Revised 1/2023 1/17/2023 10:18 AM
For information regarding this Agenda please contact:
Olivia Nashed
City Clerk
Telephone: (209) 333-6702
A. Call to Order / Roll Call
B. Topics
B-1 Receive Information about Proposed Hometown Microloan Program for Lodi Startups and Micro Businesses and Provide Direction (CM)
C. Comments by Public on Non-Agenda Items
THE TIME ALLOWED PER NON -AGENDA ITEM FOR COMMENTS MADE BY THE PUBLIC IS LIMITED TO FIVE MINUTES.
Public comment may only be made on matters within the Lodi City Council's jurisdiction (Government Code Section 54954.3, Lodi City Council Protocol Manual Section 6.3l) . The Council cannot take action or deliberate on items that are not on this agenda unless there is an emergency and the need t o take action on that emergency arose after this agenda was posted (Government Code Section 54954.2(b)(2)). All other items may only be referred for review to staff or placement on a future Council agenda.
If you wish to address the Council, please refer to the Notice at the beginning of this agenda. Individuals are limited to one appearance during this section of the Agenda.
D. Adjournment
Pursuant to Section 54954.2(a) of the Government Code of the State of California, this agenda was posted at least 72 hours in advance of the scheduled meeting at a public place freely accessible to the public 24 hours a day.
______________________________
Olivia Nashed
City Clerk
LODI CITY COUNCIL
Carnegie Forum
305 West Pine Street, Lodi
Notice Regarding Public Comments
Public Comment may be submitted in the following ways:
• In-person – The Carnegie Forum is open to the public in accordance with CDPH and CalOSHA guidelines.
• Zoom Webinar
Meeting ID: 813 1843 2140
Passcode: 696650
Phone number: +1 720 07 2699 or +1 253 215 8782
Link: https://us06web.zoom.us/j/81318432140?pwd=VlZmZzZoTFN5VjBEQXloM0g0K3ZzZz09 • Email – [email protected]
Received no later than 4:30 p.m. on the business day prior to the meeting. • Mail – City Clerk’s Office, P.O. Box 3006, Lodi, CA 95241 • Hand delivered to: City Clerk’s Office, 221 W. Pine Street, Lodi, CA 95240 Received no later than 4:30 p.m. on the business day prior to the meeting AGENDA – Shirtsleeve Session
Date: January 24, 2023
Time: 7:00 a.m.
All staff reports or other written documentation relating to each item of business referred to on the agenda are on file in the Office of the City Clerk, located at 221 W. Pine Street, Lodi, and are available for public inspection. Agendas and staff reports are also posted on the City’s website at www.lodi.gov . If requested, the agenda shall be made available in appropriate alternative formats to persons with a disability, as required by Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in implementation thereof. To make a request for disability-related modification or accommodation contact the City Clerk’s Office as soon as possible and at leas t 72 hours prior to the meeting date. Language interpreter requests must be received at least 72 hours in advance of the meeting to help ensure availability. Contact Olivia Nashed at (209) 333- 6702. Solicitudes de interpretación de idiomas deben ser recibi das por lo menos con 72 horas de anticipación a la reunión para ayudar a asegurar la disponibilidad. Llame a Olivia Nashed (209) 333-6702.
Meetings of the Lodi City Council are telecast on SJTV, Channel 26. The City of Lodi provides live and archived webcasts of regular City Council meetings. The webcasts can be found on the City's website at www.lodi.gov by clicking the meeting webcasts link.
Members of the public may view and listen to the open session of this teleconference meeting at www.facebook.com/CityofLodi/ or https://us06web.zoom.us/j/81318432140?pwd=VlZmZzZoTFN5VjBEQXloM0g0K3ZzZz09.
AGENDA ITEM B-01
COUNCIL COMMUNICATION
APPR
OVED: ________________________________
Stephen Schwabauer, City Manager
AGENDA TITLE: Receive Information about the Proposed Hometown Microloan Program for Lodi Startups and Micro Businesses and Provide Direction
M
EETING DATE: January 24, 2023
P
REPARED BY: Business Development Manager
RE
COMMENDED ACTION: Receive Information about the proposed Hometown Microloan Program for Lodi startups and micro businesses and provide direction.
B
ACKGROUND INFORMATION: In preparation of the Fiscal Year 2023 operating budget, the City Manager asked staff to “think big” and develop new funding recommendations in line with City Council goals and objectives set in 2015. In response to the City Council’s goal related to economic development, staff recommended the establishment of a microloan loan program offering direct loans for Lodi startups and small businesses with ten or fewer employees who were creditworthy, but unable to meet traditional underwriting loan requirements.
S
ince July, staff has been researching the establishment and administration of a microloan program by contacting local lenders and regional non-profit lenders that administer many types of small business loans for the underserved.
T
he purpose of this agenda item is two-fold — 1) to receive City Council consensus on guiding program goals and objectives; and 2) to present staff recommendations and receive direction for the microloan program components including: a) target market (borrowers), b) loan requirements, c) loan types, d) loan committee authorization e) terms, including interest rates, eligible uses, maturity, and loan amounts.
H
ometown Microloan Program Goals and Objectives
1. To assist creditworthy, but not quite bankable minority, women, low-income, and veteran Lodi entrepreneurs and other small business owners achieve economic growth by providing small-scale l
oans for business purposes.
O
bjective 1. Provide short-term loans of up to $50,000 to creditworthy Lodi entrepreneurs and small businesses that are not being well-served by traditional lenders.
2. To provide applicants with a path towards becoming eligible for additional business loans from traditional sources by establishing a positive credit history.
Receive Information about the Proposed Hometown Microloan Program for Lodi Startups and Micro Businesses and Provide Direction January 24, 2023
Objective 2. Extend terms that “help level the financial playing field” for undercapitalized Lodi entrepreneurs and small businesses, including lower interest rates and lower fees.
3. T o enhance loan success by requiring Lodi entrepreneurs and undercapitalized businesses to receive coaching and technical assistance provided by the San Joaquin County Small Business Development Center (SBDC).as a condition to receiving a loan.
Objective 3: Applicants in-training must participate in regular meetings to make repayments, continue their practical financial education, and access a support network.
4. T o establish Lodi as an entrepreneurial and small business-friendly community.
Objective 4: Microloans and small business technical assistance will serve as an entrepreneurial and small business retention and business attraction tool.
5. T o capitalize a Revolving Loan Fund, and encourage the creation of Lodi’s own community-based nonprofit in the future dedicated to improving access to capital for Lodi businesses.
Objective 5: Loan 100 percent of the initial capital within three (3) years, establish a self-replenishing pool of money utilizing interest and principal payments on old loans to issue new ones, and attract outside sources of capital from local lenders.
Microloan Program
The Hometown Microloan Program will be guided by a Loan and Administrative Procedures Manual. All microlenders researched by staff provide loans in accordance with a loan policy and procedures manual. This document will be prepared by staff based on microlending industry standards. It should be noted, however, that loan policies and procedures are tied to source of funding. For example, microlenders, Financial Development Corporations (FDC) and Community Development Financial Institutions (CDFI), who lend funds from the Small Business Administration (SBA) and the Economic Development Administration (EDA) base policy and procedures on federal and state statute.
The Hometown Microloan Program is initially funded by Lodi’s General Fund. Therefore, staff recommends policies and procedures be aligned with the program goals and objectives as outlined above, and microlending industry standards.
FDCs were created in the California Corporations Code to aid the California Small Business Financial Development Corporations throughout the state remove barriers for access to capital. FDCs aim to support small businesses and stimulate economic growth in underserved communities. They are intermediaries and are usually non-profit and mission-driven.
FDCs are similar to Community Development Financial Institutions (CDFI) that are private sector financial institutions that focus on lending and business development efforts in disadvantaged local communities requiring revitalization. CDFIs can also serve as intermediaries, but they also lend their own funds.
Both FDCs and CDFIs also receive funding from private sector sources such as individuals, corporations, and religious organizations. These entities sprung up as a direct result of the Community Reinvestment Act of Receive Information about the Proposed Hometown Microloan Program for Lodi Startups and Micro Businesses and Provide Direction January 24, 2023
1977 which was created because of banking and economic development inequalities throughout communities in the U.S.
The Loan Policies and Administrative Procedures Manual will guide the Hometown Microloan Program in at least four broad policy areas given below.
Financing Policies Organizational
Structure
Underwriting Criteria Loan Administration
Eligible Borrowers Make-up of Loan
Committee
Underwriting Criteria
Grid
Intake
Eligible Activities Authority of Loan
Committee
Capital Pre-application
Loan Size Conflict of Interest Cash Flow Application
Interest Rates Policy Review and
Update
Credit/Character Underwriting process
Terms Collateral Loan closing/disbursement
Fees Loan servicing/monitoring
Equity Contribution Problem loans/delinquency
Collateral Requirements Accounting/Audit/Reporting
The Loan Policy and Administrative Procedures Manual will support effective decision-making authorizing the City Manager to implement the policies established by City Council. Policy recommendations will be written to provide a range of interest rates and loan terms which appropriately reflect risk without establishing barriers to capital.
While the Loan Policy and Administrative Procedures Manual will provide detail, the following policy items are given below to give staff conditional approval in order to complete program design. Final approval will be provided by resolution at a later date.
Eligible Borrowers Loan Requirements Eligible Activities Start-ups in the City of Lodi Personal credit (600+) or current on all liabilities
Equipment
Small business ( 10 or fewer ) in
the City of Lodi
Collateral required when
available/UCC filing on business
assets/personal guaranty
Interior/Exterior Improvements
Located within Lodi city limits Minimum equity injection of 10 percent for start-ups
Working Capital/Inventory
Half of fund’s investment
targeted to minority, veterans,
low-income & women -owned
businesses
Financial statements, revenue
projections and business plan
Life/Fire/Safety
Improvements/Environmental Clean-
Up
Borrowers unable to access
traditional bank financing
Historical or Projected Debt
Service Coverage Ratio of at least
1.00 Engineering and D esign (pre-project
costs)
Receive Information about the Proposed Hometown Microloan Program for Lodi Startups and Micro Businesses and Provide Direction January 24, 2023
Loan Amounts
The SBA defines microloans as small loans for businesses ranging from $5,000 to $50,000. Staff recommends loans within this range. First-time loans may be available for less than $5,000 to be repaid within a 12-month time frame.
Interest Rates, Maturity, Interest Rate and Fees
Nonprofit organizations contracted and funded by governmental agencies are the most common microlenders who make business loans available in small amounts, generally up to $50,000. Interest rates are lower than for profit lenders, and are usually fixed for the life of the loan. Staff researched terms offered by eleven California Financial Development Corporations (FDCs) which are all nonprofit and mission-driven.
FDC Min-Max Amounts Maturity Interest Rate Fees
California Capital Up to $150,000 Up to 7 years Up to 9.75 percent 3 percent + $250 California Coastal $5,000-$50,000 1 to 6 years Prime + 4 percent 3 percent + $250 California Southern2 $25,000-$20M Up to 7 years N.A 2.5 percent +$250 Opening Doors, Inc. $1,000 to $50,000 1 to 5 years Prime + 8.5 percent 2.0 percent + $50 Economic
Development
Financing
Corporation (EFDC)
From <$10,000 to
$50,000 (Micro)
From $50,001 to
$250,000 (Small)
3 to 15 years 6 to 12 percent 2.5 percent + $150
Main Street Launch $10,000 to $350,000 Based on life of asset
3.5 to 7.5 percent 2 percent + costs
City of El Centro $5,000 to $100,000 1-10 years 4.0 to 5.0 percent 2 percent + costs SBDC Orange
County 1
$2,000-$30,000 1-5 years Prime + 5 percent N.A
Nor-Cal FDC $500-$10,000 1-5 years varies varies
PCR Corporation Up to $50,000 1-5 years Prime + 5 percent 3 percent Valley SBDC Up to $50,000 1-10 years 8 percent 2 percent + $350 1 Entrepreneur Loan Fund
2 No direct loans only loan guarantees
The current prime lending rate is 7 percent. For the first year of the microloan program, staff recommends a fixed interest rate equal to the current federal funds discount rate of 4 percent. The federal funds rate is usually about three percentage points below prime. Since Interest rates extended may vary depending upon the risk of the loan as established by underwriting practices, staff further recommends the interest rate not to exceed prime. This range of interest rates will help the target market of creditworthy but not quite bankable entrepreneurs and microbusinesses grow their businesses, build their credit while undergoing training and create jobs in our community.
If the federal funds discount rate changes before the first loan is issued, the borrower’s interest rate will not exceed three percentage points below prime. However, City Council may establish an alternative lower and upper threshold interest rate,
Microlenders impose a loan fee to cover the cost of processing, underwriting and executing a loan. Fees to cover the cost of the loans range from two to three percent of the loan. Additional fees are imposed to cover Receive Information about the Proposed Hometown Microloan Program for Lodi Startups and Micro Businesses and Provide Direction January 24, 2023
the costs of credit reports and UCC filings. Staff recommends these fees cover actual costs. Fees can be rolled into the loan balance, be paid in cash, or taken out of the funds received. A cost sharing approach between borrower, City and County will be explored and brought forward to incorporate within the loan policy.
Loan Administration
Staff recommends entering into a contract with the San Joaquin County Revolving Loan Fund (SJRLF) to administer the loans, including underwriting. The SJRLF contracts with the National Development Center, a national nonprofit since 1969, to provide underwriting services. Staff anticipates negotiating a partnership agreement with the SJRLF to include fees for processing, underwriting and servicing the loan. As noted above, the National Development Center will charge a cost for underwriting the loan. In addition, the SJRLF will charge a loan fee to cover the cost of processing and servicing the loan. The partnership agreement will identify and describe these fees for City Council approval. A cost-sharing approach between borrower, City and County will be explored.
Staff anticipates that a majority of microloan applicants will require financial and technical assistance. The assistance will be provided by the San Joaquin Small Business Development Center (SBDC). The SBDC shares office and program space with the San Joaquin Revolving Loan Fund. This service will be provided at an annual cost of $20,000.
Organizational Structure
The City Manager will be responsible for overseeing the contract between the City and the San Joaquin County Revolving Loan Fund’s Hometown Microloan Program and the Business Development Manager will handle the day to day contract administration.
The San Joaquin Revolving Loan staff and its underwriter will be responsible for screening loan applications, providing financial analysis, and preparing loan packages for loan review by the Hometown Microloan Loan Committee (LC). RLF staff and underwriter will be skilled in loan packaging, processing, servicing and credit analysis.
Once staff determines that an application meets the requirements of the Hometown Microloan Program as defined in the Loan Policy and Administrative Procedures Manual, The LC will review the application based on the information in the loan package. The LC will make a recommendation of approval or denial to the City Manager by a simple majority. The LCs recommendation can be as per the terms and conditions proposed by the underwriter, or the LC can recommend alternative terms and conditions. Five out of seven LC members shall be necessary to constitute a quorum for the transaction of business. Staff recommends the LC be comprised of:
One member representing the FDC industry
One member representing the CDFI industry
One member representing the credit union industry
One member representing the Lodi Chamber of Commerce
One member representing City of Lodi financial services City of Lodi Business Development Manager
One member representing Lodi community-based organizations
The LC’s recommendation along with the loan package will be forwarded to the City Manager for the final determination of approval or denial of the loan.
Receive Information about the Proposed Hometown Microloan Program for Lodi Startups and Micro Businesses and Provide Direction January 24, 2023
Below is the estimated timetable leading to the implementation of the first loan application:
January 24, 2023 Receive consensus on goals and objectives, conditional approval on recommendations, and
further direction
February 2023 Preparation of Loan Policy and Administrative Procedures Manual; Negot iation of Partnership
Agreement with San Joaquin Revolving Loan Fund
March 2023 Hometown Microloan Program approval resolution to City Council; contract with SJRLF to City Council for
approval, Loan Policy and Administrative Procedures
Manual approval to City Council
April 2023 Access to Capital Meeting for potential borrowers; selection of Loan Committee
May 2023 Application Portal activated
FISCAL IMPACT: Staff resources must be dedicated to program design and implementation. The annual cost of providing financial technical assistance of $20,000 will be requested in a mid-year budget adjustment.
FUNDING AVAILABLE: The staff resources budget is available in the FY23 operating budget.
________________________________________
Andrew Keys
Deputy City Manager/Internal Services Director
_______________________________________
B. Astrida Trupovnieks
Business Development Manager