Microloan Agreement with ECIA Business GrowthCopyrighted
April 6, 2020
City of Dubuque Action Items # 6.
ITEM TITLE: MicroloanAgreementwith ECIA Business Growth
SUMMARY: City Manager recommending approval to draft a contract
with ECIA Business Growth for the development and
administration of a microloan program to assist downtown
businesses adversely affected by lengthy City construction
projects.
SUGGESTED DISPOSITION: Suggested Disposition: Receive and File; Adopt
Resolution(s)
ATTACHMENTS:
Description Type
Construction Related Microloan Agreement with ECIA City Manager Memo
MVM Memo
Staff Memo Staff Memo
ECIA Memo Supporting Documentation
Masterpiece on the Mississippi
Dubuque
bitil
All-A.aia City
111111
2007.2012.2013
2017*2019
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Construction -Related Microloan - Partnership with ECIA Business Growth
DATE: March 31, 2020
In the past several years, the City has undertaken multiple construction projects in the
downtown area that are key to the overall Bee Branch project, as well as improvements
along Central Avenue in anticipation of the City having jurisdiction over this street once
the Southwest Arterial opens to traffic.
During conversations with several downtown business owners, it has become clear that
lengthy City construction projects have caused financial hardship for some of these
businesses.
Economic Development Director Jill Connors recommends City Council approval to
draft a contract with ECIA Business Growth for the development and administration of a
microloan program to assist downtown businesses adversely affected by lengthy City
construction projects. A funding source will be identified over the next 60 days for this
program. The contract would be brought to the City Council for review and approval.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
7--
Mic ael C. Van Milligen
MCVM:jh
Attachment
cc: Crenna Brumwell, City Attorney
Teri Goodmann, Assistant City Manager
Cori Burbach, Assistant City Manager
Jill M. Connors, Economic Development Director
Masterpiece on the Mississippi
Dubuque
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AII•America City
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2007*2012*2013
2017*2019
Economic Development
Department
1300 Main Street
Dubuque, Iowa 52001-4763
Office (563) 589-4393
TTY (563) 690-6678
http://www.cityofdubuque.org
TO: Michael C. Van Milligen, City Manager
FROM: Jill M. Connors, Economic Development Director
SUBJECT: Construction -Related Microloan — Partnership with ECIA Business Growth
DATE: March 31, 2020
INTRODUCTION
This memorandum presents a proposed partnership with ECIA Business Growth for the
development of a microloan program to assist businesses affected by City construction
projects.
BACKGROUND
In the past several years, the City has undertaken multiple construction projects in the
downtown area that are key to the overall Bee Branch project, as well as improvements
along Central Avenue in anticipation of the City having jurisdiction over this street once
the Southwest Arterial opens to traffic.
DISCUSSION
During conversations with several downtown business owners, it has become clear that
lengthy City construction projects have caused financial hardship for some of these
businesses.
Our department and the City Manager have met with ECIA staff to develop a proposed
loan program that could be used to assist businesses in this situation. The attached
memo from ECIA's Executive Director, Kelley Deutmeyer, sets forth a proposed
approach to such a loan program, which would be funded by the City. In addition to
funds made available to loan recipients, the City would also agree to paying fees to
ECIA for processing and administering the loans.
RECOMMENDATION/ ACTION STEP
In order to maintain our downtown economic development strategy of supporting the
success of small businesses, I respectfully request approval to draft a contract with
ECIA for the development and administration of a microloan program to assist
downtown businesses adversely affected by lengthy City construction projects. The
contract would be brought to the Council for review and approval.
2
East Central Intergovernmental Association
a regional response to local needs
MEMO
TO: Jill Connors, Economic Development
Director
FROM: Kelley H. Deutmeyer, ECIA
Executive Director
CC:
EC
Matt Specht, Co -Director of Community and Economic
Development
Mark Schneider, Co -Director of Community and Economic
Development
Dawn Danielson, Lending Development Specialist
RE: Establishing a Microloan Program
DATE: March 27, 2020
PURPOSE
The following memo outlines the development of a pilot microloan program for starting, improving, or
expanding small businesses or for small businesses negatively impacted by roadway construction when
traditional loans are too expensive or unavailable for entrepreneurs and business owners located in the City of
Dubuque.
Traditional lending institutions, such as banks and investors, and ECIA's revolving loan fund or the Small
Business Administration (SBA) 504 loan program, are unlikely to offer loans and investment capital to small
businesses due to a variety of reasons. Small businesses and entrepreneurs are viewed as risky businesses since
growing these types of businesses typically exhibit erratic bursts of growth and downturn. The perceived risk
reduces the chance of them receiving a traditional bank or SBA loan. Additionally, small businesses in most
cases require small amounts of capital, and thus banks and lending institutions often believe that is not an
efficient use of their time and resources. Additionally, we have found that small businesses are also negatively
impacted when road improvements are completed in front or near their business. Many of them struggle to
keep their doors open during the construction period and simply require a small amount of operating money to
make ends meet during this timeframe.
BACKGROUND
ECIA Business Growth, Inc. was incorporated in 1983 to provide loans to business start-ups and expansions in
the ECIA region. Business loans are currently made from the Small Business Administration 504 program and
various revolving loan programs. ECIA has made 351 loans totaling $83,490,523 since 1983. The parameters
of the current loan programs offered through ECIA Business Growth required a minimum loan of $50,000 and
have a job creation/retention component. ECIA staff manages the Energy Efficient Loan Fund (EELF) for the
City of Dubuque which was originally capitalized from a Department of Energy grant. The fund provided loans
for up to $50,000 to Dubuque -based businesses wanting to make energy improvements to their business. The
Dubuque Metropolitan Area TransportalIMPI Eastern lowa Development Corpo
Eastern Iowa Regional Utility Services System Eastern Iowa Regional Housing Authority I ECIA Business Growt , Inc.
Region 1 Employment and Training I ECIA Regional Planning Affiliation I Region 8 Regional Transit Authority 1
17600 Commerce Park, Dubuque, IA 52002 www.ecia.org I ecia@ecia.org
563.556.4166 I Iowa only: 800.942.4648 I Relay Iowa 800.735.2943 I f: 563.556.0348
Page 2 — Microloan Memo
EELF loan cannot be used for anything but energy efficiency improvements. The fund has made 8 loans since
its inception with an interest rate of 1%. The loans are made over a 5 to 7-year period and revolving back into
the fund to do additional lending.
Based on the Small Business Administration (SBA) 2019 microloan program data, the average microloan
nationally was $14,375 with an average interest rate of 7.5%. The SBA data also indicated that microloans have
been most utilized by the underserved minority and female -owned business populations. ECIA staff contacted
the Cedar Rapids microloan program for information regarding their program. Initially the program was funded
by the City of Cedar Rapids with the maximum loan of $10,000 at an interest rate of 4%. Additional partners
were added to include the Foundation, local banks and credit unions. In researching microloan programs
throughout the years, default rates on microloans tend to trend higher than on traditional loan programs and in
some situations default rates have reached up to 50% of the total loans. This is an issue we have to recognize
going into developing the loan program. It will have a great risk but also a valuable reward to the community.
The niche area not being served is the loan for entrepreneurs and small businesses under the $50,000 threshold
that ECIA Business Growth serves. To address this need, ECIA has outlined a pilot microloan program to assist
entrepreneurs and small business owners in the City of Dubuque as well as businesses that have been negatively
impacted by road construction. After a year, the program will be evaluated and could be expanded to include
Dubuque County and other ECIA member governments with additional microloan funding from their
municipality.
DISCUSSION
The pilot microloan loan program is designed to stimulate economic growth and assist small business owners
and entrepreneurs in Dubuque with working capital, inventory, supplies, furniture, fixtures, machinery, build
out of leased space, and equipment. Ineligible loan purposes include real estate purchase, refinancing of existing
debt, and projects located outside the city limits of Dubuque. Non-profit organizations with a documented sales
revenue stream are eligible borrowers. The following is an outline of the microloan program parameters:
Fund Capitalization - $100,000 as initial pilot for a business located in the jurisdiction of the City of Dubuque
only
Fund Manager — ECIA Business Growth, Inc.
Loan Committee — Two ECIA loan staff and three City of Dubuque staff. A loan must be approved by a
majority vote of the loan committee. All loan exceptions or deferments must be approved by the loan
committee.
Maximum Loan - $25,000 maximum with a minimum loan amount of $2,500 per business entity
Loan Volume — Anticipate an average of 6 loans in first 18 months
Interest Rate — The interest rate shall be fixed at the time of funding at the current five-year Treasury rate plus
0.25% for the term of the loan. For example, today's Treasury rate is 1.75% and adding 0.25% percentage point
would make the rate 2.00%. Interest earned will be returned back into the fund to grow the loan fund.
Loan Terms — Amortized over a 60-month period with monthly principal and interest payments deferred for 3
to 6 months as requested by the borrower and approved by the loan committee at the time of loan approval.
Loan deferment for business owners impacted by road construction may request a microloan based on the
construction timeline which could exceed the average 6-month deferment.
Page 3 — Microloan Memo
Eligible Borrower - Small businesses located in the jurisdictional limits of the City of Dubuque
Borrower Credit Score — Minimum credit score of 550 with exceptions on a case -by -case basis with
explanation. If no credit score is available, additional documentation may be required to verify borrower is
credit worthy.
Definition of Small Business — At the time of microloan application, applicant revenue under $500,000 for
fiscal year and less than 15 full-time equivalent employees. For startup or businesses with less than a year in
operation revenue is year-to-date revenue amount or $0 in case of startup.
Borrower Down Payment — 10% down payment of total project cost which can include cash, in -kind or equity
Business Owner and/or Signer Identification Requirements — Photo ID including borrower's name, date of
birth, street address, social security number and phone number. For non -US citizens the identification must
contain taxpayer ID number, passport number with country of issuance, alien ID card number or another
foreign -issued picture ID
Required Application Documents — Completion of microloan program application; business plan with budget
and proforma; borrower and/or identification documentation and entity documentation; completion of SBDC
small business courses/training; and receipt of two years of owner's signed/dated personal tax returns. Tenants
will provide a copy of lease agreement. For existing business, two years of signed/dated tax returns.
Collateral — Vehicle title, Security Agreement if applicable
Guarantee - All individual borrowers and/or business owners will sign an unlimited personal guarantee
Insurance — Proof of business insurance is required
Loan Documents — Promissory Note
Fees - Loan processing fee: $50 to be paid by the City of Dubuque; Loan closing/Documentation fee of $200 to
be paid by the City of Dubuque; The application and documentation fees will cover all hard cost fees and UCC
filing, lien notation, certificate of good standing, credit bureau reports, etc. These fees are per loan to cover
origination costs and are in addition to the ECIA's administration fees.
Administration — ECIA Business Growth staff will administer the program including assisting the City with
promoting the program; accept and process applications; underwrite and recommend approval of loans; refer
borrower to SBDC for training; manage loan committee meetings; loan package and closing documents;
maintain loan files, service monitor and review of loans; annual borrower loan review and meeting/visit if
necessary; and annual reporting.
Loan Tracking/Reporting — ECIA staff will track at minimum the following: loans made to veterans,
minority -owned business, female -owned business; number of FTE's created; total investment; delinquencies,
community impact, and will review financials quarterly during the deferment period and in addition, will
require financials annually. ECIA staff will track the construction -related loans for those businesses impacted
by road construction separately and will track the following: the type and location of the business impacted;
location of construction; construction timeline; monthly sales before construction; hardship imposed by
construction; and will review financial statements quarterly during the deferment period and in addition, will
require financials annually. ECIA will provide a loan status report to the City staff quarterly.
Page 4 — Microloan Memo
Loans in Default — The City Attorney will assist with collections of loans in default or the City will reimburse
ECIA Business Growth for attorney cost associated with collection.
Administrative Costs/Budget — Estimate six loans annually. Loans will be billed based on actual time spent
per loan estimated at $3,000 per loan. First year budget includes a program set up fee including the operational
plan, program guidelines and procedures, and all required forms and documents. Fee to establish the program
and documents is $2,000 at approximately 22 hours of work. ECIA will bill administrative costs monthly
tracking time spent per loan, program set-up, and marketing. Loan Committee meetings are included in the per
loan fee. ECIA will bill up to $2,500 for marketing and outreach of the loan program. City will assist in the
program marketing and outreach efforts including establishing a web page for program information;
downloading program information and forms; and the ability for the borrow to access a form online. Legal fees
for each loan will be billed separately and are not included in the total administrative fees. ECIA staff will
work with the City legal department for loan review and filing.
Budget — Year 1— Initial Set up Year
Developing program guidelines/procedures/operational plan/documents $ 2,000
6 loans @ $3,000/loan estimate (some loans may take more and others could be less) $18,000
Outreach and Marketing $ 2,500
Legal Fees — City Legal
Total Year One Administrative Fees $22,500
Total Year Two Administrative Fees $20,500
SUMMARY
ECIA is very enthusiastic about developing a pilot microloan and small business construction impact loan
program for the City of Dubuque to fill a niche that has been underserved for many years. ECIA has the
experience and capability to initiate and manage the program. We look forward to working on a contract for
services with City staff and moving forward with this exciting new program.
Thank you for your consideration.