STATE OF ALABAMA ECONOMIC DEVELOPMENT LOAN FUND

 

Administered through the Alabama Department of Economic & Community Affairs

 

Return to Economic Development

 

The purpose of the Economic Development Fund (ED Fund) is to allow the State to fund activities necessary to take advantage of economic development opportunities. Project financing is available through annual allocations of Community Development Block Grant (CDBG) funds and access to the State CDBG revolving loan fund. Eligible applicants are all non-entitlement local governments.

Eligible applicants may apply for ED loan funds at anytime during the program period to make loans to private businesses for locating or expanding in the community and creating or retaining jobs for low and moderate-income persons.

ED loans can be used for the following purposes:

A reasonable percentage of the amount applied for on a ED loan project may be a grant to cover administrative expenses. The State may either perform an in-house review and underwriting of the loan request or provide for the review to be performed by an independent state approved underwriter. Similarly, the State may either perform loan closing in-house or allow the loan closings to be performed by the regional planning commission/council. If the loan request review is performed by an independent underwriter, the State approval may take into account such other factors as may be necessary to preserve the program's integrity and effectiveness. Loans made from the CDBG RLF will be governed by the same requirements as loans from the CDBG ED Fund.

ED funds used by communities to make loans to private businesses will have a payback requirement. The determination as to the local government's disposition of the proceeds of repayment of loans will generally be made at the time a ED loan is funded. As required by Section 104 (j) of the Housing and Community Development Act, the State will, as part of all application reviews, recognize the applicant's right from which such income was derived. The repayments may be allowed to be made to the regional commissions/councils to be used for similar purposes if they are determined to be nonprofit organizations serving the development needs of the communities in nonentitlement areas.

A grant ceiling of $250,000 will apply to applications requesting ED loans. The State will maintain the right to deny funding of any application or activity during the program period depending on the quality or appropriateness of the proposed project, or the capacity of the community to undertake such a project. Threshold requirements for the ED loans are listed as follows:

 

Thresholds:

    1. The proposed activities, generally, must be associated with an economic development project creating/retaining permanent jobs.

    2. The proposed project must not involve intrastate relocation of a business, except when such relocation may have been necessitated due to inadequacies associated with the existing location and a move to a new location will result in a greater number of jobs.

    3. The applicant must have a commitment from the business to create or retain jobs.

    4. Beneficiaries of ED fund projects must be at least 51 percent low and moderate-income persons.

 

Evaluation Criteria:

Applications for ED loans will be considered on a continuous basis. Each application will be reviewed for conformance with the thresholds and other regulatory requirements. So long as funds are available, worthy projects will be funded on a first-come, first-served basis. In the event there are more worthy projects than there are funds available, the State shall select for funding those projects, which appear to have the greatest long-term benefit to the State. The following factors will be considered in making funding decisions:

    1. CDBG dollars per permanent job.

    2. Leverage ratio (private dollars as compared to CDBG dollars)

    3. The actual number of permanent jobs to be created or retained.

    4. Unemployment in the applicant locality.

    5. Potential for spin-off benefits.

    6. Job diversification.

 

ED Float Loans

ED Float loans are short-term loans, which will be made out of appropriated, but unexpended CDBG program funds that may have been allocated to specific program activities. The purpose of ED Float Loans is to allow the State to fund activities necessary to take advantage of economic development opportunities, which will principally benefit low and moderate-income persons. Funds used for short-term grants or float loans will come from all categories of grants. As loans are repaid the repayment of principal will be used to restore all funds from which the money initially came, while the interest will generally be used to increase the State's CDBG Economic Development Fund.

The amount of funds available for the "float loan program" will be determined by careful monitoring of the fund flow needs of the CDBG program. Because the State recognizes that the "float loan" program entails some risk, each request will be analyzed on the basis of the need of grants previously funded. Float loans will be made only after it has been determined, to the maximum extent possible, that the amount and term of any float loan will not commit the State's letter of credit balance to the degree that other previously funded grants are delayed or jeopardized.

Eligible applicants for ED float loans are all nonentitlement local governments, which meet the eligibility thresholds listed earlier. The approvals and funding announcements will be made by the State and the Float Loan program will be governed by the following requirements:

 

Program Objective

A primary objective of the float loan program is to expand economic opportunities, principally for persons of low and moderate income. Normally, the program will be used only to aid in the creation of new jobs and on projects where there is a likelihood to be a substantial economic development impact. In exceptional circumstances the float loan program may be used to help retain jobs. Of the jobs to be created (or retained), at least 51 percent must be occupied by or made available to low and moderate income persons. If float loans are made in order to retain jobs, the applicant must clearly demonstrate that, without CDBG assistance, the jobs would be lost.

 

Eligible Activities

The float loans can be used to finance any necessary activity including acquisition, site preparation, new construction, renovation, purchase of machinery and equipment, working capital, refinancing, and other CDBG eligible activities approved by the State.

 

Loan Amounts and Terms

The minimum loan amount shall be $1 million and the maximum loan amount shall be $10 million. The maximum and minimum loan amounts may be waived by the State when significant long-term economic benefits for low and moderate-income persons are involved. The loan term will normally be for one year. This term may be extended with State approval, based upon a complete financial assessment to document that it is necessary and appropriate to extend the term of the loan. This assessment will be completed prior to the end of the term and there will be no more than one extension.

Loans will be sized and priced according to the need for CDBG assistance as determined by the financial analysis of each project to identify the financing gap, an appropriate rate of return, and relevant location cost differentials. Interest earned on float loans will be treated as program income and will be used for CDBG eligible activities.

 

Evaluation Criteria

Applications for ED float loans will be considered on a continuous basis. However, due to the unique nature of this program, the State intends to fund only a limited number of float loan projects. Prior to accepting any application, the State will require a thorough review of the project with the State. Float loan funding decisions will be based on the following factors:

For more information contact the Alabama Department of Economic and Community Affairs at: http://cdbg.adeca.state.al.us

 

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