Small Business Lending Program

Revolving Loan Fund

The Northern Kentucky Area Development District’s Small Business Lending Program, which we commonly refer to as the Revolving Loan Fund (RLF) is a publicly administered development capital fund, established through a grant from the Economic Development Administration, U.S. Department of Commerce. It was established to provide debt financing for strategically targeted businesses unable to obtain adequate market financing for projects of economic benefit to an area. The term "Revolving" relates to the fact that RLF capital is replenished as loans are repaid and recycled into new loans. These are one-time, direct loans, not revolving lines of credit.

PURPOSE:
The purpose of the NKADD Revolving Loan Fund is to provide small businesses in Northern Kentucky, following the Flood of 1997, with a flexible and continuing source of capital. This capital is to be used with other economic development tools for inducing private investment in the types of business activities that will contribute to long-term economic stability and growth.

PHASES OF LENDING:
The first $250,000 of lending (Phase 1) was available to small businesses located within any area of the eight-county NKADD. Priority consideration however was given to start-up and current businesses in areas within the NKADD which suffered March 1997 flood damage. Additionally, high consideration was given to projects located within Pendleton County, the most heavily flood-damaged county of NKADD. The first phase of lending lasted until January 2000.

Based upon on-going loan demand from flood-affected, priority areas within the NKADD, the NKADD RLF Review Board determined, at the commencement of Phases 2 and 3, that loan eligibility will be restricted solely to small businesses within flood-affected areas of the NKADD. Phase 2 ran from January 2000 to July 2000, with $150,000 available for lending. Phase 3 ran from July 2000 to July 2001, with $100,000 available for lending.

Phase 4 (Revolving Phase) commenced in July 2001 and will be on-going thereafter. Phase 4 loan funding opportunities will be available to small businesses located within any area of the NKADD. No priority consideration to any specific areas of the NKADD will be given in Phase 4. RLF capital is replenished as loans are repaid and recycled into new loans.

FINANCING POLICIES:
The RLF may not displace traditional sources of financing. It is intended to meet financing needs of strategically targeted firms unable to obtain adequate private financing to complete a project. Inability to obtain private financing at satisfactory levels may be due to either general shortages or restrictions on capital available in the market place, even for creditworthy firms, or the inherent risk level of the industry or business itself and/or the nature of the proposed project.

The main objective of the RLF is to fill a capital gap by serving in the role of gap financier on projects that cannot obtain total private financing. To induce private participation, the RLF may subordinate their lien on available collateral to that of the private lender, and offer more favorable terms of their portion of the financing.

In order to qualify for RLF financing, the loan applicant must provide supplemental evidence documenting the need for RLF financing. This may include the following:

A commitment letter from a participating bank stating the loan terms, the maximum amount to be extended by the bank, and the need for the RLF’s participation; and/or

Bank rejection letter(s), if obtainable, listing the proposed loan terms.

As stated, a borrower is not eligible for RLF financing if credit is otherwise available on terms and conditions which would permit completion and/or successful operation or accomplishment of the project activities to be financed. However, an exception to this credit test applies, where RLF financing may also be used as an incentive, through favorable loan terms, to attract a new business or a business expansion into an eligible area in which it would not otherwise locate.

PARTICIPATION LEVEL:
RLF funds shall comprise between 15-50% of the total of each loan project, with the balance covered by private sector loans and/or owner’s equity injection. Highest priority will be given to projects in which RLF funds do not exceed 33% of total project cost. In addition, a minimum 10% owner’s equity injection shall typically be sought, except in the case of working capital loans and in other limited exceptions.

SIZE OF LOAN:
The NKADD will entertain minimum loans of $25,000. A maximum individual loan size of $100,000 is also in place.

ELIGIBLE USES:
Generally, loans through the RLF may finance the following types of direct or associated project costs/activities:

• Working Capital
• Purchase of machinery, equipment, and/or fixtures, including related costs
• Acquisition of land and/or site preparation for industrial/commercial use, including related costs.
• Building acquisition and/or demolition or rehabilitation, including related costs
• Renovation or addition to an existing facility, including related costs
• Leasehold Improvements
• New business construction, including related costs
• Other activities/costs that promote commercial/ industrial development, or that contribute directly to the value of project fixed assets
• Adequate and appropriate contingency fund

REPAYMENT TERMS:
Generally, loans shall be repaid in equal monthly installments, including interest and principal. The borrower may repay an RLF loan at any time without prepayment penalty.

Working capital loans shall be repaid within a maximum of five (5) years. Machinery Equipment loans shall be repaid within a maximum of ten (10) years or its useful life, whichever is shorter. Real estate loans shall be repaid within a maximum of fifteen (15) years.

INTEREST RATE
The minimum interest rate that may be charged for a RLF loan will be four (4) percentage points below the current prime rate. In no event will the interest rate be less than four (4) percent. Using standard rating criteria, loan applicants and their projects will be evaluated as to the probability of their repaying the loan on schedule and, upon loan approval and closing, will be assessed an interest rate accordingly, within the given parameter. Origination and other fees may also be assessed.

Interest rates will be fixed and charged only on the unpaid balance of principal for the actual time the money is outstanding on the loan.

A participating lender(s) may set the rate of interest on that portion of the loan advanced from its own funds.

COLLATERAL REQUIREMENTS:
RLF financing will be secured by liens or assignments of rights to assets of the borrower. The RLF may hold mortgage or take subordinate positions as appropriate to the total financing package.

In addition, the RLF will also require security in the form of hazard, key-man, flood, title and other forms of insurance, and such other additional security as the NKADD RLF Board determines as necessary to support the RLF's exposure. Personal guarantees of individuals owning 20% or more of the business will be required. Other personal and corporate guarantees will be obtained if deemed necessary.

CREATION OF JOBS:
It is expected that for every $12,500 of RLF loans to businesses, one job shall be created/retained. Roughly 25% shall be retained (ie. saved) jobs and 75% shall be new, permanent jobs. All projections are based on the assumption that the RLF will generate a substantial level of private investment. The one job per $12,500 invested shall be required for the RLF portfolio as a whole, and not for each loan project necessarily.

Special consideration will be given toward job creation of unskilled positions where there is opportunity for upward mobility in skills development, as well as jobs created/retained for minorities, women, long-term unemployed, and Job Training Partnership Act (JTPA) eligible participants.

FOR MORE INFORMATION, PLEASE CONTACT:

Andy Baker
Northern Kentucky Area Development District
22 Spiral Drive
Florence, Kentucky 41042
Phone: (859) 283-1885
Fax: (859) 283-8178