Small Enterprise Loan
Pelican Rapids Community Area Small Enterprise Loan
The Small Enterprise Loan Fund provides gap loans and is managed by Pelican Rapids Area Community Fund (PRACF), a community fund of the West Central Initiative (WCI). PRACF was established by the citizens of the Pelican Rapids area to improve the quality of life in and around the community of Pelican Rapids. The Revolving Loan Fund is designed to encourage business expansions, start-ups, and the resultant job creation and retention in the Pelican Rapids area.
- A business plan is usually required, especially on larger loan requests of $20,000 or more.
- Applicants must demonstrate that a financing gap exists, and that the bank is unable to fund the entire project.
- A personal guarantee is always required.
- The project must demonstrate sound management ability and the likelihood of success must be very high.
- An assignment of life insurance from the principal borrower is usually required.
- Applicant must have a satisfactory credit history.
- Cash flow projections and collateral values must be provided that demonstrate the repayment ability of the business.
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REVOLVING LOAN FUND GUIDELINES
The Pelican Rapids Area Community Fund (PRACF) is a community fund of the West Central Initiative (WCI) which was established by the citizens of the Pelican Rapids area to improve the quality of life in and around the community of Pelican Rapids. The Revolving Loan Fund of the PRACF is designed to encourage business expansions, start-ups and the resultant job creation and retention in the Pelican Rapids area.
From time-to-time, the PRACF may establish special incentive types of loan funds that are available but are subject to different guidelines than published here. For more information on what special projects may be available, contact the PRACF at the address listed.
1) Types of Projects Funded
The Revolving Loan Fund makes loans for the start-up, expansion or succession of businesses within the Pelican Rapids area. All projects must create new employment opportunities in the Pelican Rapids area or retain jobs which would clearly be lost without the revolving loan fund support. Loans which will result in relocation of a business within the area will generally not be made except to facilitate a substantial expansion. Loans to preserve a business will be made only where it can be clearly demonstrated that the business would be lost to the community without the loan, and that the company has viable ongoing business prospects.
Businesses applying for revolving loan fund support must demonstrate a “Financing Gap” which establishes that the project would be unlikely to successfully go forward in the Pelican Rapids area without that support. “Financing Gap” usually takes one of the following forms:
- The collateral available will not fully satisfy the underwriting standards of commercial lenders for a loan of the size needed for the project to go forward;
- There is insufficient equity available to qualify with a commercial lender for the proposed new lending;
- The business is at the maximum allowable lending limit for its commercial lender;
- The cash flow available to repay the debt is insufficient to repay a loan made at standard commercial terms; or
- The project is not economically competitive in the Pelican Rapids area location with standard commercial financing.
2) Business Sectors Served
Projects in the manufacturing, tourism, and agri-processing sectors will be given priority. Service and retail businesses will be considered, but if unduly competitive with local firms serving the local market, they will be considered on a case-by-case basis. Loans will not be made for agricultural purposes (crop or livestock production, etc.).
3) Matching Requirements
The revolving loan fund will generally provide no more than 50% of the funding required for a project. New investment in the project must be made by other sources, such as private lender financing, or equity investment, and must generally total at least 50% of the project.
4) Eligible Uses of Loan Funds
Loans may be made to projects for real estate, machinery, or equipment, working capital, inventory, and related expenses. Loan funds may not be used for debt refinancing. Fees charged by individuals or firms for the preparation of application materials are not eligible uses of funds. Free assistance preparing loan application is available through the Small Business Development Center and can be arranged for by calling (218)236-2289.
5) Collateral Requirements
While the revolving loan fund will occasionally accept positions on collateral subordinate to private lenders, all loans must be fully collateralized. The evaluation of the value of any collateral offered will be solely at the discretion of WCI. Personal guarantees are generally required from all persons owning 20% or more of a business receiving financing through this program.
LOAN PROGRAM TERMS
1) Interest Rates
The effective interest rates for loans from the revolving loan fund will be reviewed on a case by case basis, depending on a variety of factors including the value of the collateral offered, the amount of financing from other sources, compatibility with the local environment, and the number and quality of jobs created. This is accomplished by structuring the loan so that a portion of full market interest rate is forgiven as long as loan payments are kept current.
2) Term and Amortization
The term over which loans made by the revolving loan fund will vary depending on the life of the assets used as collateral. Occasionally, the revolving loan fund will agree to amortize a loan over a longer period than its term in order to improve the cash flow of a project. When this is done, a balloon payment of the remaining principal will be due at the end of the loan’s term.
3) Loan Size
The maximum loan size made by the revolving loan fund is currently set at $20,000and may be increased from time to time as loan fund assets grow. Due to its relationship with WCI, the revolving loan fund can sometimes coordinate its participation in larger projects with the various loan programs offered through WCI, resulting in a maximum loan size of up to $250,000.
4) Closing Costs
Successful applicants will be charges for the costs of preparing closing documents, for the cost of reviewing and recording security positions on collateral offered, and, where necessary, for appraisal of collateral.
Interested parties should fill out the pre-application form and mail or deliver it to:
Pelican Rapids EDC
P.O. Box 892
Pelican Rapids, MN 56572
The pre-application form will be reviewed to determine whether the proposed project is eligible. If eligible, a full application will be invited, and forwarded to WCI for review.
Free assistance in preparation of full applications is available through a grant provided by WCI to the Small Business Development Center (SBDC). This assistance, which can be provided to the loan applicant in Pelican Rapids, if desired, can be obtained by calling the SBDC at (218) 236-2289.