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Jul 07

Revolving Loan Fund To Open In Forest County

The Forest County Economic Development Partnership is excited to announce the formation of the Forest County Revolving Loan Fund.  Through partnerships with Associated Bank, CoVantage and Laona State Bank over $80,000 has been developed for the fund.

The fund will be administered through Northern Economic Development Corporation a non-profit 501c3 Forest County entity formed for just this purpose through FCEDP.

What is a revolving loan fund?

A revolving loan fund (RLF) is a gap financing measure primarily used for development and expansion of small businesses. It is a self-replenishing pool of money, utilizing interest and principal payments on old loans to issue new ones. While the majority of RLFs support local businesses, some target specific areas such as healthcare, minority business development, and environmental cleanup.

Establishing a revolving loan fund provides access to a flexible source of capital that can be used in combination with more conventional sources. Often the RLF is a bridge between the amount the borrower can obtain on the private market and the amount needed to start or sustain a business. For example, a borrower may obtain 60 to 80 percent of project financing from other sources.

Quality RLFs issue loans at market or otherwise competitive and attractive rates. Many RLF studies have shown that access to capital and flexibility in collateral and terms is more important to borrowers over lower then market interest rates. RLF programs should be built on sound interest rate practices and not perceived as free or easy sources of financing. RLFs must be able to generate enough of an interest rate return to replenish the fund for future loan allocations. With competitive rates and flexible terms, a RLF provides access to new financing sources for the borrower, while lowering overall risk for participating institutional lenders.

Eligible uses for RLF loans include:

  • Operating capital
  • Acquisition of land and buildings
  • New construction
  • Facade and building renovation
  • Landscape and property improvements, and
  • Machinery and equipment.
  • Loan Characteristics

Durations vary according to the use of funds. A loan used for working capital, for instance, may range from 3 to 5 years, while loans for equipment are up to 10 years and real estate loans may last 15 to 20 years.

Loan amounts range from small ($1,000 to $10,000) to mid-sized ($25,000 to $75,000), with larger ($100,000 to $250,000 and up) amounts available when the borrower has secured a substantial sum from private lenders.

Capitalizing a Revolving Loan Fund

Initial funding, or capitalization, of a revolving loan fund usually comes from a combination of public sources, such as the local, state, and federal governments, and private ones like financial institutions and philanthropic organizations. Funding acquired for capitalization is usually the equivalent of a grant – it does not need to be paid back.

Most revolving loan funds have at least one local public source for capitalization combined with other sources. If capitalization is exclusively local, the RLF may have greater flexibility in lending, as state and federal involvement tend to include restrictions that may not fit local business needs.

State and local governments often use one or a combination of the following to capitalize an RLF: tax set-asides, general obligation bonds, direct appropriations from the state legislature, annual dues from participating counties or municipalities, and funds directed from the state lottery.

The federal government is another common source of capitalization. Communities may apply for funding from the United States Department of Agriculture (via the Rural Economic and Community Development Administration), Housing and Urban Development (via Community Development Block Grants), and the Department of Commerce (via the Economic Development Administration).

Standards and Results

While RLFs take on projects with above average risk, borrowers are held to standard financial requirements in loan security. Before a loan is issued, a business or prospective business usually supplies the following documentation:

  • Business plan
  • Business experience and management information
  • Credit history and financial statements
  • Sufficient collateral to repay bank and RLF funding
  • Other personal or corporate guarantees on the project, and
  • Cash flow projections.

As a public investment instrument, revolving loan funds are expected to result in public goods – namely projects contributing to economic growth and community revitalization. Borrowers therefore, must address performance measures established by the loan administrator such as:

  • Number and type of jobs created or retained
  • Increase in tax revenue
  • Private funding relative to public investment, and
  • Benefits to low and moderate-income citizens, from business ownership to job opportunities.

Administration

A Loan Review Committee or board of directors takes responsibility for reviewing loan proposals, designating of an administrative body (can be public, nonprofit, or private), and contracting a local bank for the loan fund’s portfolio management responsibilities. The committee or board is usually a combination of legal, private lending, business, community development, local government professionals and community members with varied backgrounds.

The FCEDP Revolving Loan Fund is modest in comparison to others, but the hope is to have more entities invest in our county and communities once a proven record of success is established.  The small businesses is our focus until larger sums can be secured from other entities. The hope is lending will begin by the end of March.  For more information about this fund please contact:

Joshua Jameson
Executive Director
Forest County Economic Development Partnership
P.O. Box 96
116 S. Lake Ave.
Crandon, WI 54520

(715) 478-3450, Office

director@forestcountywibusiness.com

 

Permanent link to this article: http://www.fcedpwi.org/2015/07/07/revolving-loan-fund-to-open-in-forest-county/