Financing Programs Tracy Allen


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Financing Programs Tracy Allen

  1. 1. Ohio Department of Development Financing Programs Ohio Economic Development Association Office of Financial Incentives October 14, 2009
  2. 2. Financing Programs <ul><li>Loans to Companies </li></ul><ul><ul><li>166 Direct Loan </li></ul></ul><ul><ul><li>Ohio Enterprise Bond Fund </li></ul></ul><ul><ul><li>Research and Development Investment Loan Fund </li></ul></ul><ul><ul><li>Innovation Ohio Loan fund </li></ul></ul><ul><li>Loans to Communities </li></ul><ul><ul><li>Rural Industrial Park Loan </li></ul></ul><ul><ul><li>Urban Redevelopment Loan </li></ul></ul>
  3. 4. 166 Direct Loan <ul><li>166 Direct Loan Program </li></ul><ul><ul><li>The 166 Loan Program was created in 1982 to promote economic development in the State of Ohio. </li></ul></ul><ul><ul><li>Created a large revolving loan fund out of which loans are made. As repayments are collected, new loans are made. </li></ul></ul><ul><ul><li>The 166 Loan Program provides low-interest loans to businesses willing to commit to create new jobs or preserve existing employment opportunities in the State of Ohio. </li></ul></ul>
  4. 5. 166 Direct Loan <ul><li>Available Funding </li></ul><ul><ul><li>Loan amounts of $500,000 to $1 million </li></ul></ul><ul><ul><li>Typically between 30-50% of the projects allowable costs </li></ul></ul><ul><ul><li>Up to $15,000 per job ($35,000 in priority investment areas) </li></ul></ul><ul><ul><li>Partner with bank and equity </li></ul></ul><ul><li>Rate and Term </li></ul><ul><ul><li>Interest rates are fixed </li></ul></ul><ul><ul><li>Term conditions upon the useful life of the assets </li></ul></ul><ul><ul><ul><li>Maximum of up to 15 years for real estate </li></ul></ul></ul><ul><ul><ul><li>Maximum of up to 10 years for machinery and equipment </li></ul></ul></ul>
  5. 6. 166 Direct Loan <ul><li>Collateral /Security Requirements </li></ul><ul><ul><li>Shared first priority mortgage and/or lien position on assets financed loan proceeds </li></ul></ul><ul><ul><li>Personal guarantees from owners with 20% ownership in company </li></ul></ul><ul><ul><ul><li>May be required: </li></ul></ul></ul><ul><ul><ul><ul><li>Corporate guarantees from related companies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Full or partial letter of credit </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Life insurance on key business owners </li></ul></ul></ul></ul><ul><ul><li>Equity Requirement - 10% of the loan amount </li></ul></ul><ul><ul><li>No pre-payment penalty </li></ul></ul><ul><ul><li>Take-out financing </li></ul></ul><ul><ul><ul><li>Funds will only be disbursed once the project has been completed. The borrower will be responsible for securing financing for project related cost through loan closing and project completion. </li></ul></ul></ul>
  6. 7. 166 Direct Loan <ul><li>Eligible Businesses and Costs include: </li></ul><ul><ul><li>Manufacturing, Research and Development, Distribution </li></ul></ul><ul><ul><li>Retail projects are ineligible </li></ul></ul><ul><ul><li>Fixed asset investments </li></ul></ul><ul><ul><ul><li>Land and building acquisition </li></ul></ul></ul><ul><ul><ul><li>Building expansion, renovation and construction </li></ul></ul></ul><ul><ul><ul><li>Equipment purchases </li></ul></ul></ul><ul><ul><ul><li>Acquisition of ongoing business fixed assets </li></ul></ul></ul><ul><ul><ul><li>Limited soft costs </li></ul></ul></ul>
  7. 8. Ohio Enterprise Bond Fund <ul><li>Ohio Enterprise Bond Fund </li></ul><ul><ul><li>ODOD earned a AA- Rating by Standard & Poor’s </li></ul></ul><ul><ul><li>Creating a series of reserve accounts and adhering to strict credit criteria </li></ul></ul><ul><ul><li>The ODOD requires each borrower to put 10% of bond amount into a reserve fund </li></ul></ul><ul><ul><li>ODOD funded a $10 million program reserve </li></ul></ul><ul><ul><li>ODOD pledged the 166 repayment stream as an additional back-up reserve </li></ul></ul><ul><ul><li>Enables access to borrow at rates comparable to companies such as P&G and Citigroup </li></ul></ul>
  8. 9. Ohio Enterprise Bond Fund <ul><li>Available Funding </li></ul><ul><ul><li>Up to 90% of the total eligible project costs </li></ul></ul><ul><ul><ul><li>Letter of credit required, equal to 10% of the OEBF Amount </li></ul></ul></ul><ul><ul><li>Loan amounts between $1.5 million and $10 million, up to 90% of the project’s allowable costs </li></ul></ul><ul><ul><li>Up to $75,000 per job ($100,000 in Priority Investment Areas) </li></ul></ul><ul><li>Term </li></ul><ul><ul><li>5 to 20 year loan terms </li></ul></ul><ul><ul><ul><li>Equipment loans are limited to 120% of average life of the project (typically 7-10 years) </li></ul></ul></ul><ul><ul><ul><li>Real estate loans will generally be 15 - 20 years. </li></ul></ul></ul>
  9. 10. Ohio Enterprise Bond Fund <ul><li>Debt Service Reserve </li></ul><ul><ul><li>Each borrower is required to fund a debt service reserve (10% of bond amount) </li></ul></ul><ul><ul><ul><li>Funded with cash or a bank letter of credit </li></ul></ul></ul><ul><ul><ul><li>If the borrower defaults on the loan, the reserve is forfeited and used by the State to make debt service payments </li></ul></ul></ul><ul><ul><ul><li>If the borrower does not default on the loan, the reserve is used to pay the borrower’s final 10% </li></ul></ul></ul><ul><li>Collateral/Security (same as 166 Direct Loan) </li></ul><ul><ul><li>Shared priority mortgage and/or lien position on assets financed loan proceeds </li></ul></ul><ul><ul><li>Personal guarantees from owners with more than 20% ownership in the company </li></ul></ul><ul><ul><li>May be required: </li></ul></ul><ul><ul><ul><li>Corporate guarantees from related companies </li></ul></ul></ul><ul><ul><ul><li>Full or partial letter of credit </li></ul></ul></ul><ul><ul><ul><li>Key life insurance </li></ul></ul></ul>
  10. 11. Ohio Enterprise Bond Fund <ul><li>Eligible Businesses and Costs may include: </li></ul><ul><ul><li>Manufacturing, R&D, Distribution, Headquarters, Retail projects are ineligible </li></ul></ul><ul><ul><li>Purchase of land and/or building; Machinery and equipment, building construction and/or renovation costs; long-term leasehold improvements; purchase of ongoing business fixed assets; limited soft costs directly related to the fixed-asset purchasing </li></ul></ul><ul><ul><li>Refinancing is ineligible </li></ul></ul><ul><ul><li>Fixed interest rates, based on taxable/tax-exempt (also based on the AA- rating) </li></ul></ul>
  11. 12. Ohio Enterprise Bond Fund <ul><li>Prepayment </li></ul><ul><ul><li>Make-whole provision </li></ul></ul><ul><ul><ul><li>A provision that allows a borrower to prepay the remaining fixed rate term debt. However, the borrower has to make an additional payment that is derived from a formula based on the net present value of the future debt payments. </li></ul></ul></ul><ul><ul><ul><li>Can be significant, which is why such provisions are rarely invoked . </li></ul></ul></ul>
  12. 13. Current OEBF Rates As of September 14, 2009
  13. 14. Research and Development Investment Loan Fund <ul><li>R&D Fund </li></ul><ul><ul><li>Created to encourage private sector research and development investments that will create and retain high wage jobs </li></ul></ul><ul><ul><li>Loans range in size from $1 million to $5 million, up to 50% of allowable project costs </li></ul></ul><ul><ul><li>No specified dollar per job ratio, but job creation is considered </li></ul></ul><ul><ul><li>Dollar-to-dollar (non-refundable) tax credit equal to the amount of principal and interest repaid on the loan, up to an annual maximum credit of $150,000 </li></ul></ul><ul><ul><li>Fixed interest rate, 5-15 years </li></ul></ul>
  14. 15. Research and Development Investment Loan Fund <ul><li>Eligible project costs </li></ul><ul><ul><li>Purchase of land and/or building </li></ul></ul><ul><ul><li>Purchase of machinery and equipment </li></ul></ul><ul><ul><li>Building construction and/or renovation costs; if the project involves new construction, the business must occupy at least 75 percent of the premises </li></ul></ul><ul><ul><li>Long-term leasehold improvements </li></ul></ul><ul><ul><li>Purchase of an ongoing business’ fixed-assets </li></ul></ul><ul><ul><li>Refinancing is ineligible </li></ul></ul>
  15. 16. Research and Development Investment Loan Fund <ul><li>Collateral/Security Requirements (same as 166 Direct Loan & OEBF): </li></ul><ul><ul><li>Shared priority mortgage and/or lien position on assets financed with loan proceeds </li></ul></ul><ul><ul><li>Personal guarantees from owners with more than 20% ownership in the company </li></ul></ul><ul><ul><li>May be required: </li></ul></ul><ul><ul><ul><li>Corporate guarantees from related companies </li></ul></ul></ul><ul><ul><ul><li>Full or partial letter of credit </li></ul></ul></ul><ul><ul><ul><li>Key Life insurance </li></ul></ul></ul><ul><li>Pre-payment </li></ul><ul><ul><li>The ODOD imposes no pre-payment penalty. </li></ul></ul><ul><li>Take-Out Financing </li></ul><ul><ul><li>Project must be completed </li></ul></ul>
  16. 17. Innovation Ohio Loan Fund <ul><li>IOF </li></ul><ul><ul><li>Created to assist existing Ohio companies within targeted industry sectors to: </li></ul></ul><ul><ul><ul><li>Develop next generation products and services </li></ul></ul></ul><ul><ul><ul><li>Pursue viable business opportunities </li></ul></ul></ul><ul><ul><ul><li>Generate high wage employment opportunities for Ohioans </li></ul></ul></ul><ul><li>Targeted Industry Sectors involving the production or use of </li></ul><ul><ul><li>Advanced Materials </li></ul></ul><ul><ul><li>Instruments, Controls and Electronics </li></ul></ul><ul><ul><li>Power and Propulsion </li></ul></ul><ul><ul><li>Biosciences </li></ul></ul><ul><ul><li>Information Technology </li></ul></ul>
  17. 18. Innovation Ohio Loan Fund <ul><li>Investment Focus </li></ul><ul><ul><li>Support capital needs of established Ohio companies that have: </li></ul></ul><ul><ul><ul><li>A recent history of positive cash flow; </li></ul></ul></ul><ul><ul><ul><li>A minimum of three years of operating history; and </li></ul></ul></ul><ul><ul><ul><li>Attracted or are likely to attract additional third party capital to the project. </li></ul></ul></ul><ul><ul><li>Under limited circumstances, a company that does not have a recent history of positive cash flow may be considered if it has: </li></ul></ul><ul><ul><ul><li>Developed a proven product for a proven market; </li></ul></ul></ul><ul><ul><ul><li>Significant customer orders and reasonable prospects for rapid sales growth; and </li></ul></ul></ul><ul><ul><ul><li>Obtained the financial backing of professional investors and has reasonable prospects of continued backing from such investors. May require additional equity investment in the company as a condition to granting a loan </li></ul></ul></ul>
  18. 19. Innovation Ohio Loan Fund <ul><li>Eligible Innovation Costs </li></ul><ul><ul><li>The Innovation Ohio Loan Fund (IOF) will provide capital financing for the acquisition of technology, facilities, equipment and other capitalized costs at competitive rates </li></ul></ul><ul><ul><li>The IOF will finance up to 75% of allowable costs on projects from $500,000 to $2 million </li></ul></ul><ul><ul><li>Allowable costs are those that can be capitalized under Generally Accepted Accounting Principals (GAAP), including : </li></ul></ul><ul><ul><ul><li>Software and Software Development </li></ul></ul></ul><ul><ul><ul><li>Tooling and Molds </li></ul></ul></ul><ul><ul><ul><li>Machinery and Equipment </li></ul></ul></ul><ul><ul><ul><li>Land, Buildings, Renovations, Leasehold Improvements </li></ul></ul></ul><ul><ul><ul><li>Intellectual Property Protection Costs </li></ul></ul></ul><ul><ul><ul><li>Computer Equipment </li></ul></ul></ul><ul><ul><ul><li>Technology Acquisition </li></ul></ul></ul><ul><ul><li>Loans will be awarded based on in-depth due diligence and credit analysis </li></ul></ul>
  19. 20. <ul><li>Applicant Contribution </li></ul><ul><ul><li>Applicant must fund at least 25% of allowable project costs either </li></ul></ul><ul><ul><ul><li>Directly, </li></ul></ul></ul><ul><ul><ul><li>Through third party financing, or </li></ul></ul></ul><ul><ul><ul><li>Through a combination </li></ul></ul></ul><ul><ul><li>Not acceptable applicant contribution </li></ul></ul><ul><ul><ul><li>Expenditures made by or on behalf of the applicant (without ODOD approval) </li></ul></ul></ul><ul><ul><ul><li>In-kind contributions of labor, equipment or similar items </li></ul></ul></ul><ul><li>Loan Term </li></ul><ul><ul><li>Generally 4 to 6 years, in limited circumstances, the ODOD may consider longer terms, will not exceed 15 years or the average useful life of the assets, whichever is earlier </li></ul></ul><ul><li>Interest Rates </li></ul><ul><ul><li>Prime plus up to 2% </li></ul></ul><ul><li>Participation Fee </li></ul><ul><ul><li>A participation fee equal to 10 percent of the maximum drawn principle will be payable upon maturity of the loan. </li></ul></ul>Innovation Ohio Loan Fund
  20. 21. Innovation Ohio Loan Fund <ul><li>Collateral/Security Requirements </li></ul><ul><ul><li>First priority mortgage and/or security position on assets including intellectual property </li></ul></ul><ul><ul><li>ODOD will consider subordination to providers of traditional senior debt </li></ul></ul><ul><ul><li>Personal and/or corporate guarantees may be required </li></ul></ul><ul><ul><li>Life insurance on key business owners, partners and/or managers; and </li></ul></ul><ul><ul><li>Other comparable credit enhancement </li></ul></ul>
  21. 22. Innovation Ohio Loan Fund <ul><li>Application & Review Process: </li></ul><ul><ul><li>Submit a Preliminary Application </li></ul></ul><ul><ul><li>Meet with Credit Analyst if IOF seems to be a fit </li></ul></ul><ul><ul><li>Credit Analyst will recommend submittal of full IOF Loan Application or other potential sources of funding if IOF is not a fit </li></ul></ul><ul><ul><li>In-depth due diligence and credit analysis by Credit Analyst and Third-Party Reviewer (typically six weeks in duration) </li></ul></ul>
  22. 23. Loan Fees: All Loans to Companies* *Loan fees are non-refundable. Loan Program Application Fee Commitment Fee Servicing Fee Other Fees 166 Direct Loan $1,500 2% of first million and 1% of balance 1/12 of 0.25% monthly - OEBF $1,500 $20,000 1/12 of 0.25% monthly 2-3% closing fees R&D Loan Fund $1,500 1% but capped at $50,000 1/12 of 0.25% monthly - IOF $1,500 2% 1/12 of 1% monthly 10% of principal due on final pmt
  23. 24. Covenants: All Loans to Companies <ul><li>Prevailing Wage </li></ul><ul><ul><li>Required to be paid for construction, renovation and installation of machinery and equipment </li></ul></ul><ul><ul><li>Rates and payment of prevailing wages are determined by the Ohio Department of Commerce, Wage and Hour Bureau </li></ul></ul><ul><ul><li>Potential borrower can find the prevailing wage by: </li></ul></ul><ul><ul><ul><li>Going to </li></ul></ul></ul><ul><ul><ul><li>Ask for a Prevailing Wage Bid </li></ul></ul></ul>
  24. 25. Covenants: All Loans to Companies <ul><li>Company must maintain operations in Ohio throughout the term of the loan </li></ul><ul><li>ODOD may limit distributions to preferred and common stockholders </li></ul><ul><li>Should the company complete an IPO, ODOD may require the repayment of the outstanding loan and all associated fees </li></ul><ul><li>May require cross-default/acceleration with other lenders </li></ul>
  25. 26. Rural Industrial Park Loan <ul><li>Rural Industrial Park Loan Program </li></ul><ul><ul><li>Created to provide direct loans to local communities and other eligible applicants committed to creating well-planned industrial parks. </li></ul></ul><ul><li>Eligible Applicants </li></ul><ul><ul><li>Port Authorities, Community Improvement Corporations, Community based organizations, Private Developers, and other Nonprofit economic development entities </li></ul></ul><ul><li>Eligible Industrial Parks </li></ul><ul><ul><li>Manufacturing, distribution and warehousing, research and development, high technology or higher paying service businesses </li></ul></ul>
  26. 27. Rural Industrial Park Loan Rural Development Initiative Fund <ul><li>Available Funding </li></ul><ul><ul><li>Up to $500,000 in direct loans </li></ul></ul><ul><ul><li>May also qualify for grant assistance from the Rural Development Initiative Fund </li></ul></ul><ul><ul><li>Maximum combination of loans and grants is the lesser of $1,000,000 or 75% of the total project costs. </li></ul></ul><ul><ul><li>Grant cannot exceed the lesser of $500,000 or 37.5% of the eligible project costs </li></ul></ul><ul><ul><li>Up to a 15-year term at a fixed interest rate with a deferral of principal & interest up to 5 years </li></ul></ul><ul><li>Eligible Area </li></ul><ul><ul><li>Appalachian, distressed, labor surplus and situational distressed counties designated by the ODOD’s Priority Investment Area Map. </li></ul></ul><ul><ul><ul><li>Map published January 1 st and July 1 st of each year by ODOD’s Office of Strategic Research and can be found by checking the maps link at </li></ul></ul></ul>
  27. 28. Rural Industrial Park Loan <ul><li>Eligible costs include: </li></ul><ul><ul><li>Acquisition, infrastructure, site preparation, utility hook-ups, improvements to water and rail access </li></ul></ul><ul><li>No Job Creation Required </li></ul><ul><li>Private Financing Requirement </li></ul><ul><ul><li>Require the applicant and a conventional lender participate in the project of at least 25% of the project costs </li></ul></ul><ul><ul><ul><li>Conventional lender will be required to act as a fiduciary agent </li></ul></ul></ul>
  28. 29. Rural Industrial Park Loan <ul><li>Collateral/Security </li></ul><ul><ul><li>Shared first priority mortgage and/or lien positions </li></ul></ul><ul><ul><li>Full or partial letter of credit </li></ul></ul><ul><ul><li>Personal guarantees and </li></ul></ul><ul><ul><li>Guaranteed from the participating county or municipality </li></ul></ul><ul><li>Prepayment </li></ul><ul><ul><li>No prepayment penalty </li></ul></ul><ul><ul><li>During the deferral period, if property is sold or lease ODOD may require repayment of the outstanding loan amount </li></ul></ul>
  29. 30. Urban Redevelopment Loan <ul><li>URL Program </li></ul><ul><ul><li>Provides low interest loans municipalities or non-profit economic development organizations to improve real estate to entice private business investment in distressed urban locations </li></ul></ul><ul><li>Eligible Project Costs </li></ul><ul><ul><li>Purchase land and/or building, brownfield clean-up, infrastructure and site improvements, demolish buildings and remove building, construct streets, roads and bridges </li></ul></ul><ul><li>Available Funding </li></ul><ul><ul><li>Up to $5 million or 40% of project costs </li></ul></ul><ul><ul><li>Individual municipality is eligible for a maximum outstanding loan balance of up to $10 million </li></ul></ul><ul><ul><li>An applicant may undertake no more than 3 projects at a given time </li></ul></ul>
  30. 31. Urban Redevelopment Loan <ul><li>Term </li></ul><ul><ul><li>Up to 15 years </li></ul></ul><ul><ul><li>Payment may be deferral up to 5 years </li></ul></ul><ul><ul><li>Balance amortized within the remaining term of the loan </li></ul></ul><ul><ul><li>Sale or lease may trigger prepayment </li></ul></ul><ul><li>Interest Rate </li></ul><ul><ul><li>0% for first 5 years, Beginning year 6, interest rates are fixed at/or below prime rate. </li></ul></ul><ul><li>No Job Requirement </li></ul>
  31. 32. Urban Redevelopment Loan <ul><li>Collateral/Security </li></ul><ul><ul><li>Shared first priority mortgage and/or lien positions </li></ul></ul><ul><ul><li>Full or partial letter of credit </li></ul></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Pledged security interest in an unfettered revenue stream of the municipality </li></ul></ul><ul><ul><li>Other types of credit enhancement, if necessary </li></ul></ul><ul><li>No Prepayment penalty </li></ul>
  32. 33. Loan Fees: Loans to Communities *Loan fees are non-refundable. Loan Program Application Fee Commitment Fee Servicing Fee Other Fees Rural Industrial Park Loan $500 1% 1/12 of 0.25% monthly - Urban Redevelopment Fund $1,500 2% of first million and 1% of balance 1/12 of 0.25% monthly -
  33. 34. Applying for Loans <ul><li>First point of contact is your regional Business Development Manager, who will work with you in sorting through financing options </li></ul><ul><li>Your Business Development Manager will work with you and your prospect in compiling the information needed to apply for loan financing (in addition to other incentives the state may offer) </li></ul><ul><li>Once your Business Development Manager has compiled the information, they will connect with a Credit Analyst within the ODOD, Office of Financial Incentives and work through credit analysis/due diligence </li></ul>
  34. 35. Application Checklist <ul><li>History and description of business </li></ul><ul><li>Description of market, industry, and competition </li></ul><ul><li>Resumes of owners and/or key management </li></ul><ul><li>Project description including sources and uses </li></ul><ul><li>Business financial information: </li></ul><ul><ul><li>Three years historical income statements & balance sheets </li></ul></ul><ul><ul><li>Interim financial statements (less than 90 days old) </li></ul></ul><ul><ul><li>Financial projections for three years (privately held) </li></ul></ul>
  35. 36. Application Checklist (cont’d) <ul><li>Business financial information for the last three fiscal years on affiliate businesses </li></ul><ul><li>Personal financial statement from all 20% owners </li></ul><ul><li>Bank commitment and/or term sheet </li></ul><ul><li>Phase I environment audit </li></ul><ul><li>Cost verification-purchase agreement and/or third party cost estimates </li></ul><ul><li>Appraisal by qualified appraiser </li></ul>
  36. 37. Timing Application Deadlines 2010
  37. 38. Portfolio Program Total Loans Total Loans Total Investment New Jobs Retained Jobs Average Wage Outstanding Principle Balance 166 Direct 198 $390,719,998 $2,009,749,186 14,992 23,249 $16.25 $258,347,051 OEBF 38 $239,510,000 $443,838,436 4,065 2,836 $19.06 $169,665,000 IOF 64 $66,864,907 $97,730,552 2,557 862 $30.17 $47,231,404 R&D 43 $111,003,000 $447,590,159 3,133 9,912 $22.61 $68,699,320 Rural Industrial Park 25 $12,687,500 $48,089,938 N/A N/A N/A $8,777,227 Urban Redevelopment 6 $19,938,353 $111,129,600 N/A N/A N/A $23,266,315 Totals 374 $840,723,758 $3,158,127,871 24,747 36,859 $22.02 $580,151,697
  38. 39. For More Information: <ul><li>Web Site: </li></ul><ul><ul><li>For all ODOD debt financing information discussed today or more detailed information </li></ul></ul><ul><ul><li> </li></ul></ul><ul><li>Questions? Contact: </li></ul><ul><li>Office of Financial Incentives </li></ul><ul><li>State of Ohio, Department of Development </li></ul><ul><li>(614) 466-5420 </li></ul>