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Job Creation Tools Workshop Rural LISC Seminar June 6, 2013.

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Presentation on theme: "Job Creation Tools Workshop Rural LISC Seminar June 6, 2013."— Presentation transcript:

1 Job Creation Tools Workshop Rural LISC Seminar June 6, 2013

2 2 NMSC Overview 2

3 Organization Overview 3 Local Initiatives Support Corporation (LISC) Largest community development support organization in the country National Equity Fund, Inc. (NEF) Largest Low Income Housing Tax Credit Syndicator New Markets Support Company (NMSC) Manages the largest New Markets Tax Credit portfolio Management Services Agreement  LISC operates the largest platforms in both the syndication of housing tax credits and the deployment of New Markets Tax Credits through its National Equity Fund (NEF) and New Markets Support Company (NMSC) subsidiaries

4 NMSC Overall Goals and Direction 4  Build upon NMSC’s reputation as an industry leader in underwriting, program management, and technology to support the development of high impact NMTC investments that support LISC program strategies  Deliver innovative and creative financing resources to LISC programs to advance LISC program goals and strategic initiatives  Develop a leading small business lending platform for LISC  Earn incremental net income from business development initiatives to enhance NMSC net worth and provide incremental grants to LISC

5 5 LISC Economic Development 5

6 Building Sustainable Communities  Goal 1: Expanding Investment in Housing and Other Real Estate  Goal 2: Increasing Family Income & Wealth  Goal 3: Stimulating Economic Development  Goal 4: Improving Access to Quality Education  Goal 5: Supporting Healthy Environments and Lifestyles 6 LISC has developed a toolkit of products and services to support small businesses in pursuit of our Building Sustainable Communities goal of Stimulating Economic Development

7 LISC’s Current Economic Development Toolkit 7  LISC MetroEdge  produces market analyses, corridor assessments, and development strategies for commercial corridors  Financial Opportunity Centers  provide technical assistance  Small Business Lending  LISC Small Business Loan Fund  LISC New Markets  Community Safety Initiative (CSI)  Local Program Initiatives:  Business Plan Competition (Richmond, VA)  Fostering Commercial Urban Strategies Program (Indianapolis, IN)

8 Other NMTC investments supporting small businesses 8  AG Processing Inc. (Dawson MN)  $6 million investment in a soy processing plant  Centre Street Retail (Jamaica Plan MA)  $7.4 million investment in 13,000 sf of retail space targeted to local small businesses  Clyde Park (Duluth MN)  $9.1 million investment to support a restaurant, entertainment, and brewery business  Midtown Global Market (Minneapolis MN)  $8.9 million investment in a public marketplace providing space for start-up businesses offering fresh and prepared food  S&S Cycle (Viola WI)  $5.5 million investment to finance a new facility for a motorcycle parts manufacturer

9 Other LISC Small Business Loans 9  Since its inception, LISC has made 91 loans supporting small businesses  Ave size $174,000  Total volume $15.8 million  In the past 10 years:  $4.9 million in loan volume with no loan losses  $1.5 million currently outstanding to 5 borrowers  Loans primarily made to CDC partners that provided the direct lending to small businesses

10 Goals for expanding the tool kit in 2013-2014 10  LISC to apply for an SBA Community Advantage license  Expand our existing SBA 504 program and establish an industry-leading SBA Community Advantage lending program  Place Community Business Advocates in select LISC program offices  Expand technical assistance resources for small businesses in existing Financial Opportunity Centers  Seek strategic partnerships to connect small businesses to other TA and capital resources

11 11 LISC Small Business Loan Fund 11

12 LISC Small Business Loan Fund Overview  Goal: Provide low-cost, long-term SBA 504 financing to small businesses that enable job creation in LISC program markets  LISC Partners:  Morgan Stanley – provide debt and NMTC equity capital for 1 st mortgage loans  CDC Small Business Finance – Nation’s largest SBA 504 lender  CDC Capital Markets – wholly owned subsidiary of CDC Small Business Finance. Due diligence provider for Morgan Stanley for the marketing, packaging, underwriting and servicing.  Local Bank Partners – loan referrals and interim 2 nd mortgages  Local 504 Companies – underwrite and service 2 nd mortgage 12

13 LISC Small Business Loan Fund Overview 15  Community impact goals for Small Business Loan Fund align with LISC’s NMTC program criteria:  Eligible NMTC census tracts w/ high distress criteria  Focus on job creation  Demonstrated support of the local community  Contribution to the long-term development of a sustainable community  Demonstrated need for NMTC subsidy  $10 million fund closed in September 2012  As of May 2013, 4 projects financed utilizing $2.6 million: Specialized Services (Phoenix) Dental Associates (Milwaukee) Inpac Container (Los Angeles) Foundry Building (Indianapolis)

14 What is an SBA 504 loan?  Owner-user fixed asset financing  Commercial real estate  Business equipment  Cannot be used for working capital or inventory  90% fixed rate financing  50% 1 st Mortgage  40% CDC Debenture 2 nd Mortgage  10% Borrower Down payment  Economic development tool designed to create jobs 14

15 Borrower Eligibility To qualify for a SBA 504 loan, a business must:  Be owner-operated and for-profit  Be organized as a sole proprietorship, corporation, partnership or limited-liability corporation (LLC)  Tangible business and affiliates combined net worth (including affiliates) not to exceed $15 million.  Average after-tax net income of the business and affiliates not to exceed $5 million for the previous two years. Loan Program Requirements  51% owner occupancy for existing building  60% owner occupancy for new construction LISC/Morgan Stanley Small Business Loan Fund Specific Requirements  Multi-purpose - office, warehouse, light industrial, retail, manufacturing, medical or dental office, research and development facilities  No special-purpose properties - gas stations, car dealers, hotels, restaurants, car washes, bowling alleys, etc. 15

16 LISC Small Business Fund Loan Terms 16  Loan size:  $2.5 million maximum 1st mortgage $4.5 million total financing including 2nd mortgage  $250,000 minimum 1st mortgage  60% maximum loan to value (1 st mortgage)  Rate:  Currently 3.75% fixed for seven years (as of 3/15/13) Based on 5 year swap rate + 275  Adjusts to quarterly adjusting rate after seven years Based on 90 day LIBOR + 350  Term:  30 year term  3 year interest only, then 27 year amortization schedule  No prepayment allowed for 7 years

17 Dental Associates (Milwaukee)  Large dental practice in a LISC sustainable communities neighborhood in Milwaukee  $1.98 Million project to purchase and rehab the space that it currently leases  Approximately $160,000 in cash flow savings over seven years  10 new jobs created and 70 jobs retained  Primarily serves low-income and Medicaid patients $990,000 MS lender of record LISC Small business fund purchases the loan and holds for seven years 1 st mortgage 50% $792,000 Bridge loan from local bank Take out from SBA debenture 2 nd mortgage 40% $198,000 borrower contribution Sponsor Contribution 10% 17

18 Specialized Services (Phoenix)  Woman-owned, underground utility contractor with over 40 years experience  $850,000 to refinance two properties in order to create $100,000 in annual cash flow savings  5-8 new jobs created $453,000 MS lender of record LISC Small business fund purchases the loan and holds for seven years 1 st mortgage 50% $382,289 Bridge loan from local bank Take out from SBA debenture 2 nd mortgage 40% $198,000 borrower contribution Sponsor Contribution 10% 18

19 Inpac Container (Los Angeles)  Corrugated box manufacturer purchased warehouse space in low-income community for $1.35 million, which is closer to its customers.  Grow from its current 18,000 square foot leased building to 35,000 square foot warehouse.  Allows the company to fix its occupancy costs. $717,000 MS lender of record LISC Small business fund purchases the loan and holds for seven years 1 st mortgage 50% $573,600 Bridge loan from LISC Take out from SBA debenture 2 nd mortgage 40% $143,400 borrower contribution Sponsor Contribution 10% Will create three new jobs and retain five current jobs. Referred by LA LISC partner, PACE, a nonprofit focused on job training and employment. 19

20 Foundry Building (Indianapolis) $227,500 MS lender of record LISC Small business fund purchases the loan and holds for seven years 1 st mortgage 50% $159,250 Bridge loan from construction lender Take out from SBA debenture 2 nd mortgage 35% $68,250 borrower contribution Sponsor Contribution 15% Before - Foundry Building After – Nottingham Realty Office After- Foundry Cafre New space for a family-owned real estate broker and start-up coffee shop. $ 455,000 total project costs to purchase and rehab building in a neighborhood with a commercial corridor in the process of revitalization. Indianapolis LISC initially helped neighborhood purchase building and cleanup Brownfield many years ago. The two businesses will create at least 6 new jobs. 20

21 21 SBA Community Advantage 21

22 Community Advantage Program Overview  Pilot program launched by the SBA on February 15, 2011, currently extended through March 15, 2017  Enables community-based, mission-focused lenders to make SBA 7(a) loans of up to $250,000 with the regular 7(a) government guarantee  Eligible lenders include Community Development Financial Institutions, SBA’s Certified Development Companies and SBA micro lenders  Leverages the experience these institutions already have in lending in economically- challenged markets, along with their management and technical assistance expertise to help make their borrowers successful.  Lenders must maintain at least 60 percent of their SBA loan portfolio in underserved markets, start-ups (firms in business less than 2 years); and veteran- owned businesses

23 Community Advantage Borrower Loan Terms 23  Borrowers must be for-profit companies with net income under $5 million and net worth under $15 million  Loans can be used for working capital, inventory, business acquisitions, tenant improvements, and real estate purchases  Maximum loan size $250,000  Interest rate limited to Prime plus 6.00% (currently 9.25%)  Terms: 7-10 years; 25 years for real estate

24 Community Advantage Lender Terms 24  85% SBA guarantee for loans under $150,000  75% SBA guarantee for loans from $150,000 to $250,000  Guarantee covers 75% to 85% of all loan losses (not a lender first loss)  60% of lender portfolio must be in underserved markets  SBA approves loans in 5-10 days  Active secondary market for guaranteed portion of loans with 10% to 15% premiums upon sale

25 Community Advantage Lenders 25  Currently 60+ approved lenders  CDC Small Business Finance, Empire State CDC, and ACCION Texas are the largest lenders  Most lenders have local, state, or regional licenses  Only two existing national licensees  Coastal Enterprises (ME), Northern Economic Initiatives (MI), Neighborhood Development Center (MN), and Kentucky Highlands (KY) are examples of LISC partners with CA licenses

26 CA Lender Application 26 Attributes of successful Community Advantage lender applications:  Demonstrated relevant experience in small business lending  Technical assistance capability and/or established relationship with outside provider  A well-developed business plan with a description of proposed service delivery area and clearly explained plan for marketing and outreach  Sufficient, clear & well documented loan policies and procedures  Unrestricted net assets of ≥ $300,000  Ability to fund CA loans through cash, income, or a balance sheet that would permit additional borrowing  Good standing with SBA/CDFI Fund and no material weaknesses audits

27 27 Kentucky Highlands Investment Corp Small Business Tool Kit 27

28 KHIC Overview  Kentucky Highlands Investment Corporation, founded in 1968 to stimulate economic growth in nine counties in Southern and Eastern Kentucky, now serves 22 counties in the region and has created more than 18,000 jobs  Total Portfolio is $55 million to 160 companies  Assets under management including New Markets Tax Credit and Bank Participations is $162 million

29 KHIC Tool Kit – Page 1 29  Goldman Sachs 10,000 Small Business Program  United States Department of Agriculture  Intermediary Relending Program (IRP) – Loans up to 250,000  Rural Microloan Assistance Program (RMAP) - Loans up to $50,000  Rural Business Enterprise Grant Program (RBEG) - Project specific loans and investments ($150,000 to $499,000)  Kentucky Highlands Empowerment Zone Revolving Loan funds  Business and Industry Loan and Guaranty Program (B&I) – Loans up to $10 million guaranteed by USDA  United States Small Business Administration  SBA Microloan Program – Loans up to $50,000  Small Business Investment Corporation (SBIC) – Loans and equity investments up to $350,000  Rural Business Investment Corporation (RBIC) – Equity Investments  New Markets Venture Capital Company (NMVCC) – Equity Investments  Community Advantage Lender – Loans up to $250,000 guaranteed by SBA

30 KHIC Tool Kit – Page 2 30  Appalachian Regional Commission – Revolving Loan Funds  United States Department of Treasury  Community Development Financial Institutions Fund – Financial Assistance  New Markets Tax Credit Program – Allocation  Bank Enterprise Award  United States Department of Health and Human Services – Project Loans and Investments  Foundations and other Organizations  Calvert Foundation/Citibank/Opportunity Finance Network – Communities at Work Fund  Rural LISC  Ford Foundation  MacArthur Foundation  Create Jobs for USA

31 KHIC Tool Kit – Page 3 31  Kentucky Highlands Investment Corporation General Funds  Revolving Lines of Credit - $200,000 to $6,000,000  Bank and other Participations - $18 million from other lenders including banks and other CDFIs  Equity Participations with Commonwealth Seed Fund


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