Opinion ID: 1578403
Heading Depth: 1
Heading Rank: 4

Heading: The Business Loan Bond Insurance Pilot Program

Text: 14. The Business Loan Bond Insurance Pilot Program was created pursuant to Minn.Stat. §§ 116J.875 to 116J.91 (1982 & Supp.1983). It is intended to provide business loans to eligible small businesses located in Minnesota which are starting or expanding and are creating new jobs and/or installing or improving equipment or facilities to control pollution. Loans may also be made to assist businesses which would otherwise reduce their employment or other activities within Minnesota without the financing provided by the program. Dayton Aff.; Laubach Aff.; Exs. K, K-1, L. 15. Funds for business loans primarily will be raised through the sale of revenue bonds issued by the Authority, the interest on which is generally exempt from federal income taxes. These debt instruments will generally take the form of long term, fixed rate loans for land, buildings, capital improvements or equipment. Business development loans generally will be provided at interest rates below those normally available to the small business. By pooling bond issues and increasing the investment of private capital in connection with business loans, the Authority's program facilitates a partnership between the private and public sectors. Ex. K-1. 16. Additional security for the business loan bonds will be provided through the use of appropriated dollars in the Economic Development Fund either (1) to purchase private bond insurance and/or to fund a debt service reserve fund to be used in conjunction with the private bond insurance, or (2) through segregated accounts within the Economic Development Fund pledged to each loan made under the Program. By so securing the bond issue, it will be possible to provide financial assistance to small businesses which otherwise would be unable to receive financing at all or only at such unfavorable terms or conditions as to make their projects not economically feasible. Ex. K-1. 17. Ultimate approval of an application for a loan under the Business Development Loan Bond Insurance Pilot Program will depend upon a determination that the business entity applying for a loan is creditworthy under generally accepted commercial lending credit evaluation practices, that the financial analysis of the business's performance shows it is adequate to reasonably assure that the loan will be repaid, and that the State of Minnesota will benefit in the form of new jobs created, expanded state or local tax bases, improvement of economic activities in depressed areas of the State, other economic and employment benefits, or pollution abatement or other environmental enhancements. Ex. K-1; Dayton Aff.; Laubach Aff. 18. The Business Loan Rules previously adopted by the Small Business Finance Agency were transferred to the Authority, as successor to the Small Business Finance Agency. These rules are set forth in 4 MCAR §§ 14.001-14.023. Ex. J.; Dayton Aff. 19. According to the procedural guides for the three pilot programs set up by the Authority, an extensive credit check must be performed on each applicant. The Financial Management Division of the Minnesota Department of Energy and Economic Development is responsible for performing this credit evaluation. Laubach Aff.; Exs. K-1, L-1 and N. 20. Under the Business Loan Bond Insurance Pilot Program Procedural Guide, Ex. K-1, in cases where there is a private insurer, the private insurer is responsible for part of the credit review of the borrower. The general guide for credit analysis to be followed in this program is set forth in Robert Morris Associates, Annual Statements Studies, Philadelphia, Pennsylvania. There are five major areas covered by the credit review: (1) personal credit references; (2) site visit; (3) technical analysis of business's product or equipment to be purchased; (4) cash flow analysis; and (5) findings of public purpose. 21. The personal credit references of the owners, partners or major shareholders (if the business is closely-held) are to be evaluated when a personal guarantee or pledge of personal assets is a condition of the business development loan. Only if the personal credit reports are favorable will the business development loan be approved. Ex. K-1; Laubach Aff. 22. A staff member or representative of the Financial Management Division must personally visit the site where the business is located or where the borrower proposes to do business prior to adoption of the final resolution. To the extent feasible, the equipment the borrower proposes to acquire must also be examined. A report of the visit and examination becomes part of the business development loan file. Ex. K-1; Laubach Aff. 23. In those cases where the staff of the Financial Management Division is unfamiliar with the technology associated with the capital expenditure to be financed by the business development loan, the staff may require technical documentation from a reputable testing laboratory, engineering firm or other source of technical information. Such information shall be required only if it is necessary to verify the claims made by the borrower for the performance of a product manufactured by the borrower, or for a piece of equipment to be acquired by the borrower with the proceeds of a business loan. The staff may require documentation of the claims for the performance of products produced by the borrower in the form of reports from independent testing agencies (such as Underwriters' Laboratories) which are generally recognized to have expertise in the area. Ex. K-1; Laubach Aff. 24. To assure that the business development loan will be repaid, an analysis of the financial data in the file must be made. This includes documentation of the past performance of the company and projection of future performance. Ex. K-1; Laubach Aff. 25. The business development loan must also meet certain additional standards relating to public purpose. Ex. K-1. A business development loan is recommended for approval to the Authority only after it has been determined by staff of the Financial Management Division that the following standards of public purpose have been met: A. The borrower is an owner and an eligible small business as defined in the Act; B. The small business reasonably can be expected to maintain a sound financial condition and to retire the principal and pay the interest on the loan in accordance with the terms of the loan agreement; C. The project is economically feasible with a reasonable expectation that the life of its economic feasibility will exceed the maturity of the loan; D. Except in the case of loans for pollution control facilities, the project will create or maintain a sufficient number and type of jobs to justify Authority participation in its financing, and the use of appropriated monies in the Economic Development Fund for insurance will enhance the creation or maintenance of jobs as a result of the loan; E. The project feasibility is sufficient to allow the Authority to sell the bonds required for its financing; F. The project and its development are economically advantageous to the state, the provision to meet increased demand upon public facilities as a result of the project is reasonably assured, and the energy sources to support the successful operation of the new project are adequate; G. Except in the case of a loan for pollution control facilities, if the project has the effect of a transfer of jobs from one area of this state to another, there is sufficient evidence in the loan file to determine that the project is economically advantageous to the state or that the project is necessary to the continued operation of the business enterprise within the state; H. The project will assist in fulfilling the purposes of the Act, including the preferences and priorities set forth in Minn.Stat. § 116J.89; and I. If the project includes pollution control facilities, such facilities will help prevent, reduce, abate or control noise, air or water pollution or contamination in accordance with the provisions of the Act.