Businesses in need of supplemental financing may be able to get a low interest loan through a revolving loan program being established by Sherburne County.

 

At county board a workshop earlier this month, Assistant Administrator Dan Weber introduced a draft of a new program that would finance between $25,000 and $100,000 as a secondary loan for qualifying projects.

 

“It’s like gap financing,” said Weber. “For example, a business might need $500,000 for a project. The bank would offer them $300,000. They’d have $100,000 of equity and they need gap financing to get the loan.”

 

The loan would cover things like land and building acquisition, land improvements, new construction, renovations and purchase of machinery.

 

It could not be used for paying taxes, debt refinancing, working capital or professional fees.

 

The loan agreement would be for a minimum of three years, with the interest rate at 1/2 point below the prime rate.

 

If approved, the program would be funded as a grant by county through the Initiative Foundation, which would administer the loan and do all the  background work.

 

“We would get the application in administration and make sure they qualify for the loan based on the guidelines,” said Weber. “If they meet the initial qualifications, it would then go to the Initiative Foundation where they would do a credit check and business analysis.”

 

The Initiative Foun-dation would make a recommendation on the project, with the county Economic Development Corporation (EDA) having final approval.

 

Weber said staff is recommending a $250,000 grant to the Initiative Foundation, which would then take ownership of the money and administer the program.

 

He said one issue the county had to consider was the ownership of the funds. If projects weren’t approved, the Initiative Foundation would still be holding the money.

 

Dan Bullert, business finance with the Initiative Foundation, said a different option would be to allocate the $250,000 but only transfer the money in increments, like $100,000 at a time, or as projects were proposed.

 

Members of the board felt that was a better idea.

 

“Instead of giving you $100,000, it would just be on request at the time the business asks for funding,” said Commissioner Bruce Anderson.

 

“From our perspective, it doesn’t matter in what increments the funds come over,” said Bullert.  

 

“Whether you wait to make the transfer until you have the applications, we’d be fine with that.”

 

The Initiative Foun-dation would charge a $250 application fee, whether or not the project was approved, plus a one percent fee a year on the assets in the account to cover processing, servicing the loan and accounting. Interest on the loan would go back into the fund.

 

Bullert said the program is safe because the banks also must approve the projects. 

 

“We partner with financial institutions. There would be a lead lender involved in the transaction,” he said. “That makes these projects very comfortable because there’s a lot of due diligence by those entities. They’re not going to jump into a transaction if they think there’s a strong chance of default.”

 

Commissioner John Riebel asked how the project were monitored so the loans would be paid back.

 

Bullert said the loan payments are set up as automatic deductions from the businesses’ deposit accounts. 

 

“So we know whether the payments are being made or not. Certainly it would be easy to identify if one of the projects is delinquent,” he said.

 

The Initiative Foun-dation also does an annual site visit if the transaction is over $60,000. 

 

“And we request financial statements annually when the balances are in excess of $25,000,” he said.

 

The board was in support of moving ahead with the program. Weber said he would make revisions and present the final draft to the EDA and then to the board in November for final approval.