CITY OF SIMI VALLEY
MEMORANDUM
November 7, 2022
TO: City Council
FROM: Office of the City Manager
SUBJECT: APPROVAL OF A COVID-19 COMMUNITY RECOVERY GRANT
CONTRACT BETWEEN THE CITY OF SIMI VALLEY AND THE
ECONOMIC DEVELOPMENT COLLABORATIVE- VENTURA COUNTY
FOR THE CREATION OF A BUSINESS ASSISTANCE REVOLVING LOAN FUND
STAFF RECOMMENDATION
It is recommended that the City Council approve the COVID -19 Community Recovery Grant contract (page 8) between the City of Simi Valley and the Economic Development Collaborative-Ventura County for a not to exceed amount of $1,025,000 for the creation of a Business Assistance Revolving Loan Fund and authorize the City Manager to execute the contract.
BACKGROUND AND OVERVIEW
The American Rescue Plan Act (ARPA) allocated $15,325,294 to the City of Simi Valley.
The ARPA has specific categories and uses for utilization of the funds, in addition to offsetting revenue losses that may have been encountered by the City as a result of the COVID-19 pandemic. On May 9, 2022, the City Council approved the distribution of the ARPA funds to various projects as identified in the Project List in compliance with the ARPA “Final Rule.”
The ARPA Final Rule allows cities to claim ARPA funds to offset revenue losses; which funds are then transferred to the City’s General Fund and used for various purposes. The City has already claimed $10 million as a standard deduction, and on August 22, 2022, City Council approved the claiming of an additional $3.7 million in ARPA funds as revenue loss. Although estimates are preliminary in nature, staff is anticipating that the City will be able to claim the full ARPA allocation (an additional $1.6 million) as revenue loss after Calendar Year 2022 concludes.
ARPA funds claimed for revenue loss, and subsequently transferred to the General Fund, are expended as General Fund monies and not ARPA funds. Once ARPA funds are deemed as loss revenue, public agencies can utilize funds for general services such as health and public services and agencies have the most discretion for the use of funds. Given the nature and purpose of the various classifications
AGENDA ITEM NO.
9C
2 in the approved Project List, staff determined that distribution of these funds could be achieved through the creation of a COVID -19 Community Recovery Grant Program as funding designations greatly assist both the non-profits and agencies that serve Simi Valley residents and businesses who continue to recover from the impacts of COVID-19.
S
taff is recommending that the City Council approve the COVID-19 Recovery Grant contract with the E conomic Development Collaborative – Ventura County for the creation of a Business Assistance Revolving Loan Fund.
FINDINGS AND ALTERNATIVES
O
n May 9, 2022, the City Council approved a list of projects to allocate the ARPA funds , which included a revolving loan program to provide assistance to businesses that have been impacted by COVID-19. Now utilizing General Fund monies through the COVID-19 Community Recovery Grant (CCRG) Program, staff has collaborated with the Economic Development Collaborative- Ventura County ( EDC) to develop a Business Assistance Revolving Loan Program (Loan Program) to provide small business loans to the City’s local businesses that were negatively impacted by COVID-19. The contract and reporting requirements for this Program mirror the City’s existing Community Projects program.
Similar to the Community Projects Grant program, staff will return annually to the City Council with a staff report of the recipient’s progress to re-evaluate the distribution of the funds and the needs at the time.
T
his Loan Program is designed to assist recovering Simi Valley businesses by providing low-interest loans in the range of $10,000 to $100,000, with the goal of assisting those businesses unable to secure a traditional bank loan. The Program’s ongoing purpose is to support the growth and success of businesses in the community as they continue to recover from the lasting impacts of the COVID-19 pandemic. Once the Loan Program is launched, businesses will have access to low interest loans that will provide for job creation and retention, support small business growth, provide access to working capital, allow for acquisition of new equipment and inventory, and make energy and efficiency improvements. As the pandemic’s effects continue to diminish in later years, the focus of the Loan Program will shift to promoting continued economic development, with focus on business growth and expansion. Aft er the City completes the initial investment of $1,025,000, the loan program will be an ongoing financial fund (i.e. the revolving loan fund), where loans repaid by borrowers will return to the fund in order to allow for other subsequent loans to businesses. Interest and fees will support program administration for long term sustainability of the program.
Us
ing CCRG funds, the City will invest $1,000,000 over a four -year period to create the Loan Program with the intention of initially aiding the local economic recovery for the Simi Valley business community . The City plans to launch the Loan Program on January 1, 2023, and the following parameters will be used in the administration of the Program:
3 FINANCING
METHOD:
City of Simi Valley – COVID-19 Community Recovery Grant Program
LOAN AMOUNTS: $10,000 to $100,000 for each borrower
INTEREST RATE: Fixed Interest Rate: 5 .25% subject to adjustment depending on market conditions
TERM: Up to a maximum of 84 months
LOAN FEES:
Business owner is required to pay all out -of-pocket costs for the loan service, including but not limited to appraisal reports, title reports, UCC filings, and credit reports. A Loan Guarantee Fee is required if the loan is approved. G uarantee fee and costs are 2.5% of the loan amount. Loan fees may be included in the loan total.
QUALIFICATIONS:
Proceeds must be used for small businesses located in the City of Simi Valley. Borrower must demonstrate repayment ability and acceptable credit history.
CREDIT SCORE: Minimum 625
ELIGIBLE USE OF
FUNDS:
- Working Capital
- Create or retain jobs
- Acquisition of equipment or inventory (machinery,
equipment, fixtures, furnishings, inventory, energy
improvements)
- Leasehold Improvements
4 Loa
ns will be made available to businesses with less than $5 million in annual gross revenue and/or to fewer than 25 full time equivalent employees . Exceptions may be made upon approval by the City Manager, which are consistent with all Guidelines and Procedures set forth in Exhibit A. All loans funded by the Loan Program must contribute either to new job creation or to “at -risk” jobs retained. The Program portfolio goal is to create at least one job for every $25,000 loaned.
F
ounded in 1996, the ED C has been providing low and no cost assistance to Ventura County businesses of all sizes, partnering with the ten cities and the County of Ventura to enhance economic development. As part of their partnership with local government, each Ventura County city has a seat on the EDC Board (City Council Member Cavanaugh represents Simi Valley). The U.S. Small Business Administration has designated the EDC as the Small Business Development Center (SBDC) for Ventura County while also serving Santa Barbara and parts of Los Angeles counties.
I
n addition to providing assistance and resources, the EDC has been and remains a primary business financing resource for companies of all sizes doing business in Ventura County. While administering its own loan program for all Ventura County businesses, the cities of Oxnard , Camarillo, and Ventura have contracted with EDC to administer a Revolving Loan Program for their respective communities. The EDC’s loan program has loaned over $21 million and created over 1,200 jobs through this effort; 67% of loans are to women and minority owned businesses.
A
s such, staff recommends that the EDC be contracted to administer the Loan Program for Simi Valley. The EDC will be responsible for managing the Loan Program, which will consist of counseling loan applicants, assisting with the loan application process,
INELIGIBLE USE
OF FUNDS:
- Loans made to casinos, or any business engaged in
gambling activities
- Loans made to nightclubs
- Loans to home-based businesses
- Loans to Start-up businesses
- Loans for the purpose of lending or investing
- Loans to any business engaged in illegal activities
- Loans which would create a potential conflict of interest for any officer or employee of the City, the EDC, or the EDC’s Loan Board.
BUSINESS
HISTORY: One Year Minimum (exceptions may apply)
COLLATERAL: Available business assets (machinery, equipment, accounts receivable, inventory and real property) and or personal assets.
OTHER:
Businesses are expected to meet with a SBDC Advisor before and after funding (if approved), and throughout loan period.
Additional eligibility requirements and exceptions may apply. 5 underwriting and credit analysis, funding of loans, collecting principle and interest, and reinvesting in new loans.
S
taff has been in negotiations with the EDC for a fixed-fee contract for administration of the Loan Program, and the agreed upon terms are summarized below:
- T
otal City Investment of Loan Capital to establish the Revolving Loan Fund is $1,000,000, done by way of the following annual grant payments to EDC for the management and administration of the Loan Program:
January 1, 2023: $250,000
January 1, 2024 $250,000
January 1, 2025 $250,000
January 1, 2026 $250,000
- A
dditional City investment for EDC administration of the Loan Program, for the period January 1, 2023, through January 1, 2026, is $25,000 and will be utilized for bilingual marketing outreach and to support program administration for the first year of operation. Subsequent interest and fees paid by borrowers will sustain future operating costs and keep the capital base intact. In order to initiate the program, an initial appropriation of $275,000 will be required, which includes the first grant payment of $250,000 and the $25,000 City investment for marketing and first year administration.
- E
DC shall seek to make loans totaling the full amount of C ity loan capital contributions in the first four years of operation, then annually thereafter will continue lending amounts that maximize capital available to businesses while simultaneously ensuring that the Program begins with no less than $250,000 for each year going forward. The City has reserved the right to advance funding scheduled in subsequent years should the Program experience strong participation and expends its annual loan allotment early. All principal amounts repaid are reinvested into future loans, creating a self-sustaining loan program. - T
he EDC will w ork with City staff and the Small Business Development Cent er (SBDC) to develop and maintain an outreach program for business loans under the Loan Program . Marketing is to be directed to business owners, commercial lending institutions, the Chamber of Commerce, and other business associations. - A
ll loan proposals recommended for funding will be subject to review by EDC’s Loan Board (“Board”). The Board is comprised of not less than four members from a professional banking, finance, or small business background, two existing commercial banking loan officers, and the EDC's President/CEO; all of whom must have demonstrated experience and expertise in financial management. All loan applications must be approved by a majority vote of the Loan Board. 6 - Upon loan approval by the EDC’s Board, the EDC's Loan Program Director will prepare a commitment letter to be delivered to the business explaining the terms and conditions of the loan approval.
- T
he EDC will be responsible for the collection of all client loan repayments. After deducting any approved documentation, application, and/or loan guarantee fees, the remaining loan payment will be deposited in an interest -bearing account. For the term of this agreement, for the support of its administration of the Loan Program, the EDC shall make draws from the interest earnings. All interest generated from this interest -bearing account will be reinvested to support and offset servicing costs of the Loan Program.
- T
he EDC will be responsible for all loan servicing, with additional counseling going towards problem accounts, either directly or by referral to the SBDC. - T
he EDC will p rovide quarterly financial and program income reports, including individual account status, accounting of loan principal and interest repaid, job creation and retention data, and other program performance reports as may be requested by the City.
The full terms and conditions of the Business Assistance Revolving Loan Program and the agreement with the EDC for administration of the Loan Program are provided in the Scope of Services of the attached contract (Exhibit A, page 12).
T
he following alternatives are available to the City Council:
1. A
pprove the COVID -19 Community Recovery Grant between the City of Simi Valley and the Economic Development Collaborative – Ventura County for a not- to-exceed amount of $1,025,000 for the creation of a Business Assistance Revolving Loan Program and authorize the City Manager to execute the contract;
2. M
odify and approve the COVID-19 Community Recovery Grant contract between the City and the Economic Development Collaborative – Ventura County.
3. P
rovide further direction to staff.
S
taff recommends Alternative No. 1.
SUGGESTED CITY COUNCIL MOTION
I
move to approve the COVID-19 Community Recovery Grant between the City of Simi Valley and the Economic Development Collaborative-Ventura County for a not-to-exceed amount of $1,025,000 for the creation of a Business Assistance Revolving Loan Program and authorize the City Manager to execute a contract.
7 SUMMARY
O
n May 9, 2022, the City Council approved a list of projects to allocate the ARPA funds, which included a business assistance loan program to provide assistance to organizations that have been impacted by COVID-19. Now utilizing General Fund monies through the COVID-19 Community Recovery Grant Program, staff has collaborated with the Economic Development Collaborative- Ventura County to develop a Simi Valley Business Assistance Revolving Loan Program to provide small business loans to businesses in the City of Simi Valley that were negatively impacted by COVID-19.
T
he program is designed to assist Simi Valley businesses, who are recovering from the continuing impacts of the COVID-19 pandemic by providing low -interest loans in the range of $10,000 to $100,000. Loans will provide funding for job creation and retention, support small business growth, provide access to working capital, allow for acquisition of new equipment and inventory, and make energy and efficiency improvements. The Economic Development Collaborative- Ventura County will be responsible for the administration of the revolving loan fund on behalf of the City, which will consist of counseling loan applicants, assisting with the loan application process, underwriting and credit analysis, funding the loans, collecting principle and interest, servicing all loans, and reinvesting in new loans.
T
he Loan Program will require a $1,025,000 investment from the City and will provide access to capital to businesses that may not have other resources, reduce borrowing costs, and provides opportunities to create job growth for the business community . Staff recommends that the City Council approve the COVID -19 Community Recovery Grant contract with the EDC to aid businesses in the local economic recovery from the continuing impacts of the pandemic. Should the City Council approve the contract, the City will launch the Revolving Loan Program on January 1, 2023. ___
_________________________________
Linda Swan
Assistant City Manager
P
repared by: Kelly Tinker, Management Analyst
INDEX Page
C
OVID-19 Community Recovery Grant Contract ............................ 8 CONTRACT FOR THE COVID-19 COMMUNITY
RECOVERY GRANT BETWEEN THE CITY OF SIMI
VALLEY AND THE ECONOMIC DEVELOPMENT
COLLABORATIVE – VENTURA COUNTY
T
HIS CONTRACT is made and entered into this 7th day of November 2022 (the “Effective Date”), by and between the CITY OF SIMI VALLEY, a municipal corporation, hereinafter referred to as CITY, and ECONOMIC DEVELOPMENT COLLABORATIVE – VENTURA COUNTY, a non-profit organization, hereinafter referred to as GRANTEE for the creation and ongoing operation of a Business Assistance Revolving Loan Program.
P
ursuant to CONTRACT, CITY hereby agrees to provide this funding in accordance with the following terms and conditions:
1. PURPOSE
C ITY has created a COVID -19 Community Recovery Grant Program (Program) to provide financial assistance to local non-profit organizations, government agencies, and public/private partnerships that serve the vulnerable population of the community and support the City’s business community. The Program is designed to help strengthen local non- profits and the services they provide as their organization and the population served continue to recover from the negative impacts of the COVID -19 pandemic. Pursuant to action taken by the City Council of the City of Simi Valley on August 22, 2022, the City is allocating grant funds as proposed to be used for an activity as further set forth in the GRANTEE’s Scope of W ork, attached hereto as Exhibit A and incorporated into this CONTRACT herein by reference.
2. TERM
The term of the Contract shall be from the Effective Date until terminated by either party.
3. GRANT AWARD
I t is agreed and understood that the total amount to be paid by CITY to GRANTEE under this CONTRACT shall not exceed $1,025 ,000 over the term of this CONTRACT.
3. PERMITS AND LICENSES
GRANTEE, at its sole expense, will obtain and maintain during the term of this contract, all appropriate permits, licenses, and certificates that may be required in connection with the performance of services under this Agreement.
4. GRANT PAYMENTS
City will provide Grantee with an amount not to exceed $1,025,000 in accordance with the Funding Schedule that is included in the attached Scope of Services 8 (
Exhibit A). Prior to initial payment, Grantee will provide CITY with a copy of their Business Tax Certificate and provide their Taxpayer Identification Number. 5 . PERFORMANCE REPORT
G RANTEE agrees to submit all performance reports (monthly , quarterly, and all other as needed) as identified in Exhibit A to the CITY. Quarterly Performance Reports are due by the 10th of the month to the City Manager’s Office following the close of each quarter, beginning in April 2023, via E -mail to Kelly Tinker a [email protected].
6 . FINANCIAL AUDIT
C ITY shall have the option of inspecting and/or auditing all records and other written materials used by GRANTEE in its use of grant funding. GRANTEE is required to retain all related financial statements and documentation for a minimum of five years from termination of the Business Assistance Revolving Loan Program.
7. TERMINATION
A. C
ITY may, at its sole discretion, terminate this Agreement and GRANTEE’s funding upon ninety (90) days written notice that adequate CITY funding is not available for payment.
B. C
ITY may terminate Agreement subject to GRANTEE’s right to correct its default.
C. U
pon suspension or termination of this Agreement by CITY, CITY will not be obligated to pay GRANTEE except for services previously performed for which payment was not previously made.
D. U
pon suspension or termination, GRANTEE will
i. B
e paid for all completed services in accordance with the GRANTEE’s scope of work to the date of such suspension or termination.
ii. P
romptly forward to CITY any and all copies of studies, reports and other data, whether or not completed, prepared by GRANTEE or its subcontractors, if any, in connection with this Agreement. Such materials will become CITY’s property. GRANTEE, however, will not be liable for CITY’s use of incomplete materials or for CITY’s use of complete documents if used for other than the services contemplated by this Agreement.
9 8
. REPAYMENT OF GRANT FUNDS
The CITY shall have the option of requiring repayment of a portion or all of the grant funds based upon the result of any financial audits or lack of performance.
Should GRANT monies re main unspent upon termination of this Agreement, GRANTEE must return such funds to CITY within thirty (30) calendar days of the expiration of the term, or make a request in writing to keep those funds. Such a request will be submitted to the City Manager and must be received not later than thirty (30) calendar days prior to the expiration of the term. 9 . HOLD HARMLESS AND INDEMNIFICATION
G RANTEE shall defend, indemnify, and hold harmless CITY and its agents, officials, officers, representatives, and empl oyees from and against all claims, lawsuits, liabilities, or damages of whatever nature arising out of or in connection with, or relating in any matter to, any act or omission of GRANTEE, its agents, employees, and subcontractors, and employees thereof, pursuant to the performance or non- performance of this CONTRACT. GRANTEE shall thoroughly investigate any and all claims and indemnify CITY and do whatever is necessary to protect CITY and its agents, officials, officers, representatives, and employees as to any such claims, lawsuits, liabilities, expenses, or damages arising out of this CONTRACT. GRANTEE must select an attorney acceptable to CITY who will defend such proceeding, and CITY will control any litigation thereof. Such approval by CITY will not be unreasonably withheld. 10 . AUTHORIZATION
E ach party has expressly authorized the execution of this CONTRACT on its behalf to bind each party and its respective administrators, officers, directors, shareholders, divisions, subsidiaries, agents, employees, successors, assigns, principals, partners, joint ventures, insurance carriers, and any others who may claim through it, to this CONTRACT.
11. INSURANCE
GRANTEE will provide CITY with proof of insurance as set forth in attached Exhibit “C,” which is incorporated herein.
1 2. NOTICES
A ny notice required to be given hereunder shall be deemed to have been given by depositing said notice in the United States mail, postage prepaid, and addressed as follows:
TO
CITY: City of Simi Valley
City Manager’s Office
Attn: Kelly Tinker, Management Analyst
2929 Tapo Canyon Road
Simi Valley, CA 93063
10 T
O GRANTEE: Economic Development Collaborative – Ventura County Attn: Bruce Stenslie, President/CEO
4001 Mission Oaks Blvd., Suite A-1
Camarillo, CA 93012
13. AMENDMENTS
A ny amendment, modification, or variation from the terms of this CONTRACT shall be in writing and shall be effective only upon mutual written approval by CITY and GRANTEE.
I
N WITNESS WHEREOF, the parties hereto have caus ed this instrument to be executed the day and year above written.
A
ttest: City of Simi Valley, A Municipal Corporation
By:
Lucy Blanco, City Clerk Brian Paul Gabler, City Manager A
pproved as to Form:
B y:
David Caceres, City Attorney
Approved as to Content: Print Name:
T itle:
Linda Swan, Assistant City Manager
11 E XHIBIT A
SC
OPE OF WORK
FOR USE OF CITY OF SIMI VALLEY’S COVID-19 COMMUNITY RECOVERY GRANT FUNDS The City's Business Loan Program is consistent with the City's overall policy to implement programs for the public purpose of promoting economic growth and adding to the employment pool. The City has made funds available to lend to small businesses that do not qualify for conventional (bank) financing. This Program is only available to businesses physically located within the City of Simi Valley.
PROGRAM TASKS:
EDC will complete the following Business Loan Program tasks.
1. Implement the City's Business Loan Program components in accordanc e w
ith this Scope of Work.
2. Loan underwriting, servicing , and general administration, with business technical assistance services provided by the EDC Small Business Development Center (SBDC) to counsel loan applicants and assist them with the preparation of loan applications (See Sections 3 through 7 of the Guidelines).
3. EDC shall have all loan documentation templates reviewed and approv ed by
City's Legal Counsel prior to making loans under this program; any changes to the loan documentation templates must be approved in advance by
the City's Legal Counsel.
4. Assemble borrower's applications and relevant financial information (S ee S
ection 3, Application Procedures).
5. Prepare a credit analysis and memorandum.
6. Submit the approved credit analysis and memorandum to the designat ed EDC
Loan Board.
7. For approved applications, prepare closing documents and manage the loan closing process in a timely manner and in compliance with all appropriate regulations.
8. Maintain a permanent file on each loan with all required documentation. 12 9. The EDC will collect all client loan repayments. After deducting any approved documentation, application, and/or loan guarantee fees, the remaining loan payment will be deposited in an interest -bearing account.
For the term of this agreement, for the support of its administration of the Business Loan Fund, EDC shall make draws from the interest earnings. All interest generated from this interest -bearing account will be reinvested to support and offset servicing costs on this loan program.
10. Perform loan servicing, with additional counseling going towards problem accounts, either directly or by referral to the SBDC (See Section 6, Servicing Procedures).
11. Annually request, collect, and review borrower's financial statements.
12. Analyze and make recommendations as appropriate when responding to borrowers’ requests for collateral releases or subordinations.
13. Provide reports as defined in this "Exhibit A" or as requested by City.
14. Provide a monthly report to the City summarizing loan program inquiries, loans in process, and tentative loan closing dates.
15. Provide quarterly financial and program income reports, including individual account status, accounting of loan principal and interest repaid, job creation and retention data, and other program performance reports as may be requested by the City.
16. If necessary, provide a collection action report for any past due loans (See Section 7, Collection and Default Procedures).
17. Work with City staff and SBDC to maintain an outreach program for Business Loans. Marketing is to be directed to business owners, commercial lending institutions, the Chamber of Commerce, and other business associations. The outreach task is an ongoing effort.
18. Provide a report at the end of each quarter in which services are performed or expenses are incurred under this agreement, and prior to the 15th day of the following month, EDC shall submit a report to the City summarizing expenses.
19. Accomplish the following loan goals by January 1, 2026: Approve and fund at least 6 new loans.
13 BUSINESS LOAN PROGRAM GUIDELINES
The Guidelines contain the following Sections:
SECTION 1: BUSINESS LOANS PROGRAM BASICS
• Funding Amount
• Program Description
• Application/Approval Process
• Application/Loan Fees
• Eligibility Criteria
o Business Type
o Target Area
o Loan Uses/Activities
Eligible Uses
Ineligible Uses
• Loan Criteria
o Amount
o Leverage
o Term
o Interest Rate
o Security
• Borrower's Contractual Responsibility
SECTION 2: APPLICATION PROCEDURES
SECTION 3: UNDERWRITING GUIDELINES
• Loan Amounts
• Companion Loans
• Interest Rate
• Term
• Collateral
• Loan Fee
• Borrower Equity Contribution
• Loan Loss Ratio
• Job Creation/Retention
• Size of Business
SECTION 4: LOAN APPROVAL PROCESS
SECTION 5: SERVICING PROCEDURES
14 SECTION 6: COLLECTION AND DEFAULT PROCEDURES
SECTION 1
BUSINESS LOAN PROGRAM BASICS
Funding Schedule:
Total City Investment of Loan Capital to establish the Revolving Loan Fund is $1,000,000.00 in the following annual grant payments to EDC for the management and administration of the Business Loan Program:
January 1, 2023: $250,000
January 1, 2024 $250,000
January 1, 2025 $250,000
January 1, 2026 $250,000
Additional City Investment for EDC administration of the program, for the period January 1, 2023 through January 1, 2026 is $25,000.
Program Description:
The primary goal of this program at launch is to assist in the public purpose of economic recovery from the impacts of COVID-19.
As the impacts of the COVID-19 pandemic wanes, the program's ongoing purpose is to create and retain jobs and support the growth and success of small businesses in the City. This is a flexible program designed for existing small businesses.
The Business Loan Fund operates as a Revolving Loan Fund. EDC shall seek to make loans totaling the full amount of city loan capital contributions in the first four years of operation, then lending annually thereafter amounts that maximize the capital available to business while simultaneously assuring continuous m aintenance of loan capital to start each fiscal year not less than $250,000. City reserves the right to advance additional funding into the program should the pr ogram experience strong participation and expends its annual loan allotment early.
EDC is responsible for managing the Revolving Loan Fund-funding the loans, collecting principal and interest, and reinvesting in new loans-on behalf of the City.
Application/Approval Process:
Potential borrowers must submit a complete loan application to EDC. The EDC Director of Lending determines business eligibility per the criteria noted below and manages the review and approval process.
15 Loan Guarantee Fee and Out-of-Pocket Expenses:
The business owner is required to pay all out-of-pocket costs for the loan service (e.g., credit reports). A Loan Guarantee Fee is required if the loan is approved. The guarantee fee and costs may vary per program but range from 2.5% of the loan amount. Loan fees may be included in the loan total at the option of the borrower.
Eligibility Criteria:
A central purpose of the loan program is to provide capital to small firms unable to secure commercial credit.
Business Type: Loans are available to a wide variety of businesses. Particular emphasis is to be placed on loans associated with the business clusters and priorities identified in the City's economic development strategy to be provided by the City.
Business Size: Loans are available only to firms with less than $5 million in annual revenue. Exceptions may be made upon approval by the City.
Loan Uses:
Eligible Uses:
• Working Capital
• Create or retain jobs
• Acquisition of equipment or inventory (machinery, equipment, fixtures, furnishings, inventory, energy improvements)
• Leasehold Improvements
• Business Expenses
Ineligible Uses: (This is not a fully inclusive list and may be revised at any time.) • Home-based businesses
• Startup companies
• Loans made to casinos, or any business engaged in gambling activities. • Loans made to nightclubs.
• Loans for the purpose of lending or investing.
• Loans to any business engaged in illegal activities.
• Loans which would create a potential conflict of interest for any officer or employee of the City or its EDC, or any current member of the EDC 's Loan Administration Board or staff who reviews, approves or otherwise participates in the decision on Business Loan Program loans.
16 Loan Criteria:
Amount: Loans are to be in a range of $10,000 to $ 100,000.
Term: The term of the loan shall be determined on a case-by-case basis; however, the maximum term will not exceed seven (7) years. Loans will be fully amortized
Interest Rate: The interest rate will be 5.25%. EDC will have the ability to adjust the interest rates based on market trends with written approval by the City, depending on economic and other conditions.
Security: A Promissory Note may be secured by a Deed of Trust, which may be in a 2nd or lower position. A Uniform Commercial Code 1 (UCC 1) filing will be recorded.
A UCC 1 filing effectively places a lien on commercial and business assets for the purposes of securing the loan. Th e UCC 1 filing is registered with the State of California.
Loan Guarantees: EDC-VC shall secure guarantees as appropriate and available through the Collateral Support, Loan Loss Reserve, and Economic Development Bank (IBANK).
Borrower's Contractual Responsibility:
The borrower is responsible for repaying the entire loan, plus interest in a timely manner, as stated in the loan agreement.
If a business fails to adhere to any contractual agreement with the City and/or the EDC, the loan will become due and payable in full. Other penalties may also be assessed as defined in the loan agreement.
SECTION 2
APPLICATION PROCEDURES
The application shall include, but not be limited to, the following documentation.
The following is the minimum information needed:
A. History of the business with a written explanation of loan request, amount, and repayment terms requested. Include an explanation of how COVID-19 affected the business and how the business is recovering.
B. Project description, including Sources and Uses of Funds statement.
17 C. Current personal financial statements for each owner with a 20% or more interest in the business.
D. Personal federal tax returns for the last two (2) years, including all schedules, for each owner with a 20% of more interest in the business.
E. Last two year's financials statements (balance sheet and profit and loss statement) of the business (if applicable).
F. Last two year's tax returns of the business (if applicable).
G. Interim business financial statements, less than 90 days old.
H. Schedule of outstanding debt, both business and personal.
I. Signed Certification of Financial Statements.
J. Signed IRS Form 4506 authorizing EDC to obtain copies of personal and business tax returns directly from the IRS.
K. Signed business and personal Credit Authorization Statements for the business and any individual with 20% or greater ownership in the business.
L. Copy of current business mortgage or lease.
M. Business plan or completion of the EDC's business plan questionnaire.
N. Copy of City of Simi Valley Business Tax Certificate.
O. If applicable, the following documentation shall be received and reviewed by EDC:
• Current entity formation documents as required.
• Proof of Hazard and Liability Insurance (Declaration pages). • Copy of Business License.
In addition to all of the above, as applicable, the following may be requested/required:
A. Signed landlord waiver if loan involves the purchase of physical inventory or changes to the lease space.
B. Demonstration of management experience.
18 C. Financial projections for the next three (3) years, including month-to-month projections for the first year.
D. Satisfactory credit history. A minimum 625 score. A written explanation or support may be requested by the EDC for delinquencies or derogatoriness.
SECTION 3
UNDERWRITING GUIDELINES
The project and loan request shall be considered by EDC-VC Loan Program staff and Loan Board as a whole rather than focusing on one particular facet of the underwriting standards, which may lead to a decline of the application.
Loan Amounts: Loan amounts will range from $10,000 to $100,000, depending on the particular loan program. Loans outside this range may be considered on a case- by-case basis.
Companion Loans: All loans may be companion loans in combination with other loans from outside of City sources or they may be direct loans made on a stand- alone basis. A companion loan may consist of a bank loan, SBA loan, or any other source of borrowed funds.
Interest Rate: The interest rate shall be 4.25% though may be adjusted by written approval of the City, depending on economic and other conditions. Loans will be fully amortized, with no prepayment penalty.
Term: The maximum term shall be determined on a case-by -case basis, taking into account the financial status of the borrower, i.e., cash flow analysis. In addition, the loan term of a participating financial institution may also be considered. In no case, however, will the maximum term of the loan exceed seven (7) years.
Collateral: Collateral may be, but is not limited to, equipment liens, UCC filing on business assets, real estate, and/or personal and/or corporate guarantees.
Real estate property may be taken as an abundance of caution, with no appraisal required.
The loan, plus any other outstanding indebtedness, may not exceed 85% of the property value being used as collateral.
19 Loan Guarantee Fee and Out-of-Pocket Expenses: The borrower will be charged a loan guarantee fee of 2.5% of the loan amount if the loan is approved and will also be charged for out-of-pocket expenses (appraisal report, UCC filings, etc.).
Borrower Equity Contribution: The borrower must demonstrate a 25% equity contribution through bank statements or receipts for purchases.
Loan Loss Ratio: Underwriting of loans is to be affected by the overall performance of the loan portfolio. If more than 20% of the loans in the portfolio are in collection or liquidation, underwriting standards must be tightened. Loans are limited to existing businesses. Debt coverage ratios of 1.25 or greater should be required. Loans should not exceed 75% of collateral.
• If less than 20% of the loans in the portfolio are in collection or liquidation, then lower standards may be observed as approved by the EDC Loan Board.
Job Creation/Retention: All loans must contribute either to new job creation or to "at- risk" jobs retained. The program portfolio goal is to create at least one job for every $25,000 loaned.
Alternative Capital: Loans shall be made only to businesses unable to secure commercial credit.
Size of Business: The priority is to restrict loans to firms with less than $5 million in annual revenue and/or to fewer than 25 full time equivalent employees. Exceptions may be approved by the City on a case-by-case basis.
SECTION 4
LOAN APPROVAL PROCESS
Through its Director of Lending, it is the EDC's responsibility to analyze the loan request and put it into a standardized form (Credit Memorandum) for presentation to EDC’s Loan Board. Consideration should be given to the following areas:
A. Owners should have a satisfactory credit history. Based on a case-by -case examination the following areas should be considered: No bankruptcy within the past six (6) years; charge-offs; repossessions; collections; Federal and State tax liens.
B. Nature of the business.
C. Management experience in the same type of industry.
20 D. Probability of repayment, based on historical cash flow for existing businesses and projections for start-ups.
E. Reasonable projected debt service coverage.
F. Reasonable debt to worth.
G. General conditions of their industry as a whole.
EDC’s Loan Board will review all loan proposals that have been recommended by the Director of Lending. The Board will be comprised of not less than four members from a professional banking, finance, or small business background, the EDC's President/CEO all of whom must have demonstrated experience and expertise in financial management. All loan applications must be approved by a majority vote of the Loan Board. The Loan Board shall meet at its convenience when there are loan proposals ready to be presented. Monthly meetings are not required.
Upon loan approval by EDC’s Loan Board, the EDC's Loan Program Director will prepare a commitment letter to be delivered to the business. The commitment letter explains the terms and conditions of the loan approval and requests the business acknowledge those terms and conditions.
Once the business has accepted the loan terms, the Loan Program Director will draw up the loan documentation, as appropriate, for the borrower's signature. Loan disbursement may occur only upon completion and signature to all loan documents.
SECTION 5
SERVICING PROCEDURES
EDC shall adhere to the following procedures regarding loan payment and servicing procedures:
A. EDC will, on an annual basis, provide monthly payment coupons (paper or electronic) to each borrower.
B. Loan principal and interest payments will be made payable to "EDC-VC", and mailed to:
Economic Development Collaborative-Ventura County
4001 Mission Oaks Blvd, Suite A1
Camarillo, CA 93012
Attn: Loan Administrator
C. EDC will deposit loan payments into a segregated checking account. 21 D. EDC will produce and review monthly reports of disbursements, receipts of principal and interest, and any past-due accounts.
E. Late fees shall be 5% of the delinquent payment owing (the late charge) or $100.00, whichever is greater.
F. EDC will provide the City quarterly financial and program income reports, including individual account status, accounting of loan principal and interest repaid, job creation and retention data, and other program performance reports as may be requested by the City.
G. EDC Small Business Development Center (SBDC) representatives shall meet with all borrowers not less than quarterly, to review business management and adherence to loan terms and conditions.
H. EDC Loan Program staff or an SBDC Advisor will conduct formal site visits annually, or, if the situation warrants, more frequent site visits may also be conducted.
I. EDC will request from the borrower and review all applicable financial statements, tax returns, and employment updates to monitor the low/mod jobs created or retained.
J. Miscellaneous servicing requirements, which may or may not be listed in this Section 5 to "Exhibit A".
SECTION 6
COLLECTION AND DEFAULT PROCEDURES
The following Collection and Default Procedures may be updated to align with any City approved collection/default or bad debt policies that may be established. EDC shall adhere to the following procedures regarding loan payment collection and loan default procedures until those policies are introduced:
A. When a required loan payment is not made when due, EDC will contact the borrower promptly to determine the nature of the problem.
B. EDC will send a written notice of delinquent payment ten (10) working days after due date with notification of late penalty to the borrower.
C. EDC will send a second written notice thirty (30) days after the due date.
D. EDC will send a third written notice sixty (60) days after the due date.
E. EDC will send a fourth written notice ninety (90) days after the due date.
22 F. Copies of all notifications required in paragraphs A through E, above, shall be sent to the Simi Valley City Manager.
G. Any renegotiation of terms will be approved by the Loan Board and will be documented with fully executed amended loan agreement and promissory note documents. Also a revised amortization schedule will be completed.
H. During the first ninety (90) days of delinquency, written and oral communication as well as site visits by EDC will be utilized to resolve the delinquency. If, after 90 days, a delinquency still exists and the loan has not been renegotiated or brought current or foreclosed upon, the loan will be taken to the EDC's Loan Board for determination of default and recovery of the security.
I. At any time during this 90-day period that EDC believes that the borrower cannot or will not bring the loan current, with EDC's Loan Board approval, the EDC can declare the loan in default and begin recovery against the collateral.
J. EDC staff, under the direction of their Loan Board, will work to exercise all lender's rights and privileges in order to collect the proceeds on delinquent loans. To ensure that the delinquent loan is collected in an appropriate, efficient, and timely manner, EDC will:
a. Prepare a plan of action for approval by the EDC's Loan Board for collecting the loan and taking action against the collateral.
b. Make sure all required documentation is in order.
c. As appropriate, contact City's legal counsel to coordinate collection efforts and to ensure that no laws or regulations will be violated by the collection effort.
d. Notify any guarantors of the default and put them on notice that they are expected to make payment, in full, upon demand.
e. Begin collection procedures and/or asset liquidation processes.
K. Remaining balances of loans that have been placed in default and remain outstanding after 180 days may, with the approval of the Loan Board, and the concurrence of City, be written off. In the event a loan is written off, collection efforts will continue until it is determined not to be cost-effective or prospects for any recovery no longer exist.
23 SECTION 7
KEY PERSONNEL & COMPENSATION
1. EDC's designated representative who is authorized to act on its behalf and to make all decisions in connection with the performance of services under this Agreement is:
Bruce Stenslie, President & CEO of EDC.
2. Total compensation under this Agreement for Year One (January 1, 2023 - December 31, 2023), including reimbursement for actual expenses, may not exceed: $2 5,000 distributed in accordance with the Fee Schedule below:
FEE SCHEDULE
KEY PERSONNEL:
.
OTHER EXPENSES:
Travel $500
Marketing/Outreach $10,000
For the term of the agreement, for the support of its administration of the Business Assistance Program, EDC shall make draws from the repayment interest earnings balance.
Bruce Stenslie
President/CEO
$2,000
Marvin Boateng
Loan Programs Director
$9,500
Vicki Meraz
Loan Program Assistant
$3,000
24 Exhibit “B”
SCHEDULE OF COMPENSATION
Economic Development Collaborative – Ventura County
1. BILLING: Grantee will submit a Request for Funding to the City and any supporting documentation required by the Agreement for each annual funding cycle for the period of January 1, 2023 through January, 1 2026. Grantee will submit invoicing to the City at the following address:
City of Simi Valley
City Manager’s Office
2929 Tapo Canyon Road
Simi Valley, CA 93063
2. TIME OF PAYMENT : City will make payment to Grantee after receipt of invoice and City’s approval of the invoice.
3. MAXIMUM COMPENSATION : Notwithstanding the foregoing, Grantee will complete all work and tasks described in Exhibit “A” for a total amount of compensation that does not exceed $1,025,000, which includes all initial expenses.
25 EXHIBIT C
INSURANCE REQUIREMENTS
Grantee shall procure and maintain for the duration of the grant insurance against claims for injuries to persons or damages to property which may arise from or in connection with the performance of the work hereunder by the Grantee, its agents, representatives, contractor, or employees.
Minimum Scope and Limit of Insurance
Coverage shall be at least as broad as:
1. Commercial General Liability (CGL): Insurance Services Office Form CG 00 01 covering CGL on an “occurrence” basis, including products and completed operations, property damage, bodily injury and personal & advertising injury with limits no less than $1,000,000 per occurrence. If a general aggregate limit applies, either the general aggregate limit shall apply separately to this project/location (ISO CG 25 03 or 25 04) or the general aggregate limit shall be twice the required occurrence limit.
2. Workers’ Compensation insurance as required by the State of California, with Statutory Limits, and Employer’s Liability Insurance with limit of no less than $1,000,000 per accident for bodily injury or disease. Contractor hereby certifies that it is aware of the provisions of Section 3700 et seq., of the Labor Code which require every employer to be insured against liability for Workers' Compensation.
If the grantee maintains broader coverage and/or higher limits than the minimums shown above, the City requires and shall be entitled to the broader coverage and/or the higher limits maintained by the grantee. Any available insurance proceeds in excess of the specified minimum limits of insurance and coverage shall be available to the City.
Other Insurance Provisions
- The insurance policies are to contain, or be endorsed to contain, the following provisions:
Additional Insured Status
The City of Simi Valley, its Boards, Officers, Agents, Officials, employees, and volunteers are to be covered as additional insureds on the CGL policy with respect to liability arising out of work or operations performed by or on behalf of the grantee including materials, parts, or equipment furnished in connection with such work or operations. General liability coverage can be provided in the form of an endorsement to the grantee’s insurance (at least as broad as ISO Form CG 20 10 11 85 or both CG 20 10, CG 20 26, CG 20 33 , or CG 20 38; and CG 20 37 forms if later revisions used).
Primary Coverage
For any claims related to this grant, the grantee’s insurance coverage shall be primary insurance coverage at least as broad as ISO CG 20 01 04 13 as respects the City, its Boards, Officers, Agents, Officials, employees, and volunteers. Any insurance or self - 26 insurance maintained by the City, its Boards, Officers, Agents, Officials, employees, and volunteers shall be excess of the grantee’s insurance and shall not contribute with it.
Notice of Cancellation
Each insurance policy required above shall state that coverage shall not be canceled, except with notice to the City.
Waiver of Subrogation
Grantee hereby grants to City a waiver of any right to subrogation which any insurer of said grantee may acquire against City by virtue of the payment of any loss under such insurance. Grantee agrees to obtain any endorsement that may be necessary to affect this waiver of subrogation but this provision applies regardless of whether or not the City has received a waiver of subrogation endorsement from the insurer. The Workers’ Compensation policy shall be endorsed with a waiver of subrogation in favor of the City for all work performed by the grantee, its employees, agents and subcontractors.
Self-Insured Retentions
Self-insured retentions must be declared to and approved by the City. The City may require the grantee to provide proof of ability to pay losses and related investigations, claim administration, and defense expenses within the retention. The policy language shall provide, or be endorsed to provide, that the self -insured retention may be satisfied by either the named insured or City.
Acceptability of Insurers
Insurance is to be placed with insurers authorized to conduct business in the state with a current A.M. Best’s rating of no less than A:VII, unless otherwise acceptable to the City.
Verification of Coverage
Grantee shall furnish the City with original Certificates of Insurance including all required amendatory endorsements (or copies of the applicable policy language effecting coverage required by this clause) and a copy of the Declarations and Endorsement Page of the CGL policy listing all policy endorsements to City before work begins. However, failure to obtain the required documents prior to the work beginning shall not waive the grantee’s obligation to provide them. The City reserves the right to require complete, certified copies of all required insurance policies, including endorsements required by these specifications, at any time.
Subcontractors
Grantee shall require and verify that all subcontractors maintain insurance meeting all the requirements stated herein, and grantee shall ensure that the City is an additional insured on insurance required from subcontractors. For CGL coverage, subcontractors shall provide coverage with a form at least as broad as CG 20 38 04 13.
Special Risks or Circumstances
City reserves the right to modify these requirements, including limits, based on the nature of the risk, prior experience, insurer, coverage, or other special circumstances. 27