The impact of the COVID-19 outbreak and the flooding last month has left a significant strain on Delaware businesses throughout the community. As a result, the City of Delaware has considered various Revolving Loan Fund (RLF) programs to provide additional aid to business owners as they attempt to begin anew during the crisis.
During a special meeting last week, Delaware City Council discussed the merits of participating in Delaware County’s RLF program, which is currently being discussed at the county level. However, there were several points of contention by council members regarding the County’s Memorandum of Understanding (MOU) to the city for the proposed county RLF.
The Delaware County RLF would allow for loans carrying a minimum of at least $10,000 and a maximum of $25,000, with a fixed interest rate of 4%. Terms of the loan would include six months of interest-only payments, followed by 54 monthly payments on the interest and principal loan. A $1,000 fee would be added to the amount of the loan, and qualifying businesses would need a credit score of at least 680.
The total loan pool would be $5 million; $4 million from the county and a combined $1 million from contributing entities. Delaware County Commissioner Gary Merrell said last week that the establishment of a county RLF is still dependant upon JobsOhio agreeing to match the funds.
Among the issues expressed by some council members regarding the county’s RLF proposal was who would evaluate loan applications, the criteria used to select the loans, and which businesses would be eligible for the loans.
Under the county’s initial proposal, loans approved by Buckeye State Bank would then be sent to the county’s “committee” for further consideration. The committee would be comprised of the county administrator, the county economic development director, Don Rankey Jr., and four other members that would be appointed by the county. Those four members would be chosen by the county “based on the first four entities that contribute $250,000 or more to the fund,” according to the MOU drafted by the county.
Rankey mentioned Mayor Carolyn Riggle and Vice Mayor Kent Shafer as potential representative selections, should Delaware opt-in, sighting their experience as small business owners as qualifications.
Councilman Cory Hoffman expressed concern about the county choosing Delaware’s representative from an elected position to serve on the county’s RLF committee due to any possible appearances of there being a conflict of interest. Instead, Hoffman suggested the city have the ability to choose its own representative, elected official or not, to represent Delaware should it agree to participate in the county program.
City Attorney Darren Shulman echoed those concerns, saying, “One of the requests that I made (to the county) … would be to allow each city to make its own (representative) selection. We may have somebody else who has more expertise and is more independent to do it. We may decide we do want to pick one of our council members. But I do have those concerns … that it might have, I don’t want to say ethics (concerns), but definitely some appearance issues, depending on where the loans end up going, that I think we can sidestep if we can pick our members carefully.”
Items listed in the MOU as points of consideration for the approval of loans by the committee include the type of business, whether it is in the county, and if the business is in a “preferred jurisdiction.” A scoring chart included in the MOU shows businesses would be rated based on a point system to determine the loans. Businesses who have operated in the county the longest, operate in the smaller communities, and have the most employees would rank higher in the point system. Retail, restaurant, and hospitality businesses would also be prioritized by the scoring system, followed by professional services and manufacturing and technology companies.
Businesses that operate within a community that has contributed to the county’s RLF would receive points in the scoring system, but those that don’t operate in a contributing jurisdiction would be deducted upwards of seven points based on the community’s population. Councilwoman Lisa Keller questioned the good-natured intentions of the RLF if businesses within the county would be penalized for not operating in a jurisdiction that paid into the fund.
“If this were really about needing to help these businesses, then I’m simply not understanding why this scoring system includes taking points away from businesses that don’t belong to communities that contributed to this revolving loan fund,” Keller said.
Delaware County Economic Development Director Bob Lamb, responding to Keller, said that much like the city of Delaware would want to see loan funds being invested into its community should it participate in the RLF program, so, too, do the other entities that will participate, which is why the scoring system is structured as it is.
To address the city’s various concerns, the MOU from the county was amended to include several provisions including stating that for every $100,000 a jurisdiction contributes, 4.5 loans will be designated for that city to decide where it would go. The provision was added to provide assurance that money invested by the city would be seen in its community. The number of loans would be rounded up to 12 loans for the $250,000 contribution.
Shulman, in trying to summarize the sentiment of some council members, said the concern with the point system is that while the $250,000 contributed by municipalities should be reinvested in those same participating communities, the $4 million being contributed by the county should be distributed fairly throughout the county, not just to those who score higher on the score chart, as everyone in the county has paid tax dollars to contribute to that money.
Merrell said of how the loan money would be distributed, “There will be an appropriate distribution throughout this county. Obviously, Delaware city, because of the number of businesses you have, you’re going to do very, very well in that program, but it requires a little bit of trust.”
He went on to say, “I can’t stress enough, time is of the essence. The small-business community, these 300 loans or whatever it ends up being, they need the money sooner rather than later, and the quicker we can get something finalized, get approval from JobsOhio, and get something done, it benefits all the small businesses throughout the county.”
“We should do our own thing, separate from the county,” Councilman George Hellinger said during last week’s meeting. “I think it is important to note that county money includes city money, but city money doesn’t include county money … What we need to do is, as opposed to being knee-jerk reactionary on something like this (county RLF), we need to take the time to look at what our existing vehicles are and go ahead and create a new vehicle that goes ahead and addresses the current issues that we have, and then we can be in charge of our own destiny. We have the resources we need to be able to help our own businesses, and I think we should keep that under our own control.”
Hoffman said that while he would still be inclined to approve joining the county’s RLF program “because it’s better than nothing,” he questioned how the parameters of bank loans such as minimum credit scores or not having any current loan defaults are going to help the businesses most in need of the loans get the money.
“My concern is the people who are worst hit by COVID-19, who maybe had to default on loans (as a result),” Hoffman said. “These were good business people but this was Noah’s flood, you couldn’t have prudently saved or managed your business to prepare for your government telling you you can’t open or operate.”
In response, Lamb said that banks have to operate under terms that make them comfortable with issuing the loans and taking the risk.
Asked by Keller about other options to the city, Sean Hughes highlighted the ECDI proposal as another means of creating a loan fund for Delaware businesses. Hellinger said of the ECDI program, “That, to me, sounds like a much more viable (option). It addresses all the things. It goes down to a microloan level, it allows for lower credit scores, it’s still substantially funded, and it has a lower interest rate. What’s not to like there? I don’t even understand why we’re still discussing this at this point.”
ECDI presents its proposal
At a virtual work session Monday, city council members considered the proposal for a RLF program with the Economic Community and Development Institute (ECDI), a nonprofit, Small Business Administration (SBA) lender based in Columbus.
ECDI and its proposal was mentioned during last week’s council meeting after discussions regarding the county’s RLF fund led several council members to want to look elsewhere for relief directly to city businesses.
“When we went into this, we were trying to find a program that not only addressed the short-term needs during the pandemic and, obviously now, the flooding, but also something that could be pivoted quickly and easily to be a long-term program that would help us grow businesses in the city as well as even start businesses up here,” Economic Development Director Sean Hughes said of the ECDI proposal during Monday’s work session. “That was really critical to the future success of a program that has long-term viability.”
Representatives of ECDI highlighted their proposal for council on Monday. Through an RLF agreement with ECDI, the city would contribute $350,000 to establish the fund; $50,000 would serve as the fee for ECDI to administer the fund.
ECDI would disburse loans up to $25,000 to eligible businesses, with credit scores of at least 590, in the city of Delaware to assist with reopening and recovery costs. Loans from this fund would have a term of five years and carry an interest rate of 3%. The loans would be leveraged with funding from the SBA, banks, and other private foundations.
Businesses would be able to apply for loans as small as $2,500 depending on their individual needs, adding the optionof flexibility to suit a wide range of owners. Along with the flexibility in loan sizes, the guarantee of all the funds staying within Delaware broadens the scope of businesses that could receive relief through the RLF.
“Due to the funds being committed to city businesses, we would simply be able to help more businesses,” a city document comparing the two proposals states. “With an anticipated 3 to 1 leverage on $300,000, we could do anywhere from 48 to 480 loans.”
Councilman Drew Farrell said that in talking with business owners, he found that many are reluctant to even consider taking out a loan given the lack of certainty on how revenue streams are going to look and what the coming weeks may hold for their businesses. However, Farrell said the sentiment he received from owners was that the ECDI proposal, with lower interest rates and more loan flexibility, carried more weight.
Farrell added the loan approval process of ECDI would be “apolitical,” saying the loans would be decided on by people who are experts in the field.
Keller, referencing an email sent by Rankey to some council members over the weekend that threatened to pull the provisions added to the county’s MOU, said she is “pretty solid that moving forward with the city program seems like (the right move), especially when we don’t know where we stand with that (county) Memorandum of Understanding.”
She went on to say of the county proposal, “Things we’ve already negotiated and discussed are being threatened to be changed on us, so I’m not really sure how we move forward with that (proposal) at this point anyway.”
Hoffman said he would support the ECDI “at the very least” while also wanting to see if the county “comes around” on its RLF proposal to the city.
Shafer said his initial approach to the two proposals was he would like to do both, and while he will support the ECDI proposal, he doesn’t want to write off the county proposal at this time.
“I’d like to leave the door open (with the county), provided that we can reach an agreement with the county that we feel comfortable with, that we could at least contribute some money to that, mostly from the standpoint of showing that we want to be good neighbors and that we want to continue to invest in and be a part of of the county,” Shafer said.
Keller made a motion to direct city staff to prepare legislation for the ECDI proposal, which was approved unanimously by council. The resolution will receive its first reading and further discussion during council’s next meeting, which is scheduled for June 8.