(A) All loans upon recommendation of the Committee must be approved by the City Council.
(B) All loans shall carry a negotiated interest rate to provide an incentive to locate and/or develop or improve a business in or near the City of Cottonwood.
(C) Upon written request to the Committee and approval of a majority of the City Council, the borrower may be granted a deferment of principal and/or interest payments if it is determined it is in the best interests of the city in promoting its purposes set forth herein to grant such deferment, but interest shall continue to accrue on the unpaid principal balance.
(D) All loans shall be secured by real estate mortgage when real estate is an asset of the business entity, and security interest agreements covering equipment, furniture, fixtures and inventories. All such loans may be subordinated to primary lenders if requested by the primary lender and loan applicant. The term of all loans shall coincide with the term of the primary loan; however, maturity of the loan may be extended upon approval of the Committee.
(E) The City Clerk-Administrator shall be the servicing agent for all loans made under this program. The Clerk-Administrator shall disburse loan funds and record loan payments, keep accurate records of outstanding balances and deposit payments to designated accounts.
(F) Eligible businesses. The following types of businesses are eligible for loans in order of priority.
(1) Industrial businesses;
(2) Service businesses; and
(3) Commercial businesses.
(G) Types of financial assistance.
(1) Make companion or second loans, which can reduce the overall project interest rate;
(2) Give direct loans made at favorable interest rates and terms;
(3) Guarantee loans made by private lenders;
(4) Provide the required local injection for SBA 503 loans;
(5) Arrange interest subsidies together with private lenders;
(6) Provide for principal reductions together with private lenders;
(7) Provide collateral for private financing.
(H) Types of assistance in order of priority.
(1) Development of new business, defined as the establishment of new, non-competitive industrial/service/commercial business in all phases, including land and building acquisition and construction, remodeling, equipment, acquisition.
(2) Existing business expansion, defined as industrial/service/commercial related expansion and costs related thereto including land and building acquisition, public facilities improvements.
(3) Business equipment acquisition, defined as the purchase of additional depreciable assets for the purpose of expanding industrial/service/commercial activities.
(I) Ineligible fund uses.
(1) Working capital; and
(2) Refinancing existing debt.
(J) Criteria for use of revolving loan fund proceeds.
(1) Applicant's equity participation must equal at least 5% of the total fixed-asset costs of the project.
(2) Loans will be in a junior collateral position to the major source of project financing, unless Revolving Loan Fund proceeds are the primary source of funds.
(3) Term of the loan should coincide with the term of the private portion of the loan, but may be shorter or longer depending on the circumstances.
(4) The interest rate of the direct Revolving Loan Fund loan shall be negotiable but shall not be less than 3%.
(5) The applicant must meet the underwriting criteria of the private financial institution participating in the project.
(6) Eligible costs include land, real estate, and machinery and equipment. Assets pledged as collateral must be approved by both the city and the participating private financial institutions.
(7) Revolving Loan Fund proceeds cannot be used to transfer ownership through acquisition of fixed assets unless the transfer results in a physical remodeling or expansion project approved by the city.
(8) If the Revolving Loan Fund proceeds are in the form of a principal reduction or interest write-down, 100% of the proceeds need to be repaid. The maximum subsidy payment period will be three years. An additional two years of repayment deferred may be given. Interest will be charged at a minimum rate of 3% on the two-year deferral period. There will be no accrued interest on the principal for the subsidy payment period. The rate upon repayment will be negotiable. In any event, the rate would not be less than 6%.
(Ord. 90-1, passed 1-4-1990)