Showing You the Money Finding the Resources You Will Need

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Showing You the Money!Finding the Resources You
Will Need

• Presented by Al Bogdan President
• AAB Development Strategies, LLC

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Getting Started

• Business Community Development Requires a
  Commitment
• Time
• Money
• Determination
• Step One - Create a Strong, Clear Enough Vision
  to Drive Everyone
• Your Vision Must Become Everyones

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Two Directions

• Entrepreneurship
• Community Development

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The 3 Cs

• Cash Flow
• The Project Must Have Enough Cash Flow To Pay
  Loan (gt1.2/1)
• Collateral
• If Borrowing Funds The Project Must Have Enough
  Collateral To Repay Loan (Loan/Value Or lt .75)
• Character
• Credit High Rating
• Good Loan Repayment Track Record
• Track Record In Business

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Financial Evolution of a Firm
High-
High
Level of Investment Risk Assumed by Investor
Low-
Seed Start-Up Early-Growth
Established
Angel Investing by Mark Van Osnabrugge Robert
J. Robinson, Harvard Business School
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Bootstrapping

• Delayed or Reduced Compensation
• Personal Savings
• Home Equity Loans
• Use Personal Credit Cards
• Loans from Relatives Friends
• Buy Used Equipment vs. New
• Hire People For Shorter Periods
• Lease Instead of Buy
• Buy on Consignment
• Obtain Trade Credit From Suppliers
• Delay Payments to Suppliers
• Factoring
• Share Premises
• Run Business From Home
• Form Business Alliances

Angel Investing by Mark Van Osnabrugge Robert
J. Robinson, Harvard Business School
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Angels

• Prefer Smaller Investments
• Usually Invest in Start Ups Early Stage
  Ventures
• Invest in Virtually All Industries
• More Flexible Than Venture Capitalists
• More Entrepreneurial Than Venture Capitalists
• No High Fees
• Value-added Investors Offer Skills
• More Geographically Dispersed
• Angel Investments Heighten Venture Interests
• Make Follow-up Investments
• Not Adverse to Technology Firms
• Some Invest in Nontechnology firms
• Some Are Meddlesome
• May Not Have National Reputation

Angel Investing by Mark Van Osnabrugge Robert
J. Robinson, Harvard Business School
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Angels

• Angels Invest 50 - 60 Billion/Year of Which 15
  Billion Goes Into 60,000 High-risk, Early-Stage
  Firms
• In Contrast Venture Capital Firms Invest 4.8
  Billion in 1,122 Early Stage Firms
• Three Angel Networks in Michigan
• More Around the Country http//activecapital.org/

Angel Investing by Mark Van Osnabrugge Robert
J. Robinson, Harvard Business School
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Financial Chronology Amazon. com
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Key Elements In Attracting Investment

• Good Solid Business Plan
• Credible
• Compelling
• Comprehensive
• Entrepreneur Understands the Business
• Has Organized a Good Solid Team Not a One
  Person Show
• Presentation Is Confident Self-assured
• Clearly Understands the Competitive Positioning
  of the Product
• Strategic Marketing Strategy
• Market Growth Rate is Credible
• What is Investment Strategy to Support Growth
• Good Referral Helps
• How Much Money Sweat Equity is Entrepreneur
  Contributing
• How Does Investor Cash-out

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Casinos Finance New Detroit Funds

• In Detroit, The City Council Voted to Set Up
  Business Financing Funds

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Retail/Restaurant Loan Program

• Goal Foster Investment In Recognized Chain
  Retail/ Restaurant Ventures In Downtown/Rivertown
  Area.
• Geographic Limitation Loans Made Will Be
  Limited To Geographic Areas Further Detailed In
  Site Maps
• Credit Limitations All Loans Will Be Subject To
  Standard Credit Underwriting More Specifically
  Detailed In The Detroit Economic Development
  Corporation's "Credit Policy Manual"
• Qualifications Ownership Of Or Demonstrated
  Management Responsibility For Similar Ventures
  Valid License/Operating Agreement For Proposed
  Venture Demonstrated Financial Capacity To
  Complete Build-out And Provide Necessary
  Operating Capital For A Minimum Of One (1) Year.
• Maximum Loan Amount Loans Will Be Limited To A
  Maximum Amount Of 500,000 Or 40 Of Project
  Costs, Whichever Is Less.
• Maximum Amount To Be Allocated 5,000,000.
• Contact DEGC 313 963-2940

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Non-Affiliated Retail/Restaurant Loan Program

• Goal Foster investment in in-fill ground floor
  retail/restaurant ventures in the
  downtown/Rivertown area. Preference will be
  given to full service restaurants and retail
  outlets providing services not otherwise
  available in the neighborhood.
• Geographic Limitation Loans made will be
  limited to the geographic areas.
• Credit Limitations All loans will be subject to
  standard credit underwriting more specifically
  detailed in the DEDC's "Credit Policy Manual".
• Qualifications Ownership of or demonstrated
  management responsibility for similar ventures
  Demonstrated financial capacity to complete
  build-out and provide necessary operating capital
  for one (1) year.
• Maximum Loan Amount Loans will be limited to a
  maximum amount of 200,000 or 40 of project
  costs, whichever is less.
• Maximium Amount to be allocated 2,000,000.
• Contact DEGC 313 963-2940

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Real Property Rehabilitation Gap Fund Program

• Goal Foster Greater Investment In Real Property
  Rehabilitation Project By City Of Detroit
  Residents.
• Geographic Limitation Loans Made Will Be
  Limited To The Geographic Areas Detailed In Site
  Maps.
• Credit Limitations All Loans Will Be Subject To
  Standard Credit Underwriting More Specifically
  Detailed In The "Credit Policy Manual".
• Qualifications Loans Will Be Limited To Real
  Property Rehabilitation Projects To Be Owned,
  Operated, And Financed By City Of Detroit
  Residents. City Of Detroit Resident Ownership Is
  Defined As A Minimum Of 60 Of The Ownership
  Entity Being Comprised Of City Of Detroit
  Residents (Minimum Two Year Residency
  Requirement).
• Maximum Loan Amount Loans Will Be Limited To A
  Maximum Amount Of 750,000 Or 40 Of Project
  Costs, Whichever Is Less.
• Maximium Amount To Be Allocated 6,000,000.
• Contact DEGC 313 963-2940

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African American Business District

• Goal Assist In The Establishment Of An African
  American Cultural District And Provide Economic
  Assistance To Retail/Commercial/ Entertainment
  Businesses Operating In The Established District
  In The Form Of Low Interest Rate Loans. Funding
  First To Go For Land Assembly, Then For Matching
  City, State And Federal Grants, And Finally To
  Establish A Loan Program.
• Geographic Limitation To Be Determined.
• Credit Limitations All Loans Will Be Subject To
  Standard Credit Underwriting More Specifically
  Detailed In The "Credit Policy Manual".
• Qualifications Ownership Of Or Demonstrated
  Management Responsibility For Similar Ventures
  Demonstrated Financial Capacity To Complete
  Build-out And Provide Necessary Operating Capital
  For A Minimum Of One (1) Year.
• Maximum Loan Amount Loans Will Be Limited To A
  Maximum Amount Of 500,000 Or 40 Of Project
  Costs, Whichever Is Less.
• Maximum Amount To Be Allocated To Project
  6,000,000.
• Project Management Services Includes Assistance
  In The Location Of The District, Evaluation Of
  Grants For Physical Improvements To The District
  Are Appropriate, And Possible Construction Of
  Infrastructure Improvements Within The District.
  All Costs Of Loans, Grants, And Infrastructure
  Improvements Will Be Charged Against The Maximum
  Amount Allocated To This Project.
• Contact DEGC 313 963-2940

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Tech Town Business Development Fund

• Goal Grant Funds To Wayne State University's
  Tech Town Initiative For Investment In Promising
  High-tech Start-ups To Create Jobs In Emerging
  Sectors Of The Economy. Tech Town Will Provide
  An Environment Where Start-ups Can Take Advantage
  Of University Research, Student Internship
  Opportunities And Institutional Assistance In
  Contract Procurement, Grant-writing And
  Consulting Experience. Tech Town Will Provide
  Both Grants And Loans, Depending On Business
  Needs. Specific Program Objectives And A Budget
  To Be Negotiated Among Parties.
• Maximum Grant Amount 4,000,000.

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Small Business Detroit Community Capital
Micro-Loan Program

• Program Description Assist Small Retail,
  Restaurant Or Service Businesses To Begin Or
  Expand. The Small Business Detroit Community
  Capital Loan Program Will Serve As A Coordinating
  And Advocacy Body To Make Small Business
  Technical Assistance, City Services, And Other
  Forms Of Small Business Technical Assistance More
  Accessible To Detroit Small Businesses.
• Geographic Limitation Loans Made Will Be
  Limited To Business Located Or About To Locate
  Within The City Limits Of Detroit.
• Credit Limitations All Loans Will Be Subject To
  Credit Underwriting Review. The Stringency Of
  The Requirements Will Be Less Than A Standard
  Bank Credit Underwriting Review In Order To
  Create Access To Capital By Entrepreneurs And
  Existing Small Business Owners Who Otherwise
  Might Not Be Served By Existing Sources Of
  Capital.
• Qualifications To Be Determined By The ONCR
  Advisory Board And The ONCR In Cooperation With A
  Third Party Contracted Service Provider Selected
  By ONCR.
• Maximum Loan Amount The Maximum Microloan
  Allowable Will Be 35,000. The Fund Will Also
  Allow For An Additional Loan Product Targeted
  Solely For Façade Projects With A Maximum Amount
  Of 75,000.
• Amount Allocated To Program 1,500,000
• Call CEED (734/677-1400)

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Micro-Loans

• Very Small Loans To Start-up, Newly Established,
  Or Growing Small Business Concerns.
• SBA Funds A Nonprofit Community Based Lenders
• Which Loans To Eligible Borrowers
• Maximum Of 35,000.
• The Average Loan Is About 10,500.
• Terms, Interest Rates And Fees
• Maximum Term Six Years.
• Loan Terms Vary According To The Size Of The
  Loan, The Planned Use Of Funds, The Requirements
  Of The Intermediary Lender, And The Needs Of The
  Small Business Borrower. Interest Rates Vary,
  Depending Upon The Intermediary Lender And Costs
  To The Intermediary From The U.S. Treasury.
• COLLATERAL
• Each Lender Has Its Own Lending And Credit
  Requirements. Generally Require Some Type Of
  Collateral, And The Personal Guarantee Of The
  Business Owner.
• TECHNICAL Assistance
• Required To Provide Business Based Training And
  Technical Assistance To Its Microborrowers.
• Individuals And Small Businesses Applying For
  Microloan Financing May Be Required To Fulfill
  Training And/Or Planning Requirements Before A
  Loan Application Is Considered.

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504 Certified Development Company Loan Program

• LONG-TERM FINANCING TOOL
• Provides growing businesses with
• Long-term,
• Fixed-rate Financing
• For Major Fixed Assets, Such As Land And
  Buildings
• No Working Capital Of Inventory
• 9 CDCs in Michigan.
• Senior Lien From Private Lender 50
• Junior Lien from the CDC (100 percent
  SBA-guaranteed Debenture) 40
• Equity From Small Business 10
• MAXIMUM DEBENTURE
• The Maximum SBA Debenture 1,500,000
• Business Must Create Or Retain One Job For Every
  50,000 Provided By The SBA
• Small Manufacturers 100,000/Job Creation or
  Retention

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504 Certified Development Company Loan Program

• The Maximum SBA Debenture 2.0 million If It is
  a
• Business district revitalization
• Expansion of exports
• Expansion of minority business development
• Rural development
• Increasing productivity and competitiveness
• Restructuring because of federally mandated
  standards or policies
• Changes necessitated by federal budget cutbacks
• Expansion of small business owned and controlled
  by veterans (especially service-disabled
  veterans)
• Expansion of small businesses owned controlled
  by women
• TERMS, INTEREST RATES AND FEES
• Interest rates above the current market rate
  for five-year, 10-year and 20 years. Fees 3
• COLLATERAL Assets Beubg Purchased Personal
  guaranties of the principal owners.
• ELIGIBLE BUSINESSES
• Must be operated for profit
• Tangible net worth in excess of 7 million
  average
• net income lt 2.5 million after taxes for the
  preceding two years.

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Community Development

• Working the Urban Landscape

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Getting Land Control

• Research Ownership
• Assessor Office
• Registrar of Deeds
• City Records
• Option it - Buy It!
• Tax Reverted Property
• City Get Holding Letter
• State
• Fast Track Land Bank Authority
• Wayne County
• Fast Track Land Bank Authority
• Bid at County Treasurer Auction

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Predevelopment Costs

• Planning, Legal, Packaging, Architects, Fees,
  etc.
• Sources
• You
• Michigan Interfaith Trust Fund
• LISC
• MSHDA
• City
• Community Foundation

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Get Organized For the Money

• Form Organization As a Community Housing
  Development Organization (CHDO)
• 15 of HOME Funds Set Aside
• Must Go to Nonprofits w Board of Directors
• Less than 1/3 Government
• More than 1/3 from Low Income Neighborhood
• 501-c-3 Nonprofit
• May Need City, County, /or MSHDA Approval
• MSHDA Matches Community Grant

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Find a Bank Partner

• Partner with Bank Community Development
  Corporation
• They Are in Most Urban Areas
• Equity Investor
• Construction Financing
• Mortgage
• Purchase Tax Credits
• Technical Assistance
• Banks Need Community Reinvestment Points You
  Can Help Them

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Find a Government Partner

• Follow the Money
• Pastor Miles Finds Terrific Team in Wayne County
• Technical Assistance
• Government Funding
• City is Vital They make the Land Use Decisions
• Depending On City Federal Funds May Come from
  City, County, or State
• May Need to Shop for Right Person
• Call Wayne County 313 224-8160

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Plowing the Tax Incentive Field

• State Industrial Tax Incentive
• PA 198
• 50 Tax Reduction 12 Years
• 100 Tax Freeze Rehab
• Obsolete Property Incentive
• 100 Tax Freeze Rehab
• Brownfield 10 SBT Tax Credit
• State 25 Historic Tax Credit
• Federal Historic Tax Credit
• Façade Donation Tax Deduction

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Low Income Housing Tax Credit Housing

• Senior or Family
• Multifamily or Single Family
• Rental
• Lease to Own
• Requires Payment in Lieu of Taxes (PILOT)
• Requires 15 Year Rental Commitment
• Big Projects Are Highly Competitive
• Need to Know the System
• Can Produce Income for Your CDC
• Tax Credits 65-75 of Investment

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HUD 202 Senior Housing

• Senior housing
• Needs Nonprofit Sponsor
• 2/Metro Area/Year
• Partner with a HUD 202 Developer
• Presbyterian Village
• Volunteers of America
• Do It on Your Own

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Low Income Housing Tax Credit Housing

• Michigan Tax Credit Program
• Competitive 9 Tax Credit Round
• Non Competitive 4 Tax Credit w Revenue Bonds
• 24 Unit Noncompetitive 9 Tax Credit
• Nonprofit Must Bring Land Control to Table
  Developers Major Hurdle
• Two Approaches
• Partner
• Find a Tax Credit Developer
• Interview a Few
• Do It Your self
• Find Your Packager on Contingency
• Hire Own Architect
• Hire Own Management Firm

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Tax Increment Financing

• Captures Annual Increased Taxes from the
  Development to Repay a Capital Loan
• Brownfield Redevelopment Authority
• Use of Funds
• Infrastructure
• Environmental Remediation
• Spend Only on Public Investment
• Alley Improvement
• Demolition
• Lighting, Sidewalks, Curbs
• County Financing Capital Expenditure
• Repayment from Annual Taxes

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Tax Increment Financing

• For Salliotte, TIF Finances Infrastructure for
  New Development
• Uses Wayne County Brownfield Redevelopment
  Authority

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Tax ReductionNeighborhood Enterprise Zone

• Need to Attract Middle Income Buyers
• 70 Tax Incentive For New Houses or Freeze
  Existing House Taxes
• Public Hearing New Ordinance
• Requires all Inspection Upon Sale of All Houses

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Housing Financing

• Salliotte Condominiums
• Market Rate Subsidized
• Bank Partner Is Critical
• Construction Financing
• Mortgages
• Wayne County Role
• Technical Assistance
• Subordinate Construction Loan
• Converted to Grant Loan to make House
  Affordable 9 of 15
• Home Buyer Training
• Church/County Led Homeownership Crusade
• Faith Community

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Other Financing

• City Commits 450,000 in Road Improvements
• To be Used for Infrastructure (i.e., lighting,
  sidewalks, street furniture for Rest of Street

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Other Financing

• Community Development Block Grant (CDBG)HUD 108
  Loan
• City Water Sewer Fund
• EPA Environmental Assessment Funds
• Federal Home Loan Bank (2)
• LISC - Foundations
• Bank Grants
• Obsolete Property Tax Abatement
• Historic Tax Credits
• Economic Development Administration
• Brownfield Loans Grants
• HUD Brownfield Economic Development Initiative
  (BEDI Grant)
• Clean Michigan Initiative
• Fannie Mae
• HUD 203 - K

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New Other Financing

• New Market Tax Credit for Commercial Development
• Compensates for Development Costs Risk
• Replacement Housing Factor Funds (Detroit Housing
  Commission)
• Mixed Finance Housing
• Mixed Income HousingCan Replace HOME Funds

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Every Project Is Different

• No Two Projects Alike
• Some Easier, All Are Hard
• Resources Changes
• Character of the Community
• Financial Strength of Developer
• Strength of Support Staff
• e-mail to Bogdanaa_at_aabds.com
• See This Slide Presentation Much Much More on
  AABDS.com

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Every Project Is DifferentThe Financing
Smorgasbord


Low Income Housing Tax Credits

HUD 108

SBA 504
Revenue Bonds
Wayne County
Replacement Housing Factor Funds

H.O.M.E

Historic Tax Credits

Bootstrapping
MSHDA
New Market Tax Credits
Venture Capital
SBA 7a
B.E.D.I Grant
Brownfield Loans Grants
C.D.B.G.

City


Angels
Single Business Tax Credits