EDC provides gap financing to for-profit businesses that meet eligibility guidelines and EDC loan fund terms and may serve either as senior or subordinate loans to other project financing methods.
Financial institutions purchase tax-exempt bonds and loan them out, acting as loan providers. A substantial amount of due diligence must be conducted prior to approval of any loan application.
Term Loans
The Small Business Administration loan program offers low-interest, long-term financing to manufacturers and processing companies to purchase land or buildings for new facilities or expansion, equipment/machinery purchases, working capital needs, or other operational expenses. Loans guaranteed by SBA offer lower loan-to-value ratios than conventional bank loans, and businesses must have at least ten employees with annual revenues under $1 Million to be eligible.
EDC acts as a conduit for financing by issuing tax-exempt bonds; then, a financial institution purchases them and makes loans directly to projects. EDC may be involved with projects as an advisor; however, negotiations between financial institutions and project applicants take place independently from EDC.
EDCs can raise money through various sources, including city council approval and local taxes. EDCs may also accept grants from federal, state, and local governments and private entities as well as through operations of public facilities that generate user fees or ticket sales revenues – this forms project revenue that provides interest income for the EDC.
EDCKC has announced it is now accepting applications for its microloan program that offers up to $2 Million in loans to Kansas City-area entrepreneurs in partnership with Prospect Business Association. This initiative targets minority and women-owned businesses that cannot access bank loans for funding purposes; here is more information regarding applying.
To qualify, applicants must be for-profit businesses operating at least a year, employing at least ten workers, and generating at least $150,000 in revenues each year. They must demonstrate firm commitments to employee development, community involvement, and sustainable growth – the EDC will perform extensive due diligence before considering loan requests.
The loan process usually takes 3 – 4 weeks, depending on the complexity of a project. Mortgageing all survey numbers of property must take place for sanctioning of term loans; security valuation will take place upon receiving approval; then, an external advocate is needed to conduct a title investigation before signing legal agreements and disbursing funds to you.
Revolving Credit Lines
EDCs offer various loan programs designed to meet local businesses’ financing needs. This may include real estate and equipment loans as well as working capital loans. They also provide grants linked to job creation or retention requirements that their local councils must approve.
Revolving loan funds provide businesses with access to funds that allow for multiple investments into one project over time, offering businesses flexibility between what a private lender can offer them and total project costs. Such a fund often combines public and private sources and can be utilized for various projects across industries.
The City of Willmar & Kandiyohi County Economic Development Commission (EDC) offers several loan programs to aid business growth. These loans provide gap financing that meets various business needs such as real estate purchases, equipment lease purchases, working capital needs, and new hires. To be eligible for one of these loan programs, an applicant must meet program criteria, possess adequate collateral and cash flow to service any loans issued, and demonstrate additional lending exceeding 100% leverage guidelines.
EDC’s Business Credit Availability Program (BCAP) is a standardized guarantee program to address short-term liquidity needs such as cash flow fluctuations or seasonal working capital requirements. The maximum guarantee amount is 80% of the loan principal and may be used as either senior or subordinate financing in project financing structures. BCAP requires that each $75,000 borrowed create or retain one primary job; this requirement goes beyond what would typically be required of EDC loans.
SBA 504 Loans
There are various loan programs available to business startups and expansions, from loans offered through local banks to those guaranteed by state and federal governments – many are offered through banks, while some provide risk reduction for commercial banks through reduced risk and potentially lower interest rates. Talk with your loan officer about which programs may be suitable for your project.
Financial institutions such as credit unions or community development corporations that lend money to local businesses offer private loans at attractive interest rates to help startups or expanding businesses get the capital they need to start or expand. Some offer working capital loans – short-term loans designed to bridge cash flow gaps during unexpected expenses.
Some business owners rely on personal or home equity loans as a source of financing expansions and other projects, whether secured or unsecured, and typically with shorter terms than traditional loans. Although obtaining one may be challenging if your credit history is poor, several lenders specialize in helping borrowers with bad credit to secure these loans.
The United States Small Business Administration offers the SBA 504 Loan program to assist small businesses in purchasing fixed assets such as land, buildings, and equipment. While traditional bank loans require large percentages of collateral from owners of property to secure these purchases, with the SBA 504 Loan, banks can finance up to 80% of total project costs while borrowers must contribute 10% themselves.
Community development finance institutions (CDFIs), which offer loans to small businesses that cannot gain financing elsewhere, may also provide loans for startup and expansion costs as well as equipment purchases. Some CDFIs are privately owned, while others fall under public sector oversight.
The city council may also authorize EDCs to sell bonds in order to finance their business development programs and then deposit the proceeds in their project fund, where they can then be used to fund other projects.
Texas Leverage Fund
The Texas Leverage Fund (TLF) offers communities an alternative source of financing for local economic development projects. EDCs can leverage future sales tax revenues as loan security for four to five times their annual sales tax receipts and use this funding for eligible project expenditures as defined in program guidelines – such as land, buildings, machinery, and equipment for manufacturing/industrial uses as well as sports/athletic/entertainment facilities/services as well as public park facilities/services.
Product/Business Fund offers asset-back financing to companies doing business in Texas, offering direct assets-based lending with competitive loan rates and offering asset-back financing through direct assets-based loans. Applications may come from both Texas-based companies as well as out-of-state/international ones conducting operations here.
EZ programs are intended to entice businesses that might otherwise neglect Texas but for which local incentives and project benefits justify higher capital investments outside Texas. These businesses typically consist of more extensive, higher-paying jobs with substantial infrastructure needs.
