Financial Assistance

There is no such thing as “free money” when it comes to economic development finance. It is important to begin this page by emphasizing that statement.

Most economic development projects are funded through a combination of owner equity and bank financing.

Cities generally do not have grant dollars available for land or building acqusition, equipment or inventory purchases, or working capital.

Cities and economic development authorities typically only provide “gap financing,” or a loan to bridge the gap between what the bank is willing to lend and the total cost of the project.

With that said, the City of Norwood Young America does have a number of financial resources available to assist existing businesses, as well as those looking to relocate, or expand within the community.

NYA Small Business Development Loan Program

This program provides gap financing for businesses looking to make exterior or interior improvements to their property.

Eligible exterior projects include such things as windows, roofs and foundations. Eligibile interior improvements include those projects that improve the safety, habitablity and energy efficiency of the building, i.e. heating and cooling systems, electrical improvements, insulation, and handicap accessibility.

The maximum loan amount is $5,000. The term of the note cannot exceed five years. The interest rate is the prime rate as noted in the current edition of the Wall Street Journal.

Download the NYA Small Business Development Loan Program application.

For more information, contact the NYA Economic Development Coordinator at (952) 467-1993.

NYA Commercial Corridor Revitalization Loan Program

The purpose of the Commercial Corridor Revitalization Deferred Forgivable Loan Program is to offer funds to commercial property owners in the C3 Downtown Zoning District; the C2 General Commercial Zoning District; and the RC-1 Residential Commercial Zoning District to make exterior improvements that improve the “curb appeal” of their property.

Eligible Properties Map

Loan amounts range from $500 to $5,000. This is a deferred forgivable loan. If the recipient retains ownership of the property for five years after the EDC approves the loan; the EDC will forgive the entire loan amount.

The recipient must repay the loan, if he or she sells or transfers the title of the property within the five-year period. If the total loan amount is $5,000, and the property owner sells after three years, he or she will have to repay $5,000. Recipients will have to sign a “Repayment Agreement,” which is filed at Carver County as a lien against the property. The Repayment Agreement must be signed before work begins on the project. The term starts when the Repayment Agreement is signed and dated.

Download the NYA Commercial Corridor Revitalization Deferred Loan Program application.

For more information, contact the NYA Economic Development Coordinator at (952) 467-1993.

Tax-Increment Financing

The City of Norwood Young America Economic Development Authority will consider using Tax Increment Financing (TIF) for eligible projects.

Eligible projects must pass what is called the “but-for” test. Meaning that unless Tax Increment Financing is utilized, the project will not be economically feasible. In other words: if the project can be done without TIF, then it is ineligible for this assistance.

What is TIF? Essentially, the difference between a property’s original property taxes and the property taxes due on a property after it has been improved (called the “tax increment”) can be captured and used to help finance the project.

There are two types of TIF districts: Economic Development TIF districts for new developments and Redevelopment TIF districts to help with the costs of renovating or replacing substandard buildings. Different rules apply to each type of TIF district (see below):

Economic Development TIF District

9-year district that can provide funds for land acquisition, infrastructure (street, water & sewer, parking, etc.), grading & excavating and / or site improvements.
Primarily used for industrial-type projects.

Redevelopment TIF District

District that can go up to 25 years and provides funds for the removal of blighting conditions on a lot (sub-standard buildings, site clean-up, etc.).
At least 70-percent of the area must be occupied by buildings or other improvements.
At least 50-percent of the buildings must be substandard, based upon an internal inspection.
A building is considered substandard if it would cost at least 15% of a new building to bring the existing building up to current building code requirements.
As long as the above requirements are met, any type of commercial, retail or industrial is eligible.

For more information, please contact the NYA Economic Development Coordinator at 952-467-1993.

Minnesota Business Finance Corporation – SBA 504 Loan Program

Minnesota Business Finance Corporation (MBFC) is a Certified Development Company authorized by the U.S. Small Business Administration to originate and service SBA 504 loans. The SBA 504 loan program is “the money that makes America work.”

The SBA 504 loan program is economic development financing specifically designed to stimulate private-sector investment in long-term fixed assets to increase productivity, create new jobs and increase the local tax base. This is done by providing long-term, low down payment, reasonably priced, fixed-rate loans to businesses, which have the highest probability of successfully creating new jobs and competing in the world marketplace.

Eligibility

Operate as a for-profit business entity, and have a tangible net worth of less than $7 million, and an average net income that is less than $2.5 million after taxes for the preceding two years.

Requirements

Loans must be for fixed asset projects such as purchasing land and / or buildings; the construction of new facilities; and / or modernizing, renovating or converting existing facilities; or purchasing machinery and equipment.
Funds cannot be used for working capital, or inventory or for consolidating, repaying or refinancing existing debt.
Must have a private sector lender commitment for up to 50 percent of the total project cost.
Must provide an equity injection of 10 to 20 percent of the total project cost.
Must create and / or retain jobs, or meet community development or public policy objective.

Rates / Terms

Interest rates are pegged to an increment above the current market rate for five year and 10 year U.S. Treasury issues.
Terms of 10 or 20 years are available.
Fees typically total three percent of the total debenture.

Advantages of a 504 Loan

Long-term, fixed-rate financing.
20 years on real estate, 10 years on equipment.
Low equity injection – 10 to 20 percent preserves working capital and increases return on equity.

For more information, please contact the Norwood Young America Economic Development Coordinator at (952) 467-1993. Otherwise you can contact MBFC directly:

Nadine M. Kruize
Minnesota Business Finance Corporation
616 Roosevelt Road, Suite 200
St. Cloud, MN 56301
Phone: (320) 255-1685
E-mail: nkruize@mbfc.org

Local Financing

Norwood Young America is fortunate to have two community-based financial institutions available to assist businesses with their commercial lending needs.

Citizens State Bank
409 Faxon Rd N
Norwood Young America, MN 55368-9507
(952) 467-3000
www.citizensstatebanknya.com

KleinBank
800 Faxon Road
Norwood Young America, MN 55368
(952) 467-2313
www.kleinbank.com

Six Strategies to Help Ensure Business Loan Success

1. Know the ground rules: You didn’t start your business on a whim, and applying for a loan is no different. You need to do your homework to make sure you understand all the ins and outs of the loan approval process. Knowing what information the lender will be asking for – such as a well thought out business plan that specifically addresses the amount of funding you will need, how the funds will be used and how soon you intend to pay the loan off – is critical for establishing yourself as a credible loan candidate.

2. Polish your personal credit rating: While your business is new, your own personal credit history can be a determining factor for business loan qualification. Because improving your personal credit score takes time, you need to become proactive in this area before applying for a new business loan. First off, you need to obtain a credit history from a legitimate source, such as Annual Credit Report. For other reputable credit report sources, consult a qualified accountant. Once you’ve obtained the report, look it over to make sure there are no errors or omissions, and then go to work to improve your score by paying down excess credit card balances and limiting future charges. If you’re carrying high rate cards in your wallet then you’ll want to focus on paying those down first. You’ll also want to contact the creditor to see if you can establish a lower rate to help pay the card down faster. Once a card is paid off, avoid using it, but do not close the account, as this will have a negative effect on your credit rating.

3. Start establishing business credit: The sooner you can start establishing a positive credit history specific to your business the better. As most banks require businesses to be up and running at least 18 months before they will issue a business credit card, there are other ways to begin the process. One way is to establish a “business only” bank account to run all your business purchases through. If you need to make a large purchase, such as buying a car, you can help to establish a business track record by buying the car with personal credit and then making all the payments through the business account. Another strategy is to designate one of your current credit cards for business purchases only, making sure to consistently pay off the balance on time. Purchasing office equipment and supplies from companies such as Staples and Office Depot, which are now working with small business owners by offering small lines of credit, is also an effective and relatively easy way to start establishing business credit.

4. Research the pool of potential lenders: Before contacting any lending institution, do all you can to determine which lender is best suited to your needs. Contacting other successful business owners in parallel or complimentary industries and asking them for lender leads can improve your chances of finding a more willing lender, because they may have a positive track record of loaning money to businesses closely related to yours. Local banks are a good place to start, as they can be more objective and motivated to loan money to small businesses in the community. Be aware that many lenders who currently fund small business loans, especially loans less than $100,000.00, now use a standardized automated credit scoring system, making the loan process impersonal and subjective.

5. Consider online lending options: With today’s technology, borrowing for your business no longer has to be all about the “brick and mortar” lending institution. By exercising caution in your search, the web can lead you to reputable companies set up to either loan money directly or match business owners with prospective lenders that best suit their unique financial needs. When choosing an online loan company, try to avoid those that offer secured loans. While these loans are often easier to qualify for, they frequently come with higher interest rates and require business equity and assets for collateral, meaning that defaulting on the loan could cause you to lose your business.

6. Determine a realistic loan amount: If and when the need for a small business loan arises, be realistic in determining how much money is needed as opposed to how much is wanted. With advances in technology, the ability to hire online help and take care of other aspects of business “virtually” can be an effective tool for keeping funding expectations more conservative and improving the chances of obtaining a small business loan.

Source: www.youngentrepreneur.com