/RDC will utilize the services of an established law firm with experience in banking and RLFs to prepare on a retainer basis all legal documents and perform all legal services for NEMO RPC/RDC. They will be involved in the closing of authorized loans.
NEMO RPC/RDC Operating System
The following is an outline of the anticipated operating system for packaging, processing, screening, closing and servicing loans:
Marketing and Informational Services
The Executive Director, Fiscal Officer/Loan Coordinator and Project Assistant as paid employees of NEMO RPC/RDC, will have initial contact with the loan applicant through either direct contact or through publicity campaigns promoting the RLF program.
The NEMO RPC staff will perform the initial credit analysis to determine eligibility and ability to repay the loan, feasibility of the project, compliance with the policies of the RPC/RDC Executive Board as well as the potential impact of the project in terms of jobs.
The NEMO RPC/RDC staff will work with the loan applicant to insure the completion of the loan package. The NEMO RPC/RDC staff and Loan Review Committee will make recommendations on loan approvals to the NEMO RPC/RDC Executive Board. The Executive Board will have final approval of loan authorization.
Final decisions as to the authorization of a loan application shall be made by NEMO RPC/RDC’s Board of Directors.
Additional Financing Policies
Criteria to be used in determining the adequacy of security and the advisability of making a loan shall be based upon the following criteria:
- Pro Forma balance sheet and profit and loss statement.
- Pro Forma debt/net worth ratio.
- Current ratio of the existing business before and after making the loan arrangements.
- Analysis of working capital to determine if the proposed working capital’s schedule is adequate to meet the business’ needs.
- Accounts Receivable/Days Receivable analysis.
- Analysis of pro forma debt to equity ratio.
- Analysis of trends and projections to support the loan by adequacy of comments and footnotes together with other explanatory and supplemental material.
- The adequacy of cash flow for the business.
- Analysis of the product being marketed and its potential performance in the market place for the future.
- An appraisal will be required on any proposed capital project involving buildings and/or real estate, or if any building or real estate is pledged as collateral.
The borrower shall bear the cost of the appraisal.
While each RLF loan will involve an element of risk, the NEMO RPC/RDC Executive Board shall endeavor to ensure that maximum safe guards are built into each and every loan in order that the RLF fund’s integrity is preserved. This will ensure the long-term viability of the RLF program in the LTED counties. In order to adequately assess the businesses who apply to NEMO RPC/RDC for loan assistance, 10 basic credit questions will be determined from review of the applicant’s financial statements. These include:
- Does the company collect its receivables?
- Does the company pay its debts?
- Does the company control inventory?
- Are the company’s officers committed?
- What is the operating history concerning retained earnings? Are they positive? Are they growing? Is the debt to equity ratio reasonable?
- Is the company growing?
- Does the company control margins?
- Does the company control overhead?
- Is the company profitable?
- Is there hidden cash?
This analysis will help establish the need for financing.
Loan Closing and Disbursement
After loan approval, NEMO staff may receive counsel from a reputable Missouri law firm for the necessary work involved in closing the loans. The NEMO RPC/RDC Staff will work with USDA concerning project monitoring and/or RLF evaluations.
Loans will be closed upon receipt of and documentation of all items spelled out in the individual financial commitment letter as prepared by the staff and legal counsel. Items will include UCC forms, Deed of Trust, insurance, documentation of other financing and need for gap financing, and other items as appropriate for individual circumstances. As a minimum, the following items will be included:
Applications for RLF funds will be accepted on a continual basis and reviewed on a monthly basis. Applicants who choose to apply in times when inadequate funds exist for extending a loan will be informed of the lack of funds.
Information on business to be assisted:
- Past three (3) years balance sheets, and profit and loss statements (P&L)
- Proforma balance sheets with three (3) year-end projections including the first 12-month cash flow projections
- Past three (3) years income tax returns.
Resumes on key management personnel
Discussion on market capabilities of product.
Discussion on project impact.
Information on participating financial institution/s including proposed financing schedule or proposed loan schedule and amount.
Information on Missouri Workforce Development programs and participating/program operators contacts and locations for the desired assistance.
NEMO RPC/RDC’s Fiscal Officer will work with the NEMO RPC/RDC Executive Board in disbursing and servicing functions.
Loan Servicing Procedures
Loan servicing shall be performed according to the loan agreement made between the applicant borrower and NEMORPC/RDC. Usually, loan repayments shall be due and payable on a monthly or a bi-monthly basis with a schedule for payments being made to NEMORPC Revolving Loan fund.
Financial statements on a no less than annual basis will be required for borrowers. Late payment penalties will be addressed in individual lender notes and will generally be an add-on up to five (5) points to the base interest rate charged.
NEMO RPC/RDC will retain a portion of the interest payments paid by RLF borrowers. NEMO RPC/RDC proposes to allocate interest payments to cover all reasonable costs of administration and will submit an annual budget to USDA by July 1st of each year to include expenses such as: staff salaries, marketing overhead costs, etc.
Meeting Other Requirements
NEMO RPC/RDC/RDC will ensure that loans made through the RLF program will be made available on a non-discriminatory basis. No applicant will be denied a loan on the basis of race, color, national origin, age, sex, disability, religion, and marital or family status. NEMORPC/RDC intends to continue marketing available industrial sites, enterprise zone tax credits, and job training programs, along with the RLF program through a public advertising campaign.
No loan will be made to a business that is unwilling to sign a Statement of Assurances that says “business intends to comply fully with all applicable State and Federal regulatory laws and environmental requirements”. Each promissory note and loan agreement signed by NEMO RPC/RDC with a potential applicant/ borrower will contain specific measures of relief to ensure that the borrower complies with environmental requirements and provides for mitigation measures in the event adverse environmental impacts result. No loan shall be made to an applicant located in a flood plain unless flood proofing of the structure is completed by the applicant at their expense to fully meet the requirements of the flood insurance program
Any applicant that receives funding through the RLF and is located in a flood plain will be required to show that adequate flood proofing measures have been taken, and that the applicant at all times maintains a satisfactory level of coverage under the Federal Flood Hazardous Insurance Program or a substitute suitable to NEMO RPC/RDC. A Certificate of Insurance shall be provided to NEMO RPC/RDC at least annually to show compliance with this requirement. This requirement shall be a written part of the loan agreement between NEMO RPC/RDC and the applicant/borrower.
Technical assistance will be available from the Missouri Small Business Development Center, Missouri Department of Economic Development, Small Business Administration, local lenders and NEMO RPC/RDC.
Time Schedules for Loan Closings
The NEMO RPC/RDC Executive Board will endeavor to either approve or disapprove a loan within 30 days of receipt of a completed fully documented application for assistance. This will allow for adequate time to research the background and history of the company, its corporate officers, or the principals involved. Thereafter, NEMO RPC shall have 3 weeks following the 30-day period to complete loan closing documents. The time schedule for loan closing shall, therefore, equal approximately 45 to 52 days per application. Efforts will be made to speed this process up when an application can be easily documented and found to be accurate, clear, concise and consistent.
Loan files will contain the following information:
- Loan application form
- Minutes from the RLF Board meeting
- Commitment letter on loan
- Loan agreement
- Promissory note
- Security Agreement
- UCC filing
- Hazard/Liability insurance
- Bank loan agreement
- Job count documentation
- Documentation of non-substitution
- Financial statements
- Site visit documentation
- Loan payment record
All original notes and agreements will be located in the office of NEMORPC. The RLF loan payments and income sources will be recorded in individual spreadsheets for each project and the individual spreadsheets will be linked to a master spreadsheet that summarizes information to make semi-annual reports to USDA.