Title
Grow Gainesville Fund and Capital Access Program (B)
Explanation
Since its inception, the CRA's programs, incentives, and outreach have been primarily focused on real estate development and public improvements as the preferred tools to help alleviate slum and blight in CRA areas. Until 2010, direct assistance to businesses, excluding real estate developers, was been limited to façade grant and paint programs. Neither the CRA nor the City currently had more traditional economic development finance programs and incentives that are focused on alleviating slum and blight through economic investment in new business and job creation. After the real estate market shifted in 2008 and new private development was stalled, CRA staff has experienced an increase in inquires from non-real estate businesses requesting assistance. It became increasingly more challenging to effectively respond to these requests as the previously existing programs and incentives were focused on real estate, not business assistance.
In response to these factors, the CRA contracted with the National Development Council (NDC) in November 2009, to conduct a study and analysis related to Economic Development Finance resources. From this study, six concepts were approved by the CRA to move forward to policy and procedure development. Those six concepts were Infrastructure Fund, Pre-Development Fund, Leverage Fund, Jobs Grant, Non-Profit SBA 7(a), and SBA 504 Loan Fund. Following this study the CRA enacted the Grow Gainesville Fund and Capital Access Programs in 2010.
SBA 7(a) - Grow America Fund "Grow Gainesville Fund"
NDC, through their Grow America Fund (GAF), is the nation's largest SBA-licensed Small Business Lending Company that is owned and operated by a non-profit organization. NDC offers Community Partners a loan program which can leverage their capital by four to one, and lend to eligible businesses. The SBA does not make loans; it issues federal-government backed guarantees to lenders for a portion of the loan, as defined by regulations.
NDC has standard policy and procedures for their Grow America Fund. To establish a Grow America fund for the Gainesville CRA, two one-time actions are required:
· Enter into a Contract with GAF
o This is done as an addendum to a Technical Assistance contract with NDC
o Access to GAF is one of many benefits of having a Technical Assistance contract
· Invest initial capital (minimum of $250,000) to capitalize loan fund
o Funding was shared across redevelopment districts in the FY2011 budget
o This leveraged a loan pool of $1,000,000 for CRA areas
SBA 504 Loan Fund - Capital Access Program
This concept was to establish a local (CRA) revolving loan fund that would help reduce the 10% equity requirements of a borrower with an SBA 504 loan structure. The typical SBA 504 loan structure is:
· 50% from a primary lender
· 40% from an SBA 504-approved lender
· 10% borrower equity
· Eligible Uses
o Expand, acquire or start a business
o Purchase or construct real estate
o Refinance existing business debt
o Purchase equipment and inventory
o Provide working capital
o Construct leasehold improvements
· Amount - the amount of the CAP loan will be based on need and shall not exceed 50% of the equity required under SBA 504
o Minimum Amount - Loans less than $5,000 will not be considered
o Maximum Amount - The maximum loan amount will not exceed $35,000 or 50% of the equity required under SBA 504, whichever is less
· Rate - the rate of the CAP loan shall be a fixed-rate equal to the published (on the date of approval) Wall Street Journal Prime Rate minus two (2%). Under no circumstances, shall a loan be made with a fixed interest rate less than 4%
· CAP Loan Committee
o The Purpose of the CAP Loan Committee is to review, decline or approve CAP loans
o The CAP Loan Committee is made up of five members
o Composition:
§ The CRA Manager
§ One representative each from the area Citizen Advisory Boards, nominated by the Boards. Citizen Advisory Board representation on the CAP Loan Committee will rotate based upon the Redevelopment Area to the CAP loan before the Group for approval. The Citizen Advisory Board Members shall serve/vote only on those CAP loans in their respective Areas.
§ Three commercial lender representatives appointed by the CRA Board
Since 2010, the Grow Gainesville Fund has had two loans including the Southern Charm Restaurant ($315,000) and the Top restaurant ($400,000). The Top paid off its loan in June 2014, and the Southern Charm Restaurant has an outstanding balance of $264,951.16 of which the CRA's investment is $66,237.16 which will be repaid over the remainder of the loan term.
Restaurant financing was especially challenging after the economic recession and it appears that bank lending to viable restaurant businesses has resumed. There is a relatively small pool of eligible businesses that would qualify for the Grow Gainesville Loan program in the CRA areas and the CRA has not seen strong interest in the program in the last two years.
The Capital Access Program has not been utilized since its inception.
At the CRA Board at the October 20, 2014 staff was requested to continue research and bring back review of incentive programs and further recommendations, and as a first step staff is bringing back a recommendations to discontinue two programs which are no longer needed.
Fiscal Note
If the Grow Gainesville Fund is discontinued the uncommitted investment of ~$183,762.21 would be returned to the districts as follows ~$20,213.84 to Eastside, ~$14,700.98 to Fifth Avenue/Pleasant Street, ~$101,069.22 to College Park/University Heights, and ~$47,778.17 to Downtown). These funds would be appropriated in the amendatory budget. The remained of the CRA's initial investment in the fund are for the active Southern Charm Kitchen loan and will be paid back to the districts over the remainder of the loan term.
Recommendation
CRA Executive Director to the CRA: Discontinue Grow Gainesville Fund and Capital Access Program