Revolving Loan Fund

The Gateway Area Development District’s (GADD) Revolving Loan Fund (RLF) is a publicly administered development capital fund, established through a grant from the Economic Development Administration, U.S. Department of Commerce. It was established to provide debt financing for strategically targeted businesses unable to obtain adequate market financing for projects of economic benefit to an area. The term “Revolving” relates to the fact that RLF capital is replenished as loans are repaid and recycled into new loans. These are one-time, direct loans, not revolving lines of credit.

Purpose & Eligible Uses

Purpose

The Gateway Area Development District’s Revolving Loan Fund Program is designed to work in conjunction with private lending sources to provide financing for economic growth and job creation/retention. The prospective borrowers for the RLF are new or expanding companies that need funding to fill the “gap” between their equity and the amount lenders are willing to extend for a project.

Eligible Uses

Only businesses with projects located within the five-county service area of the Gateway Area Development District (Bath, Menifee, Montgomery, Morgan & Rowan) are eligible for loans from the GADD-RLF. These loans must be for community development projects, the establishment of new businesses, expansion of existing businesses, creation of employment opportunities, or retention of existing jobs. Such loans may include, but are not limited to:

  • Purchase of equipment, machinery, and/or fixtures including related costs
  • Business and industrial acquisitions when the loan will keep the business from closing, prevent the loss of employment opportunities, or provide expanded job opportunities.
  • Business construction, conversion, enlargement, repair, modernization, or development with preference given to businesses utilizing developed industrial land or existing industrial buildings.
  • Purchase and development of land, easements, rights-of-way, buildings, facilities, leases, or materials.
  • Leasehold improvements
  • Working Capital

Ineligible Activities

Gateway Area Development District revolving loan funds will not be used for payment of administrative costs or expenses. The GADD-RLF will not be used to:

  • Acquire an equity position in a private business;
  • Subsidize interest payments on an existing RLF loan;
  • Provide for borrowers’ required equity contributions under other Federal Agencies’ loan program;
  • Enable borrowers to acquire an interest in a business either through the purchase of stock or through the acquisition of assets, unless sufficient justification is provided in the loan documentation. Sufficient justification may include acquiring a business to save it from imminent closure or to acquire a business to facilitate a significant expansion or increase in investment with a significant increase in jobs. The potential economic benefits must be clearly consistent with the strategic objectives of the RLF;
  • Provide RLF loans to a borrower for the purpose of investing in interest-bearing accounts, certificates of deposit or any investment unrelated to the RLF; or
  • Refinance existing debt, unless:
    • The RLF Recipient sufficiently demonstrates in the loan documentation a “sound economic justification” for the refinancing (e.g., the refinancing will support additional capital investment intended to increase business activities). For this purpose, reducing the risk of loss to an existing lender(s) or lowering the cost of financing to a borrower shall not, without other indicia, constitute a sound economic justification; or
    • RLF Capital will finance the purchase of the rights of a prior lien holder during a foreclosure action which is necessary to preclude a significant loss on an RLF loan. RLF Capital may be used for this purpose only if there is a high probability of receiving compensation from the sale of assets sufficient

Loan Size, Equity, Terms, Rates & Collateral

Loan Size

Loans will not ordinarily be made in an amount less than $20,000 or greater than $150,000 to any one entity or company within one year. Generally, the RLF investment will be the lesser of 30% of the total project cost or $150,000.

Equity Requirements

The RLF will require a minimum of 10% equity injection to be provided by the borrower. The equity requirement for a working capital loans can be met if the borrower has existing net working capital of at least 10% of its working capital needs.

Maximum Loan Terms

The terms of the loans are matched to the use of funds, with long-term financing structured to the productive life of fixed assets. The terms of maturity of loans will vary depending on the needs of the applicant, but the following maximum repayment terms are generally considered appropriate:

  • Buildings and Real Estate……………………15 years
  • Machinery and Equipment……………………10 years
  • Working Capital…………………………………5 years

Interest Rates

The interest rate on RLF loans will be indexed to the prime rate as published in the Wall Street Journal and will generally be at a fixed-rate within the range of five (5) to eight (8) percent. In no event shall the interest rate be less than the lower of four (4) percent or 75 percent of the prime interest rate listed in the Wall Street Journal. However, should the prime interest rate exceed fourteen (14) percent, the minimum RLF interest rate is not required to be raised above ten (10) percent if doing so compromises the ability of the RLF recipient to implement its financing strategy. Interest rates shall be fixed and charged only on the unpaid balance of the principal for the actual time the money is outstanding on the loan. Interest will be compounded monthly.

Collateral Requirements

When an applicant participates with a private lending institution the lending institution will generally hold the first lien with the GADD taking a second or junior position. GADD employs standard collateral requirements; sufficient and appropriate collateral is required for all loans. Corporate guarantees or personal guarantees will be required of any entity having ownership interest in the business.

Creation of Jobs & Loan Process

Creation of Jobs

GADD will require that for every $20,000 in RLF dollars loaned to a borrower, one full-time job will be created or retained. The one job per $20,000 invested is required for the RLF portfolio as a whole, and not necessarily for each loan project.

Loan Process

Because the Gateway Area Development District’s Revolving Loan Fund is designed not to compete with private financial institutions, potential applicants are encouraged to contact their bank prior to contacting the GADD.

When a potential borrower contacts the GADD office, he/she speaks with the RLF Manager. During this initial conversation, the RLF Manager determines what stage of the process the borrower is at. The borrower may be asked to and come to the GADD office for further discussion and/or may be referred to the local Small Business Development Center for additional assistance. If the potential borrower is asked to come to the GADD office, a preliminary review of the company’s, business plan, and the financial statements will be made during that meeting.

Following the meeting the RLF Manager will begin screening the project for both its conformance with EDA RLF guidelines and standards and its soundness as a business venture. If a project is found to have merit and a possibility for success as a business, the prospective borrower will be asked to submit a loan application along with a $100 non-refundable application fee to the GADD Loan Review Committee. The RLF Manager will provide assistance in completing the loan application upon request of the borrower.

All applications must receive the approval from both the GADD Loan Review Committee and the GADD Board of Directors before the loan can be approved.

Loan applications need to be submitted a minimum of 30 days prior to Gateway Area Development District Board of Director’s monthly meeting, which is the fourth Tuesday of each month.