Job Creation Tools Workshop

Rural LISC Seminar June 6, 2013

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NMSC Overview

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Organization Overview3

Local Initiatives Support Corporation (LISC)Largest community development support organization in the country

National Equity Fund, Inc. (NEF)

Largest Low Income Housing Tax Credit Syndicator

New Markets Support Company

(NMSC)Manages the largest New Markets

Tax Credit portfolio

Management Services

Agreement

LISC operates the largest platforms in both the syndication of housing tax credits and the deployment of New Markets Tax Credits through its National Equity Fund (NEF) and New Markets Support Company (NMSC) subsidiaries

NMSC Overall Goals and Direction4

Build upon NMSC’s reputation as an industry leader in underwriting, program management, and technology to support the development of high impact NMTC investments that support LISC program strategies

Deliver innovative and creative financing resources to LISC programs to advance LISC program goals and strategic initiatives

Develop a leading small business lending platform for LISC

Earn incremental net income from business development initiatives to enhance NMSC net worth and provide incremental grants to LISC

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LISC Economic Development

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Building Sustainable Communities

Goal 1: Expanding Investment in Housing and Other Real Estate

Goal 2: Increasing Family Income & Wealth

Goal 3: Stimulating Economic Development

Goal 4: Improving Access to Quality Education

Goal 5: Supporting Healthy Environments and Lifestyles

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LISC has developed a toolkit of products and services to support small businesses in pursuit of our Building Sustainable Communities goal of Stimulating Economic Development

LISC’s Current Economic Development Toolkit

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LISC MetroEdge produces market analyses, corridor assessments, and

development strategies for commercial corridors Financial Opportunity Centers

provide technical assistance Small Business Lending

LISC Small Business Loan Fund LISC New Markets

Community Safety Initiative (CSI) Local Program Initiatives:

Business Plan Competition (Richmond, VA) Fostering Commercial Urban Strategies Program

(Indianapolis, IN)

Other NMTC investments supporting small businesses

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AG Processing Inc. (Dawson MN) $6 million investment in a soy processing plant

Centre Street Retail (Jamaica Plan MA) $7.4 million investment in 13,000 sf of retail space targeted to

local small businesses Clyde Park (Duluth MN)

$9.1 million investment to support a restaurant, entertainment, and brewery business

Midtown Global Market (Minneapolis MN) $8.9 million investment in a public marketplace providing

space for start-up businesses offering fresh and prepared food S&S Cycle (Viola WI)

$5.5 million investment to finance a new facility for a motorcycle parts manufacturer

Other LISC Small Business Loans9

Since its inception, LISC has made 91 loans supporting small businesses Ave size $174,000 Total volume $15.8 million

In the past 10 years: $4.9 million in loan volume with no loan losses $1.5 million currently outstanding to 5

borrowers Loans primarily made to CDC partners that

provided the direct lending to small businesses

Goals for expanding the tool kit in 2013-2014

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LISC to apply for an SBA Community Advantage license

Expand our existing SBA 504 program and establish an industry-leading SBA Community Advantage lending program

Place Community Business Advocates in select LISC program offices

Expand technical assistance resources for small businesses in existing Financial Opportunity Centers

Seek strategic partnerships to connect small businesses to other TA and capital resources

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LISC Small Business Loan Fund

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LISC Small Business Loan Fund Overview

Goal: Provide low-cost, long-term SBA 504 financing to small businesses that enable job creation in LISC program markets

LISC Partners: Morgan Stanley – provide debt and NMTC equity capital for 1st

mortgage loans

CDC Small Business Finance – Nation’s largest SBA 504 lender

CDC Capital Markets – wholly owned subsidiary of CDC Small Business Finance. Due diligence provider for Morgan Stanley for the marketing, packaging, underwriting and servicing.

Local Bank Partners – loan referrals and interim 2nd mortgages

Local 504 Companies – underwrite and service 2nd mortgage

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LISC Small Business Loan Fund Overview

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Community impact goals for Small Business Loan Fund align with LISC’s NMTC program criteria: Eligible NMTC census tracts w/ high distress criteria Focus on job creation Demonstrated support of the local community Contribution to the long-term development of a sustainable community Demonstrated need for NMTC subsidy

$10 million fund closed in September 2012 As of May 2013, 4 projects financed utilizing $2.6

million: Specialized Services (Phoenix) Dental Associates (Milwaukee) Inpac Container (Los Angeles) Foundry Building (Indianapolis)

What is an SBA 504 loan?

Owner-user fixed asset financing Commercial real estate

Business equipment

Cannot be used for working capital or inventory

90% fixed rate financing 50% 1st Mortgage

40% CDC Debenture 2nd Mortgage

10% Borrower Down payment

Economic development tool designed to create jobs

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Borrower Eligibility

To qualify for a SBA 504 loan, a business must: Be owner-operated and for-profit Be organized as a sole proprietorship, corporation, partnership or limited-

liability corporation (LLC) Tangible business and affiliates combined net worth (including affiliates)

not to exceed $15 million. Average after-tax net income of the business and affiliates not to exceed $5

million for the previous two years.

Loan Program Requirements 51% owner occupancy for existing building 60% owner occupancy for new construction

LISC/Morgan Stanley Small Business Loan Fund Specific Requirements Multi-purpose - office, warehouse, light industrial, retail, manufacturing,

medical or dental office, research and development facilities No special-purpose properties - gas stations, car dealers, hotels,

restaurants, car washes, bowling alleys, etc.

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LISC Small Business Fund Loan Terms

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Loan size: $2.5 million maximum 1st mortgage $4.5 million total financing including 2nd mortgage

$250,000 minimum 1st mortgage 60% maximum loan to value (1st mortgage)

Rate: Currently 3.75% fixed for seven years (as of 3/15/13) Based on 5 year swap rate + 275

Adjusts to quarterly adjusting rate after seven years Based on 90 day LIBOR + 350

Term: 30 year term 3 year interest only, then 27 year amortization schedule No prepayment allowed for 7 years

Dental Associates (Milwaukee)

Large dental practice in a LISC sustainable communities neighborhood in Milwaukee

$1.98 Million project to purchase and rehab the space that it currently leases

Approximately $160,000 in cash flow savings over seven years

10 new jobs created and 70 jobs retained

Primarily serves low-income and Medicaid patients

•$990,000•MS lender of record•LISC Small business fund purchases the loan and holds for seven years

1st mortga

ge50%

•$792,000•Bridge loan from local bank•Take out from SBA debenture

2nd mortga

ge40%

•$198,000 borrower contribution

Sponsor Contribution10%

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Specialized Services (Phoenix)

Woman-owned, underground utility contractor with over 40 years experience

$850,000 to refinance two properties in order to create $100,000 in annual cash flow savings

5-8 new jobs created

•$453,000•MS lender of record•LISC Small business fund purchases the loan and holds for seven years

1st mortgage

50%

•$382,289•Bridge loan from local bank•Take out from SBA debenture

2nd mortgage

40%

•$198,000 borrower contribution

Sponsor Contribution

10%

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Inpac Container (Los Angeles)

Corrugated box manufacturer purchased warehouse space in low-income community for $1.35 million, which is closer to its customers.

Grow from its current 18,000 square foot leased building to 35,000 square foot warehouse.

Allows the company to fix its occupancy costs.

•$717,000•MS lender of record•LISC Small business fund purchases the loan and holds for seven years

1st mortgage

50%

•$573,600•Bridge loan from LISC•Take out from SBA debenture

2nd mortgage

40%

•$143,400 borrower contribution

Sponsor Contribution

10%

Will create three new jobs and retain five current jobs.

Referred by LA LISC partner, PACE, a nonprofit focused on job training and employment.

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Foundry Building (Indianapolis)

•$227,500•MS lender of record•LISC Small business fund purchases the loan and holds for seven years

1st mortgage

50%

•$159,250•Bridge loan from construction lender•Take out from SBA debenture

2nd mortgage

35%

•$68,250 borrower contribution

Sponsor Contribution

15%

Before - Foundry Building After – Nottingham Realty Office After- Foundry Cafre

New space for a family-owned real estate broker and start-up coffee shop.

$455,000 total project costs to purchase and rehab building in a neighborhood with a commercial corridor in the process of revitalization.

Indianapolis LISC initially helped neighborhood purchase building and cleanup Brownfield many years ago.

The two businesses will create at least 6 new jobs.

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SBA Community Advantage

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Community AdvantageProgram Overview

Pilot program launched by the SBA on February 15, 2011, currently extended through March 15, 2017

Enables community-based, mission-focused lenders to make SBA 7(a) loans of up to $250,000 with the regular 7(a) government guarantee

Eligible lenders include Community Development Financial Institutions, SBA’s Certified Development Companies and SBA micro lenders

Leverages the experience these institutions already have in lending in economically-challenged markets, along with their management and technical assistance expertise to help make their borrowers successful.

Lenders must maintain at least 60 percent of their SBA loan portfolio in underserved markets, start-ups (firms in business less than 2 years); and veteran-owned businesses

Community Advantage Borrower Loan Terms

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Borrowers must be for-profit companies with net income under $5 million and net worth under $15 million

Loans can be used for working capital, inventory, business acquisitions, tenant improvements, and real estate purchases

Maximum loan size $250,000 Interest rate limited to Prime plus 6.00%

(currently 9.25%) Terms: 7-10 years; 25 years for real estate

Community Advantage Lender Terms

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85% SBA guarantee for loans under $150,000 75% SBA guarantee for loans from $150,000 to

$250,000 Guarantee covers 75% to 85% of all loan losses

(not a lender first loss) 60% of lender portfolio must be in underserved

markets SBA approves loans in 5-10 days Active secondary market for guaranteed portion

of loans with 10% to 15% premiums upon sale

Community Advantage Lenders

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Currently 60+ approved lenders CDC Small Business Finance, Empire State

CDC, and ACCION Texas are the largest lenders Most lenders have local, state, or regional

licenses Only two existing national licensees Coastal Enterprises (ME), Northern Economic

Initiatives (MI), Neighborhood Development Center (MN), and Kentucky Highlands (KY) are examples of LISC partners with CA licenses

CA Lender Application 26

Attributes of successful Community Advantage lender applications:

Demonstrated relevant experience in small business lending Technical assistance capability and/or established relationship

with outside provider A well-developed business plan with a description of proposed

service delivery area and clearly explained plan for marketing and outreach

Sufficient, clear & well documented loan policies and procedures Unrestricted net assets of ≥ $300,000 Ability to fund CA loans through cash, income, or a balance

sheet that would permit additional borrowing Good standing with SBA/CDFI Fund and no material weaknesses

audits

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Kentucky Highlands Investment CorpSmall Business Tool Kit

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KHIC Overview

Kentucky Highlands Investment Corporation, founded in 1968 to stimulate economic growth in nine counties in Southern and Eastern Kentucky, now serves 22 counties in the region and has created more than 18,000 jobs

Total Portfolio is $55 million to 160 companies

Assets under management including New Markets Tax Credit and Bank Participations is $162 million

KHIC Tool Kit – Page 129

Goldman Sachs 10,000 Small Business Program United States Department of Agriculture

Intermediary Relending Program (IRP) – Loans up to 250,000 Rural Microloan Assistance Program (RMAP) - Loans up to $50,000 Rural Business Enterprise Grant Program (RBEG) - Project specific loans

and investments ($150,000 to $499,000) Kentucky Highlands Empowerment Zone Revolving Loan funds Business and Industry Loan and Guaranty Program (B&I) – Loans up to

$10 million guaranteed by USDA  United States Small Business Administration

SBA Microloan Program – Loans up to $50,000 Small Business Investment Corporation (SBIC) – Loans and equity

investments up to $350,000 Rural Business Investment Corporation (RBIC) – Equity Investments New Markets Venture Capital Company (NMVCC) – Equity Investments Community Advantage Lender – Loans up to $250,000 guaranteed by SBA

KHIC Tool Kit – Page 230

Appalachian Regional Commission – Revolving Loan Funds

United States Department of Treasury Community Development Financial Institutions Fund –

Financial Assistance New Markets Tax Credit Program – Allocation Bank Enterprise Award

United States Department of Health and Human Services – Project Loans and Investments

Foundations and other Organizations Calvert Foundation/Citibank/Opportunity Finance Network –

Communities at Work Fund Rural LISC Ford Foundation MacArthur Foundation Create Jobs for USA

KHIC Tool Kit – Page 331

Kentucky Highlands Investment Corporation General Funds Revolving Lines of Credit - $200,000

to $6,000,000 Bank and other Participations - $18

million from other lenders including banks and other CDFIs

Equity Participations with Commonwealth Seed Fund