Transcript Slide 1

Job Creation Tools Workshop
Rural LISC Seminar
June 6, 2013
NMSC Overview
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Organization Overview
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
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
Local Initiatives Support
Corporation (LISC)
Largest community development support
organization in the country
New Markets Support
Company (NMSC)
National Equity Fund, Inc.
(NEF)
Largest Low Income Housing Tax Credit Syndicator
Management
Services Agreement
Manages the largest New Markets Tax Credit
portfolio
NMSC Overall Goals and Direction
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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
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Deliver innovative and creative financing resources to LISC programs to
advance LISC program goals and strategic initiatives
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Develop a leading small business lending platform for LISC
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Earn incremental net income from business development initiatives to enhance
NMSC net worth and provide incremental grants to LISC
LISC Economic Development
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Building Sustainable Communities
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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
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Goal 1: Expanding Investment in Housing and Other Real Estate
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Goal 2: Increasing Family Income & Wealth
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Goal 3: Stimulating Economic Development
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Goal 4: Improving Access to Quality Education
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Goal 5: Supporting Healthy Environments and Lifestyles
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LISC’s Current Economic
Development Toolkit
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LISC MetroEdge
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Financial Opportunity Centers
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provide technical assistance
Small Business Lending
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produces market analyses, corridor assessments, and development strategies
for commercial corridors
LISC Small Business Loan Fund
LISC New Markets
Community Safety Initiative (CSI)
Local Program Initiatives:
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Business Plan Competition (Richmond, VA)
Fostering Commercial Urban Strategies Program (Indianapolis, IN)
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Other NMTC investments supporting
small businesses
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AG Processing Inc. (Dawson MN)
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Centre Street Retail (Jamaica Plan MA)
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$9.1 million investment to support a restaurant, entertainment, and brewery
business
Midtown Global Market (Minneapolis MN)
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$7.4 million investment in 13,000 sf of retail space targeted to local small
businesses
Clyde Park (Duluth MN)
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$6 million investment in a soy processing plant
$8.9 million investment in a public marketplace providing space for start-up
businesses offering fresh and prepared food
S&S Cycle (Viola WI)
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$5.5 million investment to finance a new facility for a motorcycle parts
manufacturer
Other LISC Small Business Loans
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Since its inception, LISC has made 91 loans supporting
small businesses
 Ave
size $174,000
 Total volume $15.8 million
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In the past 10 years:
 $4.9
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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
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Goals for expanding the tool kit in
2013-2014
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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
LISC Small Business Loan Fund
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LISC Small Business Loan Fund Overview
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Goal: Provide low-cost, long-term SBA 504 financing to small
businesses that enable job creation in LISC program markets
LISC Partners:
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Morgan Stanley – provide debt and NMTC equity capital for 1st mortgage loans
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CDC Small Business Finance – Nation’s largest SBA 504 lender
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CDC Capital Markets – wholly owned subsidiary of CDC Small Business
Finance. Due diligence provider for Morgan Stanley for the marketing,
packaging, underwriting and servicing.
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Local Bank Partners – loan referrals and interim 2nd mortgages
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Local 504 Companies – underwrite and service 2nd mortgage
LISC Small Business Loan Fund Overview
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Community impact goals for Small Business Loan Fund align with LISC’s NMTC
program criteria:
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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
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As of May 2013, 4 projects financed utilizing $2.6 million:
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Specialized Services (Phoenix)
Dental Associates (Milwaukee)
Inpac Container (Los Angeles)
Foundry Building (Indianapolis)
What is an SBA 504 loan?
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Owner-user fixed asset financing
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Commercial real estate
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Business equipment
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Cannot be used for working capital or inventory
90% fixed rate financing
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50% 1st Mortgage
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40% CDC Debenture 2nd Mortgage
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10% Borrower Down payment
Economic development tool designed to create jobs
Borrower Eligibility
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To qualify for a SBA 504 loan, a business must:
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Be owner-operated and for-profit
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Be organized as a sole proprietorship, corporation, partnership or limited-liability corporation (LLC)
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Tangible business and affiliates combined net worth (including affiliates) not to exceed $15 million.
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Average after-tax net income of the business and affiliates not to exceed $5 million for the previous two years.
Loan Program Requirements
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51% owner occupancy for existing building
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60% owner occupancy for new construction
LISC/Morgan Stanley Small Business Loan Fund Specific Requirements
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Multi-purpose - office, warehouse, light industrial, retail, manufacturing, medical or dental office, research and
development facilities
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No special-purpose properties - gas stations, car dealers, hotels, restaurants, car washes, bowling alleys, etc.
LISC Small Business Fund Loan Terms
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Loan size:
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$2.5 million maximum 1st mortgage
$4.5 million total financing including 2nd mortgage
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$250,000 minimum 1st mortgage
60% maximum loan to value (1st mortgage)
Rate:
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Currently 3.75% fixed for seven years (as of 3/15/13)
Based on 5 year swap rate + 275
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Adjusts to quarterly adjusting rate after seven years
Based on 90 day LIBOR + 350
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Term:
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30 year term
3 year interest only, then 27 year amortization schedule
No prepayment allowed for 7 years
Dental Associates (Milwaukee)
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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
1st
mortgage
50%
• $990,000
• MS lender of record
• LISC Small business fund
purchases the loan and holds for
seven years
2nd mortgage
40%
• $792,000
• Bridge loan from local bank
• Take out from SBA debenture
Sponsor
Contribution
10%
• $198,000 borrower contribution
Specialized Services (Phoenix)
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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
1st mortgage
50%
• $453,000
• MS lender of record
• LISC Small business fund purchases the loan and
holds for seven years
2nd mortgage
40%
• $382,289
• Bridge loan from local bank
• Take out from SBA debenture
Sponsor
Contribution
10%
• $198,000 borrower contribution
Inpac Container (Los Angeles)
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Corrugated box manufacturer purchased
warehouse space in low-income community
for $1.35 million, which is closer to its
customers.
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Grow from its current 18,000 square foot
leased building to 35,000 square foot
warehouse.
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Allows the company to fix its occupancy
costs.
 Will create three new jobs and retain five
current jobs.
 Referred by LA LISC partner, PACE, a
nonprofit focused on job training and
employment.
1st mortgage
50%
• $717,000
• MS lender of record
• LISC Small business fund purchases the loan and
holds for seven years
2nd mortgage
40%
• $573,600
• Bridge loan from LISC
• Take out from SBA debenture
Sponsor
Contribution
10%
• $143,400 borrower contribution
Foundry Building (Indianapolis)
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Before - Foundry Building
After – Nottingham Realty Office
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.
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After- Foundry Cafre
1st mortgage
50%
• $227,500
• MS lender of record
• LISC Small business fund purchases the loan and
holds for seven years
2nd mortgage
35%
• $159,250
• Bridge loan from construction lender
• Take out from SBA debenture
Sponsor
Contribution
15%
• $68,250 borrower contribution
SBA Community Advantage
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Community Advantage
Program Overview
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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 economicallychallenged 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 veteranowned businesses
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Community Advantage
Borrower Loan Terms
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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
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Community Advantage
Lender Terms
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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
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Community Advantage
Lenders
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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
CA Lender Application
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Attributes of successful Community Advantage lender applications:
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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
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Sufficient, clear & well documented loan policies and procedures
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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
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Kentucky Highlands Investment Corp
Small Business Tool Kit
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KHIC Overview
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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
KHIC Tool Kit – Page 1
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Goldman Sachs 10,000 Small Business Program
United States Department of Agriculture
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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
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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
KHIC Tool Kit – Page 2
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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
KHIC Tool Kit – Page 3
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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