FROM:
Economic Development
SUBJECT:
Title
Small Business Revolving Loan Program
End
RECOMMENDATION:
Recommendation
1. Authorize the City Manager to establish and implement a Revolving Loan Fund Program in the amount of $530,000.
2. Authorize the City Manager to enter into agreement with AmPac to administer the loan program.
End
COUNCIL GOALS:
• To promote economic development by pursuing business retention, expansion, and attraction.
• To promote economic development by striving to constantly improve the city's competitiveness.
DISCUSSION:
The City of Fontana is focused on fostering strong business growth. Staff recommends establishing a Revolving Loan Fund to provide entrepreneurs and small businesses within the City of Fontana with access to debt financing for the purposes of business growth. This initiative will target local Fontana businesses and aims to alleviate the inadequacy of capital access, a crucial hurdle hindering business growth through job creation. This initiative will also provide Economic Development with a business attraction incentive tool for businesses.
Following a limited competitive search of the two Community Development Financial Institutions (CDFI) servicing businesses in the San Bernadino County area including Small Business Development Corporation of Orange County, AmPac Business Capital was selected to provide loan management for a total cost of $30,000. Their expertise and experience include loan administration for the County of San Bernardino, County of Riverside, City of Pomona, City of Apple Valley, and many others. Their services will include the utilization of their proprietary loan management system, administrative support services, and loan servicing.
The initial loan fund will be set at $500,000 with the potential of match opportunities from local banks to increase the fund amount. Leveraging the Community Reinvestment Act (CRA), Fontana's Economic Development Office will solicit American Business Bank for matching funds. This strategic initiative aims to expand the available resources for the Revolving Loan Fund. AmPac will receive draw-down amounts for disbursement payments based on approved applications submitted.
AmPac shall review, process, and approve applications based on the following criteria:
|
Years in Business: |
2 or more (adjustable based on earning amount) |
|
Business Location: |
City of Fontana or looking to locate to Fontana. |
|
Business Size: |
25 or fewer employees |
|
Business Type: |
For Profit Only |
|
Business Assistance: |
Must attend Business Finance Accelerator Course - *Special consideration for businesses that complete the Strong Business Courses. |
|
Business Taxes: |
2 or more years of Business Tax Returns |
|
Business Credit: |
No minimum Credit Score (pulled for application) * Personal + Business credit history will be considered, including recent payment history, bankruptcies, tax liens and related credit. matters. |
|
Use of Funds: |
Provide a detailed use of loan funds. |
|
Business Docs: |
Required (FBN, EIN, State, City BL) |
|
Business Equity: |
10% of equity Bank Statements, Cash on hand, Money in Bank, Purchase Inventory, Purchase Orders in pipeline, etc. |
|
Loan amount: |
Qualified businesses can request $15,000, $30,000 or $50,000. based on credit worthiness and businesses equity injections. |
|
Business Coverage Ratio |
1 to 1 Earnings Ratio (For every dollar in debt, the expectation that the business generates at least the same revenue) |
|
Interest Rate: |
6.5% (Note: Current Industry rate is greater than 8%) |
|
One Time Origination Fee: |
1.5% |
|
Payment Terms: |
60 months Default payments will continue to accrue and compound interest until payment full payment is collected |
FISCAL IMPACT:
Upon approval, a project number will be established in the amount of $530,000 of which, $500,000 will be allocated for loan distribution and $30,000 will be allocated for AmPac Business Capital for administration. Funds, which were approved with the Mid-Year Budget report and are now included in the FY23/24 budget, will be transferred from Account# 60230000-8130 to the established project for Economic Development.
MOTION:
Request to approve staff recommendation.