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APPROVE BY RESOLUTION AMENDMENTS TO THE EXISTING GUIDELINES OF THE SMALL BUSINESS MICRO LOAN PROGRAM
recommended action
RECOMMENDATION
It is recommended that the City Council by resolution:
1. Approve amendments to the existing guidelines of the Small Business Micro Loan Program to financially assist local business owners and help stimulate economic recovery.
2. Authorize the City Manager, or designee, to take appropriate and necessary actions to carry out the purpose and intent of the resolution.
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Summary
The intent of the Small Business Micro Loan Program is to promote economic development, support entrepreneurship, and stimulate job growth within the City. The program is funded by federal Community Development Block Grant (CDBG) dollars. The program and guidelines were developed and adopted by the City Council in 2010 (Attachment A - Resolution 10-0234). Current guidelines have become outdated, and in response to the community and the current state of our economy, amendments are recommended to provide economic support to Stockton’s small businesses and entrepreneurs.
DISCUSSION
Background
In recent years, the City has experienced a steady local economy. Unemployment rates in Stockton were at its lowest in years, and building permits for new construction were increasing at a constant rate. In addition, local businesses were prospering, and new companies opened or relocated to Stockton, having a positive impact on our local revenues and employment opportunities.
In the current state, and in alignment with the City Council's goals to promote economic development, entrepreneurship, and stimulate job growth, the Economic Development Department is proposing revisions to the existing Small Business Micro Loan program guidelines. The program is funded with federal Community Development Block Grant (CDBG) dollars, and original guidelines were established in 2010. Revisions to the existing guidelines are necessary to better address current economic conditions and further support our small businesses. Further, the department has recently received requests from the business community for a more flexible financial assistance program.
Present Situation
The City’s Micro Loan Program is designed to provide financial aid to businesses and entrepreneurs to assist with stimulating the local economy and essentially create new jobs, but more importantly, retain existing jobs during this pandemic. Funding would be available to businesses within the Stockton city limits.
In response to the business community for a more flexible loan program during these unprecedented economic times, staff determined amendments to the existing guidelines would create more access for small businesses. Following are the recommended revisions (Attachment B - Redline version Small Business Micro Loan Program guidelines):
• Eligible Activities:
‒ Operating capital - Adding rent, utilities, and supplies to eligible use of loan funds.
• Ineligible Activities:
‒ Projects that do not create or retain permanent jobs
‒ Acquisition of real property
• Loan Amount: Increase maximum loan amount from $30,000 to $35,000
• Payments: Deferred interest and payments for the first six (6) months.
• Interest Rate: After the six-month deferment, the loan will have a fixed interest rate of 2-4% (depending on credit standing) for the term of the loan.
• Application Fee: $50 fee waived until December 31, 2020.
• Credit Requirements: No outstanding collection accounts, and if bankruptcy is present, it must show that is has been fully discharged.
• Tax Returns: Not required; previously required two years of tax returns
• Pro-Forma: Businesses will need to provide future monthly projected financials for each fiscal year from one to two years out, rather than three years.
• Collateral: Loans exceeding $20,000 will require collateral in the form of real property only. Currently, loans of $10,000 or more require collateral.
• Business Consulting: Recommended, but not required, that businesses receive up to five (5) hours of business consulting with a business service provider. It is highly recommended, but not required that the business attend a “Start-up Workshop.”
Additional modifications to clarify language and better define eligibility are incorporated into the Small Business Micro Loan Program Guidelines, which distinguishes the various CDBG terms and requirements attached as Exhibit “1” to the resolution for review.
The Micro Loan Program will continue to be funded with Community Development Block Grant (CDBG) dollars. Per federal guidelines, CDBG funds may be used to assist cities in job creation or retention, so long as the activity meets a national objective:
1) benefiting low- and moderate-income persons
2) meeting an urgent need that is a health and/or safety issue
3) eliminating slum and/or blight
The primary public benefit in the proposed economic development Micro Loan Program will be the creation or retention of jobs that will benefit low- and moderate-income persons. For every $35,000 in CDBG proceeds received, a business must create or retain one full-time equivalent position.
City staff will continue to review all loan applications, facilitate the underwriting, and make the final determination on funding. Upon loan approval, City staff will prepare all necessary loan documentation. Loan proceeds will be disbursed on a reimbursement basis, or as a direct payment to a vendor and/or contractor based on invoices provided by the loan recipient, upon verification of eligible costs.
FINANCIAL SUMMARY
Community Development Block Grant (CDBG) funds were allocated in the 2019-2020 One-Year Action Plan for the Small Business Micro Loan Program. These funds are available in account number 054-8522-640 - Community Development Block Grant Loan Program, Small Business Micro Loans. Additional funding for this program has been budgeted in fiscal year 2020-21.
Attachment A - Resolution 10-0234
Attachment B - Redline Version Small Business Micro Loan Program Guidelines