Delaware City Council voted Monday in favor of creating a local Revolving Loan Fund (RLF) to assist businesses in their reopening following the forced shutdown. To establish the fund, council unanimously approved an agreement with the Economic Community and Development Institute (ECDI).
In partnering with ECDI, the city will grant $350,000 to the Small Business Administration (SBA) lender to establish the RLF; $300,000 will make up the base of the fund and $50,000 will serve as an administration fee to ECDI.
Through the program, businesses in Delaware can apply for loans as small as $2,500 and up to $25,000, with the loans carrying an interest rate of up to 3%. Loans leveraging additional sources of capital will have a blended interest rate of no more than 5%. ECDI must loan a minimum of $300,000 to 12 businesses during the first year of the agreement, which will begin on July 1 and end on June 30, 2021.
As part of the agreement, ECDI will handle everything from screening clients and accepting applications to analyzing and underwriting the loans. ECDI will also be responsible for servicing the loans during the repayment period. Training and guidance will also be provided by ECDI to prospective borrowers to ensure the best chance of success in the loan cycle.
While the terms of the agreement center around the first year of the contract, city staff expressed interest in maintaining its partnership with ECDI past the initial phase.
“This is a long-term program that allows us to continue to provide low-interest loans to businesses that we already have that are trying to get past this difficult time period or grow in the future, and even startups as we’re trying to find capital for them as we move forward as a city,” Economic Development Director Sean Hughes said during Monday’s meeting.
Hughes added a survey he began conducting Monday had netted 22 responses at the time of the council meeting. Of the 22 responses, Hughes said 16 businesses suggested they have a definite interest in the loan program. Two more said they would be interested so long as loans carry an interest rate of 3% or less.
Discussing the range of loan amounts he saw in the survey, Hughes said the results were “across the board,” ranging from $5,000 to $25,000, which is what makes the program “very interesting.”
“We can take loans clear down to $2,500, but then again, we can take them past $25,000 if necessary with the leveraged funding,” Hughes said.
Vice Mayor Kent Shafer said the survey gives him more confidence that the program will have a significant impact in the community after some council members expressed last week that many owners would be hesitant to take out loans.
Funding for the RLF will not come from the city’s General Fund, City Manager Tom Homan clarified during the meeting. Rather, the city will draw the money from a reserve fund that was established years ago “in part to address the New Community Authority charges that we had down in the southeast part of the city,” Homan said. With those payments proving not to be necessary, Homan said the fund, which has nearly $1 million in it, is available to be used for economic development.
Homan added, “If there was ever a set of circumstances that would warrant this type of program, it’s where we are right now. I think we have to take a look not just at what we’re doing for our existing businesses, but really the future. Businesses that might want to come here and set up shop…”