Community Development Finance

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Welcome!!!!!!
KITSAP COUNTY REGIONAL COORDINATING COUNCIL
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N.E.W. Access, LLC
Economic Development Business Finance

• Deal Structuring, Loan Packaging Economic
  Development Planning

Dave Wingate
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TODAYS AGENDA

• WHAT IS A REVOLVING LOAN FUND?
• SPECTRUM OF REVOLVING FUNDS
• MATURE REVOLVING LOAN FUNDS
• EXAMPLES- NCWBLF, TEDD, COOP FUND
• RLFs IMPROVE BANKS PRODUCTION
• PARTNERSHIP LENDING
• DEAL SAMPLER- a few discussed, more later
• REVOLVING LOAN FUND SMALL BUSINESS DEVELOPMENT
  STRATEGIES

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NOT TODAYS AGENDA

• RLF FUNDING SOURCES- Short time, discussion _at_
  later Date
• FLASH THE FINANCE MENU/PARTNERS- Short time,
  discussion _at_ later Date
• DEAL KILLERS The EQUITY MENU- Short time,
  discussion _at_ later Date
• DEAL SAMPLER- a few discussed, more later

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What is a Revolving Loan Fund (RLF)?

• A Community Based Financial Institution (CDFI)
  that provides access to capital (loans) to local
  businesses that cannot attract private financing.
  RLFs also provide gap financing to allow a
  bank to participate in a loan they could not make
  otherwise.

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Spectrum of Revolving Loan Funds

• Revolving Loan Fund Menu (See Handouts for More
  Info)

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Revolving Loan Fund Menu

• STATE MANAGED RLFs- Generally used for larger
  projects (500,000 to 10,000,000). Recruiting,
  Retention, Expansion and Start-ups.
• LOCAL RLFs- Medium projects lt1,000,000. Loans
  range from 7,500 to 250,000. Focus on
  Retention, Expansion and Start-ups.
• MICRO LOAN FUNDS- Usually lt5,000. Used
  primarily for start-ups in the U.S. No Start-ups
  Internationally.

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Washington StateRLF INDUSTRY PROFILE

• Corporation for Enterprise Development,
• Ford Foundation
• Washington Lenders Network
• State Office of Trade Economic Development
• PARTNERED TO RESEARCH DEVELOP A WASHINGTON
  STATE RLF INDUSTRY PROFILE
• SEE HANDOUT FOR SUMMARY RESULTS

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WHAT DOES A MATURE RLF LOOK LIKE?

• Meets long term goals (ORGANIZATION FUNDERS)
• Management/Board Continuity Involvement
• Clarity Specificity of Goal(s)- A Very Few
• Consistent Planning, Tracking Reporting
• DIVERSIFIED FUNDING SOURCES- private Public

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WHAT DOES A SUCCESSFUL RLF LOOK LIKE?

• Profitable/Surplus Efficiency Oriented Operations
• Smooth Loan Approval, Closing Collection
  Process
• Successful Strategic/Partnership Lending
• Strong, Growing Market
• On Time, Accurate Reporting Audited Financial
  Statements to Board Funders

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NORTH CENTRAL WASHINGTON BUSINESS LOAN FUND

• In Business since 1995, a stand alone 501c3
• Approximately 3.0 Million Lending Capital
• Over 5.1 Million in Loans made
• All Funds have revolved at least once
• Total loss since inception- 40,000
• Average Monthly Delinquency Ratio 5-6

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NORTH CENTRAL WASHINGTON BUSINESS LOAN FUND

• Generally 25 to 30 loans outstanding AND
• 8-10 Loans in the Pipeline
• Usually 30 to 50 Approved Closed
• High Approval Rate Due to Pre-Screening by SBDC
  Sometimes SCORE
• Without Pre-Screening Estimate Loan Approval
  Closing would be 10-12

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NORTH CENTRAL WASHINGTON BUSINESS LOAN FUND

• LOAN PORTFOLIO
• 20 Food Service including Restaurants
• 26 Value Added Ag Processing
• 30 Service Industry (ISP Highland Stage)
• 24 Other/Miscellaneous

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NORTH CENTRAL WASHINGTON BUSINESS LOAN FUND

• Average Loan Amount is 80,000
• Primary Loan Capital Funders
• USDA Rural Development
• CDBG
• 8,000 Cost per Job
• Only required to have 20,000 per Job

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NORTH CENTRAL WASHINGTON BUSINESS LOAN FUND

• OPERATIONAL EFFICIENCY IS BASED ON
• Experienced Staff
• OUTSOURCING
• LOAN DOCUMENTATION (LASER-PRO)
• ACCOUNTING
• COLLECTIONS (day to day payments)
• LEGAL

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NORTH CENTRAL WASHINGTON BUSINESS LOAN FUND

• ISSUES IDENTIFIED BY BOARD STAFF
• Need to further diversify funding sources
• Looking for Niche Markets
• Green Businesses
• Value Added Ag Processing
• Micro Lending Targeted at Hispanic Native
  American Borrowers
• Understaffed !! Need one Lender Office Manager

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TRI COUNTY ECONOMIC DEVELOPMENT DISTRICT

• In Business since 1985. Originally served three
  counties
• CURRENTLY SERVICES 10 EASTERN WASHINGTON COUNTIES
• 6.0 Million Loan Capital
• Quasi Government. Payroll Accounting done by
  Stevens County. Includes Benefit Package

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TRI COUNTY ECONOMIC DEVELOPMENT DISTRICT

• DIVERSIFIED FUNDING SOURCES
• EDA (GRANT)
• CDBG Business Loan Capital (GRANT)
• CDBG Micro Lending Capital (GRANT)
• USDA Rural Development (LOAN)
• CONTRIBUTES SOME SURPLUS TO ECONOMIC DEVELOPMENT
  DISTRICT OPERATING BUDGET !!!!

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• SPOKANE??????

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Economic Development FinanceImproves Bank Loan
Production

• Fills Gaps to make deals bankable
• Collateral Gaps
• Equity Gaps
• Liquidity Gaps
• Retains bank relationships with existing
  customers by leveraging other funds

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Building Strategic Partnerships
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Partnership Lending

• Commercial Banks
• Commercial Finance Lease Companies
• US Small Business Administration
• Certified Development Companies
• US Dept of Agriculture- RD Forest Service
• US Bureau of Indian Affairs/Tribal Credit
• State Development Finance Tools
• HUD, CDBG, CERB, PWTF, EDA
• Local Revolving Micro Loan Funds

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A Deal Sampler

• Deal Structuring in Action

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Chapter 11 BuyoutDimensional Lumber to Specialty
Cedar Mill

• State Timber Revolving Fund 750,000
• Bank Operating Line of Credit 1,000,000
• Local Revolving Fund 325,000
• Stockholder Subordinated Note 320,000
• Owner Equity- Stock 80,000
• TOTAL PROJECT 2,475,000
• 40 Family Wage JOBS

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ROAD GRADING CRUSHING CONTRACTOR

• Bank LOC (Borrowing Base) 300,000
• CIT Reducing Revolver 1,000,000
• Local Revolving Fund 250,000
• TOTAL PROJECT 1,750,000
• 30 Family Wage JOBS Retained, 10 Created

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Tribal Entrepreneur- LoggingEnvironmental
Large Logs

• Bank Leasing Co 269,808
• Local Revolving Fund 150,000
• Bank LOC/Linked Deposit 150,000
• Commercial Finance Co 125,785
• Business Cash 82,173
• TOTAL PROJECT 777,766
• 40 Family Wage JOBS

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Very Rural Grocery StoreLocal Revolving Fund

• Bank Direct (504) 443,000
• SBA 504 Bonds 373,000
• Local Revolving Fund 150,000
• Trade Supplier Term Note 125,000
• Owner Equity 114,000
• TOTAL PROJECT 1,205,000
• 13 JOBS

Get the players together, Segregate Collateral
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Certified Organic Fruit Packing, Storage
Marketing Warehouse

• State Loan Fund 249,100
• Revolving Loan Fund- LOC 250,000
• Owner Equity- Stock 156,000
• WAREHOUSE FINANCING 655,100
• Bank - Orchard Term Loan 1,320,000
• Bank - Orchard LOC 780,000
• ORCHARD FINANCING- 2,100,000
• TOTAL PROJECT 2,755,100
• 62 JOBS

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RLF Small Business Development Strategy

• Economic Development
• Job Creation Retention
• Help Small Business Access Capital

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Rural Enterprise Small Business
DevelopmentSTRATEGIES

• The LOTTERY
• GARDENING
• BREAD BUTTER

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The LOTTERY

• RECRUITING- The effort to attract outside firms
  to locate in your community.
• HIGH FRONT END INVESTMENT.
• CASH, RESOURCES, TIME ORGANIZATION
• LOW ODDS OF SUCCESS particularly in small
  communities.
• HIGH RETURN if successful/big impact.
• FAMILY WAGE JOBS, ALOT OF JOBS, OFTEN
  MANUFACTURING OR HIGH TECH/VALUE ADDED PROJECTS

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GARDENING

• BUSINESS DEVELOPMENT/START-UP
• The effort to assist local entrepreneurs to
  start a business. Efforts range from technical
  assistance and peer support groups to business
  incubators and loans.
• Long Term Strategy- providing the seeds for
  future expansion and job creation.
• High Risk- Without significant nourishing
  (technical assistance, financing resources)
  60-70 fail in 1st 3 years.

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BREAD BUTTER

• RETENTION EXPANSION OF EXISTING BUSINESSES- The
  effort to keep and expand the industry, business
  economic activities currently in the community.
• 75-85 of JOBS created and retained come from
  this strategy.

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QUESTIONS????

• Dave Wingate, CEcD
• Certified Economic Developer
• 3075 Marx Rd, Rice WA 99167
• 509 738-2324