1. Economic Development Course December 6, 2016
Financing Economic Development
Federal Program

2. Gary W. Smith President and CEO Chester County Economic Development Council

3. Private Activity Bonds Industrial Revenue Bonds
IDA Tax Exempt Program
Private Activity Bonds Industrial Revenue Bonds

4. Eligible Applicants Manufacturing Enterprises
Defined as companies where “tangible” products are made as well as intangible property
New Farmers (Next Generation Farmer Loan Program)
Defined as farmers who do not own more than 30% median size farm in county
Non-Profit 501(c)(3)
Does not require volume cap
Exempt facilities (sewer, water)

5. Eligible Uses Fixed Asset Expansion Acquisition of Land and Buildings
Acquisition of New Equipment
Leasehold Improvements

6. Additional Requirements
Project must create or retain jobs in Pennsylvania
Job Creation of 1 New Job for Every $50,000 Borrowed
Not applicable for New Farmer Loans
501(c)(3) projects (no job requirements)
Exempt facilities (no job requirements)

7. Loan Parameters Loan Amounts Loan to Value Amortization
Up to $10,000,000
For New Farmers – maximum of $517,000
Loan to Value
Determined by lender; can legally finance up to 100% of eligible costs
Amortization
Determined by lender; amortization set by the lender cannot exceed 110% of the useful life of the assets being financed

8. Loan Parameters Rate and Term Negotiated between borrower and lender
Usually % of Prime
Often variable rate
Fixed rates with balloons are the norm with banks and purchase money mortgages
Proceeds must be spent over three years

9. Bank Structure Borrower
Identifies financing needs
Provides information to other parties for structuring
Issuer (Local Industrial Development Authority)
Provides access to tax-exempt markets
Helps to identify the financing team
Advises borrowers on structure, timing and marketing
Lender
Performs due diligence and negotiates the financing structure, security and financial covenants with the company
Issues letter of credit which provides security for bondholders
Issues commitment to finance

10. Example of Manufacturer Using Tax Exempt Financing
Acquisition of new equipment
Construction of new addition and/or renovations
Portion of costs of issuance of Authority Note
Project Cost - $4,500,000
Amount of Tax Exempt Financing - $4,500,000

11. Example of 501(c)(3) Tax Exempt Financing
Private School building a new Fine Arts Center with renovations to Health/Gym
Project Cost - $10,000,000
Amount of Tax Exempt Financing - $7,500,000

12. PA Industrial Development Authority (PIDA) Success Story
Son to build duck house on family farm in Berks County to raise Pekin Ducks for Berks County poultry farmer
156 acre family crop farm in Chester County
$995,000 total project
$200,000 SBFF loan
$250,000 Next Generation loan
$485,000 bank loan
Borrower benefits from low interest rate

13. SBA Loan Program Basics
For-profit businesses
Personal guaranty
Owner-occupied properties
Purchase, construct, renovation or improve
Existing structure - 51% or greater of under-roof usable square footage; 60 to 80% required for new construction
Machinery and Equipment
Useful life >= 10 years
Other eligible uses of SBA financing include Working Capital, Inventory, refinance, change of ownership

14. SBA 504 Highlights Up to 90% Financing of Fixed Asset Purchases
50%Bank
40% SBA
10% equity
Up to $12.5 million total project with up to $5 million SBA 504 portion
Real Estate purchase
20 year fixed rate
Machinery an equipment
10 year fixed rate

15. PIDA/SBA 504 Success Story
Manufacturing facility
$2.7 MM building expansion
50/40/10 Financing Structure
$1.350MM PIDA
$1.092MM SBA
$270M equity
Benefits to borrower:
Long term low interest rates
Low equity contribution
32 Jobs Created

16. SBA 7a Loan Specifics Project Bank Requirements Loan Specifics
Deficiency guaranty program (75 to 85%)
Collateral requirements (business/personal)
Project
Maximum loan size of $5 million
Up to 90% financing
Longer term financing
7-10 years: working capital
10-15 years (useful life): machinery & equipment
20-25 years: real estate
Bank Requirements
Lend in accordance with conventional/ small business policies
Interest in projects varies bank by bank

17. SBA 7a Use of Proceeds
Purchase, construct, renovate or improve owner-occupied building(s)
Leasehold improvements
Machinery and equipment
Business acquisition or expansion, including franchises
Working capital
Inventory and supplies
Energy Conservation loans
Debt refinance/restructure

18. SBA 7a Project Examples Challenging industry request
Leasehold improvements with working capital
Change of ownership – fixed and intangible asset purchase
Business expansion (projection based)
Refinance/restructure with extended terms

19. SBA 7a Success Story Veterinary Radiation Treatment Center
$1.5 million request to fund leasehold improvements, equipment and working capital
80% financing/20% borrower equity
Start-up business with multiple established business and referral relationships

20. PSBCI Program Highlights
Federally sourced mezzanine loan program
Managed by Independent Pennsylvania area loan organizations through PAEDC
Can be used for any eligible business expense except passive real estate investment
Requires matching private funds
Rate and term set by lender and Seedcopa
Risk-based pricing

21. SBA 504/PSBCI Success Story
Manufacturing facility located in Coatesville
$1.6MM building purchase using the SBA 504
50/40/10 financing structure
Complimentary financing of $600,000 in Improvements and Machinery & Equipment
$300,000 direct bank loan
$300,000 subordinate PSBCI loan

22. USDA Business and Industry Loan (USDA B&I)
Deficiency guaranty program similar to the SBA 7a
Must be located in a designated rural development area
Balance Sheet tangible equity position – 10% or 20%
Purchase property, M&E, supplies, inventory, leaseholds; conversion/modernization; business acquisition (economic benefit)
Up to 30 years on commercial RE
Can finance non-owner occupied property, however the project is reviewed competitively with other projects and must display significant economic benefit

23. Questions?

24. Thank you for your time and attention!
Gary W. Smith
President and CEO
Chester County Economic Development Council
737 Constitution Drive
Exton, PA