Current through Register Vol. 48, No. 12, March 22, 2024
a)
CSBG Revolving Loan
1) CSBG funds are loaned
through Grantees to an Illinois business in a separate but companion agreement
to a conventional loan.
2) The CSBG
loan represents no more than 49% of the total loan package (combined borrowing
and equity).
3) The conventional
loan is obtained from a licensed Illinois lending institution.
4) The benefiting local government and/or
other public resources may be used in the project.
5) The CSBG loan term may not exceed 10 years
but may be for a shorter term at the discretion of the Grantee.
6) CSBG Loan interest rate (Fixed-Flexible
option)
A) When CSBG grant funds are used, the
loan shall have a fixed interest rate of no more than Prime plus 4% ("Prime" as
used in this subsection (a)(6) is the National Prime Interest Rate as published
in the Wall Street Journal on the date the parties agree to the loan
provisions).
B) When recaptured
funds are used from a previous CSBG loan, the loan shall have a fixed rate of
no more than Prime plus 4%.
7) The CSBG financing must be committed
simultaneously or prior to the closing of other financing.
b) Hiring and Job Retention
1) Establishing a Pre-Loan Base Number of
Employees - The Grantee shall have the right to review the borrower's
employment records at the time of the loan closing to establish the pre-loan
employment level in order to assure that no personnel cuts were made by the
business in anticipation of the pending loan and its hiring
requirements.
2) Hiring
Requirements
A) Businesses accepting CSBG
loan funds must hire at least one new full-time equivalency (minimum 371/2 hour
work week, averaged annually) CSBG eligible (in accordance with Section
120.120
) employee for each $20,000 or any portion thereof of CSBG monies borrowed.
Example:
Minimum
|
$1-$20,000
|
1 Job
|
$20,001-$40,000
|
2 Jobs
|
$40,001-$60,000
|
3 Jobs
|
B) The
Department will allow, based on presentation of written verifiable jobs (to be
created) salary data submitted as part of its loan application, the Grantee to
set the amount loaned per job at 75% of the entry level salary (which may
include non-required benefits) for each job. (For example: an entry level
salary of $50,000 would warrant lending of $37,500; a $60,000 entry salary
would warrant lending of $45,000; a $10,000 entry salary would warrant lending
of $7,500.) The Department will, upon request, consider the inclusion of fringe
benefits (e.g., health insurance) in the salary calculation. (Any combination
of subsections (b)(2)(A) and (B) is allowed.
C) If part-time employment is involved in the
created jobs (under either subsection (b)(2)(A) or (B)), the full-time
equivalency shall be no more than two employees making up one 371/2 hour work
week.
D) A hiring schedule must be
a part of each loan agreement. The required hiring must be completed within the
first 24 months of the loan, with at least 50% of the new employees hired in
the first 12 month period. (For purposes of this hiring timeframe, the loan is
considered consummated the date the borrower first receives the loan
funds.)
E) The job positions for
CSBG eligible clients created by the loan must be retained and filled by an
eligible client for at least 24 months from the date the job was first created.
Grantees should attempt to retain the availability of the loan-created jobs for
CSBG eligible clients over the full loan term by maintaining professional
contact with the business and tracking the jobs. Grantees, through their
individual loan agreements, may negotiate more restrictive hiring requirements
than stated in this subsection (b)(2).
c) Loan Fund Use
CSBG funds loaned may only be used to purchase machinery,
equipment or inventory or to provide working capital. CSBG loans may not be
used to purchase or improve real property (per Section
120.130
of this Part). This real property restriction does not apply to loans made with
"Recaptured Loan Funds" (as described in subsection (i) of this
Section).
d) Loan Security
Provisions (collateral) shall be made for first position on
loan security. If first position is impossible because of the primary lender's
claims, the Grantee should negotiate shared position with the private lender.
Subordinate position for loan security should be the CSBG lender's last resort.
Loan agreements shall contain precise listings and assignment of collateral
established as security for the loan.
e) Loan Contract Provisions
Each Grantee's loan contract with a borrower shall clearly, and
in detail, specify the following:
1)
Employment Plan (consisting of mechanism to assure GSBG client eligibility,
timeframes, job descriptions);
2)
Payment Schedule;
3) Interest Rate
Charged;
4) Late Payment Penalty
Provision (optional);
5) Default
Provisions.
A) Events of Default:
i) Payment Default: the Department shall
consider a loan to be in default when payment arrearage reaches 90 days.
Grantees may place more restrictive payment arrearage provisions in their loan
contracts.
ii) Hiring Default: a
loan shall be considered in default when the hiring provisions specified in
this Part and in the loan agreement have not been met.
B) Default Remedies:
i) Payment Default: the loan will be called
or renegotiated (loan renegotiation approval must be requested of the
Department and will be approved when the Grantee's written request states that
the renegotiation is the only practical means of loan recovery and/or will
prevent bankruptcy and/or will prevent a loss of jobs to the local
area).
ii) Hiring Default: an
interest acceleration clause shall be a part of each loan contract. At a
minimum the clause shall provide that after notice by the Grantee to the
borrower that the hiring provisions have not been met, the interest rate for
the loan will increase by 5 percentage points. Such increased rate shall remain
in effect until hiring deficiencies have been corrected or the loan is called.
(The Department will allow a one-time waiver per loan to the interest
acceleration provision when the Grantee, in writing, shows that such
acceleration will cause borrower bankruptcy and further loss of jobs and
submits a proposed renegotiated hiring schedule that meets the CSBG job
creation and hiring requirements through no more than a 24 month extension.)
The Department will allow other equally punitive hiring noncompliance
interdictions in grantees' loan contracts in lieu of the interest acceleration
penalty. Such other interdictions may include (but are not limited to) fines,
partial loan recall and pre-scheduled interim balloon payments;
6) Loan Security
Provision (The Grantee shall perfect the loan security. For example: hold title
to vehicles; secure a mortgage on pledged real property; require Uniform
Commercial Code (U.C.C.) [810 ILCS 5 ] filing for pledged equipment, fixtures
and inventory.);
7) Collateral
Description;
8) Prepayment
Provisions (optional);
9) Hiring
Schedule;
10) Use of Loan
(Machinery, Working Capital, Equipment);
11) Hiring Noncompliance Penalty;
12) Other documentation necessary to assure
compliance (e.g., hiring reports);
13) Primary lender - amount; and
14) Wetland Certification Statement [20 ILCS
830 ].
f) Loan Payment
Provisions
1) The interest rate for a
recaptured principal or Category "D" CSBG loan shall have a fixed rate not to
exceed Prime plus 4% ("Prime" as used in this Section is the National Prime
Interest Rate as published in the Wall Street Journal on the date the parties
agree to the loan provisions). Interest for loans made with repaid principal
from previous CSBG loans may not exceed 7.5 %.
2) Payment Schedules
A) Payments shall include principal and
interest calculated in accordance with standard loan tables.
B) Loan payments shall not be deferred,
unless written permission is given by the Department.
C) Grantees, through their individual loan
agreements, shall impose a late payment penalty of not less than 5% of any
monthly installment not received from the borrower within 15 days after the
installment is due.
g) Micro-Loan Provisions
The Department has established, within the CSBG Loan Program, a
Micro-Loan Program. This program is designed to enable Grantees to assist
entrepreneurs in establishing and expanding business ventures. It provides for
up to 100% CSBG lending, makes less demand for collateral and gives lending
discretion to Grantees. To operate a CSBG Micro-Loan Program, a Grantee must
have "preferred lender" status, approved loan criteria and an approved lending
process.
1) Preferred Lender
To obtain preferred lender status, the Grantee must establish
and maintain a loan review committee, with a minimum of 3 members who represent
the financial and economic development professions and should include the legal
profession. In lieu of legal profession membership, the Grantee must include in
their micro-loan procedures a provision for legal review of loans. The
committee may be attached to the Grantee's CSBG Board. The Department will,
upon receipt of documentation, formally recognize preferred lender
status.
2) Micro-Loan
Criteria
A) Businesses eligible for
micro-loans may be a proprietorship, partnership or corporation with no more
than 5 employees. If proprietors, eligible borrowers must own all business
assets; if partners or corporations, eligible borrowers must own more than 50%
of the business assets.
B) Eligible
borrowers must agree to create and fill a minimum of one job for a CSBG
eligible client for the micro-loan lending. The job creation may include the
borrower if he/she is CSBG eligible and will gain full-time employment through
the borrowing.
C) The business must
be located in the CSBG jurisdiction of the Grantee, and the borrowers must
demonstrate that they cannot access the funds from other sources.
D) Maximum lending is $20,000 and may be
entirely CSBG funded.
E) Recaptured
principal will be used for all micro lending. (Exceptions to this provision
must be requested in writing and approved in writing by the
Department.)
F) The interest rate
may not exceed Prime plus 4% and may be set lower at the discretion of the
Grantee.
G) Lenders shall make
every attempt to fully collateralize the micro-loan and the collateral should
be secured.
H) The term of the loan
may not exceed 10 years. The term of the loan should not exceed the life of the
loan collateral.
I) A hiring
schedule must be a part of each micro-loan agreement. The required hiring must
be completed within the first 12 months of the loan.
J) Funds loaned may be used to purchase
machinery, equipment and inventory, to provide working capital and to purchase
or improve real property.
3) Micro-Loan Forms and Procedures
The Grantee must establish and maintain DCCA approved loan
application forms, loan agreements, loan applicant requirements and screening
process, loan review process and loan monitoring procedures.
4) Micro-Loan Administration
A) Since the Grantee must be a "preferred
lender" in order to participate in the program, final decisions for lending are
at the Grantee level.
B) Recaptured
principal disbursed for micro-loans must be so noted in accounting records at
the time of fund transfer.
C)
Monitoring will be conducted by the Grantee.
D) Reporting will be on the CSBG Quarterly
Loan Program Status Report (Hiring and Financial), and the lending will be
included in Recaptured Loans on the Reconciliation Form.
E) The file for a micro-loan shall consist
of:
i) the application;
ii) committee approval;
iii) the loan agreement/contract;
iv) amortization schedule;
v) hiring schedule;
vi) monitoring information; and
vii) CSBG Loan Project Fact Sheet.
F) The micro-loan repaid principal
must be maintained in the same account as all other CSBG Loan Program repaid
principal.
h)
Loan Approval Process for Loans Under Current Grants
1) All Grantee CSBG funded loans must be
submitted to the Department for approval. The Department's review and
determination to approve or disapprove the loan will be given in writing within
20 working days after receipt of a complete set of the loan documents. (Loans
submitted for approval after November 15 run the risk of not being processed by
the December 31 cut-off due to insufficient time to complete the review. Loans
approved after the December 31 date will be obligated against new program funds
effective January 1.)
2) The loan
application documents to be submitted, and upon which the decision of the
Department will be based, consist of:
A) The
loan agreement containing all provisions in compliance with this
Part.
B) Application documents:
i) History of the Company - a brief history
of the business and past employment growth.
ii) Market Information - information on the
company's products or services and identification of existing and potential
major customers and competitors.
iii) Corporate Financial Statements -
historical corporate financial statements for the past three years and interim
statements dated no more than 90 days prior to application including: Profit
and Loss Statements, Balance Sheets, Cash Flow Statements, and Disclosure of
Contingent Liabilities.
iv) Three
Year Projections - three year projections of the Profit and Loss Statement and
Balance Sheet and a one year Monthly Cash Flow Projection.
v) Description of Inventory - a list of
inventory to be purchased using CSBG funds.
vi) Description of Machinery and Equipment
(if applicable) - major equipment or classes of equipment to be acquired with
the CSBG loan funds, including model and serial numbers where possible; for
acquisition of new machinery and equipment, attachments of reliable vendor cost
estimates; for moving and installation costs, attachments of written estimates;
for used machinery and equipment acquisition, an independent appraisal
demonstrating that the fair market value is in line with the purchase
price.
vii) Description of Working
Capital (if applicable) - a detailed explanation of the need for and use of
funds.
viii) Company Management - a
listing of those people that are responsible for the management of the company,
their positions, and percentages of ownership.
ix) Principals Resumes - a resume of each
principal.
x) Personal Financial
Statement - a personal financial statements for each principal owning more than
20% of the company.
xi) Letters of
Commitment - commitment letters documenting all sources of leveraging; loans
from financial institutions must have language indicating the loan amount, the
specified term and interest, collateral, conditions attendant to the loan, and
the fact that the loan is approved; any commitment to purchase a revenue bond
must have an executed inducement resolution and the rates, terms, and
conditions of approval by the buyer.
3) Financial Evaluation Component - The
applicant's financial statements, including annual balance sheets and profit
and loss statements for the past three years as well as the most recent 90
days; a three year projected balance sheet and profit and loss statement as
well as a one year monthly cash flow statement will be reviewed through a
standard credit analysis (as prescribed in the Business Credit Analysis
Textbook, 1985, published by the National Development Council) that will
determine the: liquidity and debt coverage for the project; ability of the
company to manage debt; business trends and projected earnings. This data will
be compared to similar data for companies in the same industry using "Robert
Morris Associates Annual Statement Studies" (1990) if such industry is
evaluated by this source. This standard credit analysis will determine the
financial stability of the company. Determination of the loan approval will
also be based on compliance with Section 9-4(a), (d), (e), and (f) of the Small
Business Development Act [30 ILCS
750/9-4 ].
i) Loan Approval Process for Recaptured Loan
Funds
1) All Grantee loans using repaid
principal from previous CSBG loans (recaptured loan funds) must be submitted to
the Department for approval.
2) The
Grantee may, at its option, request the Department to review the complete loan
application. When this request occurs, the documents upon which the Department
will judge its approval or disapproval and the process for this determination
will be in accordance with subsection (g) of this Section.
3) If the Grantee chooses to conduct its own
loan review, the loan document to be submitted and upon which the decision of
the Department will be based is the "Pre-Loan Closing Form" which includes the
following information:
A) Grantee Agency
name, address and date of submittal;
B) Name and address of borrowing
business;
C) Loan amount;
D) Source of funds;
E) Loan period;
F) Interest rate;
G) Hiring schedule;
H) Loan use;
I) Collateral description and
position;
J) Primary lender,
amount, and term; and
K) Signature
of submitting officials.
4) The approval or disapproval of the
Department will be based on the loan period, interest rate, hiring schedule,
loan use, collateral description and position, and primary lender amount being
in compliance with this Part. A letter, with the Department's determination and
signature, will be returned to the Grantee within 10 working days after receipt
of a completed Pre-Loan Closing Form. (Loans submitted after November 15 run
the risk of not being processed by the December 31 cut-off due to insufficient
time to complete the review. Recaptured loans approved after the December 31
date will not prevent the declaration of "lapsed principal" and the demand for
its return.)
j)
Processing a Micro-Loan
1) All micro-loans
are approved at the Grantee level.
2) Once the funds have been disbursed, a CSBG
Loan Project Fact Sheet must be submitted to the Department. This will be the
mechanism for advising the Department that action has taken place.
k) Loan Fund Recovery/Held
Principal Limits/Disposition/Reversionary Right
1) Recovery
The repaid loan principal is considered by the Department to be
a Community Services Block Grant-related asset, held in trust by the Grantee.
The Grantee must place the repaid loan principal in a corporate revolving loan
account to continue business assistance efforts in compliance with this Part.
This continuation requirement shall be perpetually binding on the Grantee, its
successors and assignees until such time as the Department formally negotiates
with the agency other CSBG related uses for the recovered loan principal. The
interest earned on the CSBG supported business loans is not required to be a
part of the perpetuation of the loan program nor subject to the provisions of
the Illinois Grant Funds Recovery Act [30 ILCS 705 ] and may be used for any
corporate purpose.
2) Held
Principal Limits
Recaptured principal amounts will be reported quarterly to the
Department. The Grantee shall actively pursue new business start up or
expansion loan opportunities for the recaptured principal and maintain a
written record of such efforts, which the Department may review, upon request.
The grantee is allowed to hold the greater of $20,000 or 20% of the total
repaid principal in its CSBG loan program portfolio. In its review of
4th quarter loan reports, the Department will
determine if the grantee is holding excess repaid principal (as of the end of
the calendar year), excluding any balloon loan payments, and declare the excess
"lapsed principal". Additionally, the Department will impose a penalty on
Grantees that do not reduce their repaid principal, through lending or approved
wavered use, by at least 25% over a two-year period. At the end of the second
year and each subsequent two-year period in which the 25% reduction is not met,
the Department will declare the balance of the 25% as lapsed principal.
However, the Department will allow the Grantee to maintain the "floor" level
($20,000) repaid principal without lapse declaration. The Department will
require, by written notice, lapsed principal to be reduced to these stated
limits through a grant fund transfer.
3) Disposition
The Grantee may not sell, transfer or in any way dispose of the
CSBG funded loans without DCCA's written approval.
4) Reversionary Right
If Grantee funding terminates (as specified in Section
120.55
of this Part) the Grantee's repaid principal loan fund balance and all current
loans shall revert to the Department for transfer to the successor (Section
120.60
of this Part) agency.
5)
Loan Settlement
In the event of a loan settlement due to bankruptcy or other
closing, the cash settlement shall be applied 100% to principal after expenses
are paid. Expenses are defined as unplanned costs incurred as a result of the
closing/bankruptcy (i.e., storage or attorney) and are not covered by the CSBG
grant or earned interest.
l) Reporting/Recordkeeping/Monitoring
1) The Grantee is required to submit two
reports to the Department for tracking purposes.
A) The CSBG Loan Project Fact Sheet is to be
submitted immediately following the closing of the loan (loan agreement signed
and funds disbursed to the borrowing business). If the loan agreement is
amended (i.e., changing the term or interest rate), a revised CSBG Loan Project
Fact Sheet shall be submitted.
B)
Quarterly CSBG Loan Status Report (6 parts) - This 6 part report (on forms
provided by the Department) is to be submitted as part of the CSBG Quarterly
Report, due the 30th calendar day following the end
of each calendar quarter. The report must include all loan projects that have
been closed (loan agreement signed and funds disbursed to business) since the
inception of the CSBG Loan Program.
2) Records - The Grantee is required to
maintain a CSBG Loan Program file with separate sections for each loan. Each
loan file shall contain the loan agreement that encompasses all elements
specified in this Section, all correspondence relating to the loan, copies of
all forms submitted to the Department, verification of loan payback and
monitoring, and, if the loan is in default, documentation of efforts made to
return the loan to compliance or to call the loan.
3) Monitoring
A) The Grantee agency is responsible for
monitoring the following provisions of each CSBG loan (including loans made
with repaid loan principal):
i) hiring
schedule compliance, including CSBG eligibility verification;
ii) replacement of employees;
iii) use of loan monies
iv) loan repayment; and
v) Wetland Act compliance.
B) The Department's program
monitoring and annual auditing will include verification of the Grantee's
report on the status of each consummated loan.
m) Carry-over of Loan Program Funds - At
least 50% of the grantee's earmarked (in the grant agreement) loan program
funds must be obligated, with a Department approval letter, by December 31 of
the grant year. Obligated funds must be disbursed for loans no later than
January 31 of the succeeding grant year. The remaining 50% or less of the
earmarked loan funds shall be carried over to the succeeding year's grant,
through modification, and placed with the earmarked loan funds in the grant
agreement. Any Grantee who has not obligated or disbursed at least 50% of its
earmarked loan program funds by the respective December or January 31 cutoff
dates shall have the remaining balance deobligated by the Department. All CSBG
Grantee funding deobligated by the Department shall be returned to CAAs through
a competitive or formula distribution process.