The Revolving Loan Fund (RLF)
The Revolving Loan Fund (RLF) of the Central Arkansas Planning and Development District (CAPDD) was created in 1986 through a grant of $811,250 from the U.S. Department of Commerce's Economic Development Administration (EDA).
The purpose of the grant was to assist in the economic development of Pulaski, Faulkner, Saline, Lonoke, Prairie, and Monroe counties in Central Arkansas. The RLF provides loans to business and industry. This is an effective economic development tool for expanding the economic base, supporting economic growth and development of the region, and creating a diverse economic base on which industry can build.
Along with the local and other matches, the RLF has had a total of $3,043,990.70 to lend to assist in joint public/private ventures to finance acquistions, and establish or modernize businesses/industries as a means of saving or creating employment opportunities. Over the years the RLF has been in place, 50 loans have been made, creating 274 jobs and saving 110. Including RLF funds, and other leveraged public and private funds the RLF has helped create a total of $8,096,462 of project financing.
Since the RLF is federal funds, there are certain requirements that have to be met to secure loan funding under this program. The following briefly sets forth those requirements:
Because the purpose of the RLF is to provide economic stimulus in Central Arkansas, the proposed project must create or retain jobs that would otherwise have been eliminated. In general, one job must be created for every $10,000 of funding from the Revolving Loan Fund (RLF). Such creation usually takes the form of a new job. However, under certain circumstances, the retention of an existing job may qualify for this requirement.
The Revolving Loan Fund is designed to be a financing source which fills the "gap" in financing that is not available in exisiting local financial markets. As "gap financing", the fund is designed to attract capital investment from the private sector. Under this program, it is preferred that loans contain a minimum of fifty (50) percent participation from local financial institutions of other investors. Current regulation allows the private sector participation to take the form of Act 9 Industrial Revenue Bonds. Sufficient equity is also recommended to provide a minimum of two private dollars to one dollar from the Fund.
The standard equity requirement of the RLF will be ten (10) percent. The RLF Board may choose to consider projects with less than ten percent equity injection if the economic impact of the project warrants the exception. The equity requirement shall be the same for the start-up and exisiting business, as well as fixed asset and working capital loans.
Types of Activities
The Fund is designed to assist small business development, including expansion and start-up of locally owned businesses. Such loans may be used to finance the acquistion of real estate, buildings, equipment, inventory, accounts receivable or working capital. Special emphasis will be placed on those activities which create the highest value added to the economy. Those project which expand industrial or manuafacturing capacity encourage the formation of new technologies, growth industries and/or high technology firms will receive higher ranking for the limited RLF funds. In addition, emphasis will be placed on the development of businesses owned and operated by minorities, women and members of other economically disadvantaged groups.
A barrower is eligible for RLF financing only when credit is not otherwise available on terms and conditions which would permit completion and/or the successful operation or accomplishment of the project activities to be financed.
The Fund is specifically, by law, precluded from providing assistance which relocates jobs from one labor area to another. The Fund may not make loans which would create a potential conflict-of-interest between the potential borrower and the lender. Loans for refinancing of exisiting debt, or the speculation or investment in stocks, interest bearing securities, or real property are prohibited. Activities financed under the Fund are prohibited from discrimination and must meet the requirements of civil rights, access for the disabled, protection of the environment and certain other federal mandates.
Terms and Rates
The Fund may make loans with a maximum term of ten (10) years. Because new loans are made from the collected proceeds of previous loans, request for funding with a shorter term will receive priority. In all instances, the minimum interest rate will be four percent (4%) below the current U.S. Treasury rate for issues of similar size and maturity. The maximum interest rate will not supercede State Law. EDA guidelines regarding standard interest rates will be followed. Any deviation from these standard interest rates will be determined by the RLF Board.
The Fund normally provides assistance in conjunction with local financial institutions and may require a shared first-lien security position with the private lender in the acquired assests. In addition, the Fund may require personal guarantees, the pledging of additional security, or such other collateral as required to adequately protect the investment of federal funds.
The standard collateral requirement of the RLF will be to, whenever possible, take a superior collateral position. The RLF Board may decide to take a second position if the loan will further the RLF in creating private sector jobs. The lien position of the RLF may subordinate and make inferior to lien or liens securing other loans made in connection with a particular projects. In the determination of collateral requirements, the RLF Board may consider the merits and potential economic benefits of each request. When appropriate and practical, RLF financing may be secured by liens of assignments of rights in assets of assisted firms.
The operation of the Revolving Loan Fund has certain other requirements which are set forth in the RLF Plan, loan application and subsequent loan agreements. Details of such requirements will be provided in the normal aggression of loan processing.
Loans will be for a minimum of $10,000 and a maximum of $100,000, except when unusual circumstances of a project would warrant such exception in order to benefit the community's economic base. No more than 30 percent (30%) of the total portfolio may be working capital loans.