HomeMy WebLinkAboutMinutes - October 3, 2023 SS
Hometown Microloan Loan Policy and Administrative Procedures Manual
Goals and Objectives
The City of Lodi Hometown Microloan Program lending will be guided by the desire of City Council to help
create conditions of economic growth for local entrepreneurs and very small business who have experienced
barriers to traditional lending. The following goals and objectives express this intent . The goals and objectives
will be considered along with responsible underwriting criteria to approve loans.
Goal #1
To assist credit-worthy but not quite bankable minority, women, low-income and veteran Lodi entrepreneurs
and other small business owners achieve economic growth by providing small-scale loans for business
purposes
Objective: Provide short-term loans of up to $50,000 to creditworthy Lodi entrepreneurs and small
businesses that have not been able to meet stringent underwriting criteria of traditional lenders, and
therefore, have not been fully served by the traditional lending community.
Goal #2
To provide applicants with a path towards becoming eligible for additional business loans from traditional
sources by establishing a positive credit history
Objective: Extend terms that “help level the financial playing field” for under capitalized Lodi
entrepreneurs and small businesses, including lower interest rates and lower fees
Goal #3
To enhance loan success by requiring Lodi entrepreneurs and undercapitalized businesses to receive coaching
and technical assistance provided by the San Joaquin County Small Business Development Center (SBDC) as a
condition to receiving a loan
Objective: Applicants in-training must participate in regular meetings to facilitate repayments,
continue their practical financial education and access a support network
Goal #4
To establish Lodi as an entrepreneurial and small business-friendly community
Objective: Microloans and small business technical assistance will serve as an entrepreneurial and
small business retention and business attraction tool
Goal #5
To capitalize a microloan fund, and encourage the creation of Lodi’s own community -based nonprofit in the
future dedicated to improving access to capital for Lodi businesses and start-ups
Objective: Loan 100 percent of the initial capital within three years, establish a self -replenishing pool
of money utilizing interest and principal payments on old loans to issue new ones, and attract outside sources
of capital from local lenders
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Loan Financial Policy
Eligible Lending Area- The City of Lodi through the San Joaquin Revolving Loan Fund will make loans to eligible
borrowers who wish to start a business, or own an existing business, or who own business property for lease located
within the legal jurisdictional limits of the City of Lodi. Loan proceeds must be used within the legal jurisdictional limits
of the City of Lodi.
Eligible Borrowers- Loan recipients may be individuals (start-ups), or other legal business entities given the following:
a. Small business with 10 or fewer employees
b. Majority ownership is held by U.S. citizens or legal permanent residents
c. Applicant has no delinquent debt to the federal, state, or local government
d. Applicant is unable to obtain affordable commercial financing for the project elsewhere
e. No overdue child support and/or alimony payments
f. Has the legal capacity to incur the obligations of the loan
g. Business activity must be legal and not fall into the following categories including but not limited to gambling,
medical marijuana sales or production, other lending (including pawn shops or pay-day lenders), any kinds of
speculation or multiple-level sales schemes (pyramids), smoke or vape shops, adult book stores
h. Individuals or small business property owners who lease office, retail, or commercial space
Eligible Activities- The City of Lodi through its administrator can disburse loans for the following purposes:
a. Business equipment and vehicles
b. Interior or exterior improvements
c. Inventory/Working capital
d. Life/Health/Safety or other code requirements. Including electric upgrades
e. Start-up costs
f. Feasibility studies, engineering fees and other pre-project fees not related to impact fees or government
permitting
g. Environmental cleanup and disposal for business property reuse
Ineligible Activities- The City of Lodi through its administrator will not loan funds for the following ineligible uses:
a. Acquire an equity position in another private business
b. Subsidize interest payments on another loan
c. Meeting the equity requirement under another agency’s loan program
d. Provide funds to a borrower for the purpose of investing in interest-bearing accounts
e. Refinancing an existing loan
f. Serve as collateral to obtain credit
g. Loan in excess of what is needed to accomplish the purpose of the recipient’s project
h. Loan to city employees
i. Any project in violation of environmental protection law or use restriction unless the loan will result in curing or
removing the violation; if project has the potential of generating any hazard waste or toxic substances, the
applicant will be required to provide written confirmation from the appropriate agencies the project is
Categorically Excluded, or that it has received the required permits, licenses, and or waivers for the project.
j. Local government impact fees or government permitting
k. Lines of credit
l. Purchase of real estate
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Loan Size: The City of Lodi through its administrator will make loans ranging from $5,000 to $50,000. First-time loans
may be available for less than $5,000 to be repaid within a 12-month time frame.
Interest Rate- The interest rate will be fixed at the federal funds rate, and reviewed at least annually to determine
whether the federal funds rate is sufficient to reflect the level of risk. The interest rate will not exceed three points
below the prime lending rate unless approved by Lodi City Council.
Loan Term- The loan term will be based on the size of the loan and the life of the asset. It will be in the general range of
one to five years.
Loan Fees- The borrower will not incur any loan fees. This policy will be evaluated semi-annually.
Borrowers may be required to purchase additional insurance to cover collateralized assets or life insurance to cover the
loan. These are not fees paid to the loan fund, but are additional costs incurred by the borrower as a condition of the
loan.
Equity- The borrower will be required to make at minimum at 15 percent cash equity investment. Start-ups will be
required to make at minimum a 25 percent cash equity investment.
Credit Score-The borrower must be current on all debt and financial obligations
Collateral Requirements- The collateral pledged for each loan will be to the maximum extent possible to ensure an
adequate source of repayment. However, the collateral criterion will be evaluated on a case-by-case basis. Typically, a
UCC filing will be completed. Personal guaranties of all owners will be required to reach 100 percent of loan value.
Type of Collateral- Real property, if applicable, (with or without a structure) located within the state of California,
equipment, cars, vehicles or other identifiable, marketable, insurable with no existing debt or liens on these items. The
valuation process will be by current appraisal, property assessment, proof of value, and Blue Book. Annual proof of
insurance will also be required for the asset.
Debt Service Coverage Ratio- The borrower will demonstrate a debt service coverage ratio of at least 1.00x by providing
12 months of historical financial information or projections using earnings before interest, tax, depreciation and
amortization (EBITDA), and 12 months of full loan debt service. The debt service coverage ratio must be demonstrated
for every year of the term.
Co-signor- Debt income ratio not to exceed 45 percent (all debt including business loan payment); credit score 680 or
above.
Portfolio diversification- The City of Lodi and its administrator will limit the dollar of loans to start-ups to 50 percent of
the total loans outstanding. Start-ups are defined as business with less than one full year of reporting business income
and expenses on tax returns. The City will limit the dollar amount of loans in one business category to 65 percent of
total loans outstanding.
Loan Administration Policy
Loan Staff- The loan staff is responsible for implementing the Hometown Microloan Program in accordance with the
Hometown Microloan Policy and Administrative Procedures Manual and in accordance with the specific responsibilities
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as identified in Exhibit 1 of the Professional Services Agreement between the City of Lodi and the San Joaquin Revolving
Loan Fund.
A member of the loan staff may not recommend or in any way participate in the approval or collection of a microloan if
the loan staff member, or a close relative of any such person:
a. Has a direct or indirect financial or other interest in the Borrower applicant;
b. Has any such interest within six months prior to the date of the microloan application.
For purposes of this policy, a “close relative” is a spouse, a parent, a child or sibling, or the spouse of any such person.
Loan Committee- The Loan Committee (LC) meets regularly to carry out responsibilities outlined below in accordance with
this loan policy. The meeting schedule will be determined by the microloan administrator and will be contingent on the
completion of the due diligence process as determined by the loan staff. The estimated meeting schedule is monthly.
Composition- The LC is comprised of seven members approved by the Lodi City Council through the action of approval of
this loan policy. Members are professionals who:
a. Have experience in small business lending and working with the target population and/or;
b. Have experience in working in the investment arena and/or;
c. Have a diversified skill set and knowledge base that can actively contribute to loan approval, fund management
and portfolio management decisions.
d. Each member will designate an alternate.
Voting
a. LC decisions are made by simple majority.
b. A quorum consists of three members.
c. LC members may not vote or attempt to influence the votes of others on loans to parties.
d. Meetings can take place by conference/zoom call.
e. Voting on a loan memorandum can take place by email with ratification at the next LC meeting.
Responsibilities
a. Critically assess and analyze loan requests.
b. Approve or deny loans, loan restructurings and foreclosure proceedings recommended by loan staff
c. Make recommendations to the Lodi City Council on matters requiring City Council approval of changes to these
loan policies.
Loan Underwriting
The San Joaquin County RLF will hire an experienced business microloan underwriter to provide all due dilige nce
tasks required to critically assess and analyze loan applications and underwriting criteria. Loan criteria will at
minimum be based on the underwriting grids provided below for existing businesses and startups. Loan criteria
will be approved by the City before commencement of the Hometown Microloan Program.
Review
criteria for
existing
business
Up to
$5,000
$5,000 -
$10,000
$10,000 -
$15,000
$15,000-
$25,000
$25,000-
$35,000
$35,000-
$50,000
Business
Plan
Simple,
short to
show ability
Simple, short to
show ability to
make loan
Simple, short to
show ability to
make loan
Detailed
business plan
must include
Detailed
business plan
must include
Detailed
business plan
must include
5
to make
loan
payments;
waived for
established
business for
loans less
than $5,000
payments;
independent
verification of
demand for
service product
payments;
independent
verification of
demand for
service or
product
independent
verification
of demand
for the
service or
product
independent
verification of
demand for
the service or
product
independent
verification of
demand for the
service or
product
Collateral See page 3 See page 3 See page 3 See page 3 See page 3 See page 3
Equity Min 15% Min 15% Min 15% Min 15% Min 15% Min 15%
DSCR Min 1.0 Min 1.0 Min 1.2 Min 1.5 Min 2.0 Min 2.0
Experience 1 year of
owning or
managing
this type of
business
1 year of
owning or
managing this
type of
business
1 year of owning
or managing this
type of business
Two years of
owning or
managing
this type of
business
Two years of
owning or
managing this
type of
business
Two years of
owning or
managing this
type of business
Credit
Score
Current on
All Debt
r Current on
All Debt
Current on All
Debt
Current on
All Debt
Current on All
Debt
Current on All
Debt
Profit/Loss
Statement
Since start
or at least
one year
Since start or
at least one
year
Since start or at
least one year
Two years Two years Two years
Projected
Cash Flow
Statements
For each
year of term
Fore each year
of term
For each year of
term
For each year
of term
For each year
of term
For each year of
term
Balance
Sheet
Negotiable Negotiable Negotiable Negotiable Negotiable Negotiable
Tax
Records
Two years Two years Two years Two years Two years Two years
Bank
Statements
3 months 3 months One year One year One year One year
Review
criteria for
start-ups
Up to
$5,000
$5,000-
$10,000
$10,000-
$15,000
$15,000-
$25,000
$25,000-
$35,000
$35,000-
$50,000
Business
Plan
Solid business
plan with
financial
proforma for
life of loan
Solid business
plan with
financial
proforma for
life of loan
Solid business
plan with
financial
proforma for
life of loan
Solid business
plan with
financial
proforma for
life of loan
Solid business
plan with
financial
proforma for
life of loan
Specific
industry
experience (3
out of last 5
years
managing/runn
ing operations)
Income Secondary
source of
income
Secondary
source of
income
Secondary
source of
income
Secondary
source of
income
Secondary
source of
income
Secondary
source of
income
Experience
Specific
industry
experience (1
Specific
industry
experience (3
Specific
industry
experience (3
Specific
industry
experience (3
Specific
industry
experience (3
Specific
industry
experience (3
6
out of last 3
years
managing/run
ning
operations)
out of last 5
years
managing/run
ning
operations)
out of last 5
years
managing/runn
ing operations)
out of last 5
years
managing/runn
ing operations)
out of last 5
years
managing/runn
ing operations)
out of last 5
years
managing/runn
ing operations)
Credit
Score
Current on All
Debt
Current on All
Debt
Current on All
Debt
Current on All
Debt
Current on All
Debt
Current on All
Debt
Collateral See page 3 See page 3 See page 3 See page 3 See page 3 See page 3
Equity Min 15% Min 25% Min 25% Min 25% Min 25% Min 25%
DSCR Projections of
Min 1.0
Projections of
Min 1.2
Projections of
Min 1.2
Projections of
Min 1.5
Projections of
Min 1.5
Projections of
Min 1.5
Projected
Profit/Loss
Statement
For each year
of term
For each year
of term
For each year
of term
For each year
of term
For each year
of term
For each year
of term
Projected
Cash Flow
For each year
of term
For each year
of term
For each year
of term
For each year
of term
For each year
of term
For each year
of term
Bank
Statements
One year One year One year One year One year One year
Tax
Records
Two years Two years Two years Two years Two years Two years
Consignors Yes Yes Yes Yes Yes Yes
Application Package- Potential borrowers will be directed to complete a loan application on line. Non-English speakers
will receive assistance completing the loan application from loan staff.
Screening- The loan screening process will be comprised of a pre-screening process and a loan application process. The
pre-screen process will require the loan applicant to provide, and the loan staff to evaluate at least the following: a)
residential address, b) business address, c) legal capacity to incur obligations, d) citizenship or legal residency status, e)
debt delinquency, f) type of business, g) number of employees, h) written business plan and financial projections, and i)
amount and purpose of loan. Upon receipt of the pre-application, loan staff checks that the loan requested is consistent
with the loan product(s) offered, loan eligibility requirements as stated in the policy, portfolio diversification restrictions
and funding availability for the proposed loan. If an application fails to pass the initial screening, the loan staff responds
to the applicant referencing the policy as a reason for not proceeding with the loan application, and refers applicant to
the San Joaquin Small Business Development Corporation, SBDC.
Upon the successful completion of the pre-screening process, the applicant will proceed to the on-line application process.
The on-line application process will require but not be limited to: a) borrower information including all owners of 20
percent or more of the business, b) personal financial information, c) business financial statements, d)) business
certificate/license, e loan application history, f) income tax returns, g) business overview and history, h) business lease
and documentation to support purpose of loan, and i) and additional documents if purchasing an existing business.
The informational requirements of the applicant--facing pre-application and application process will be established and
approved by the City prior to Hometown Microloan Program commencement and will reviewed on at least a semi-annual
basis.
Due Diligence and Structuring- Loan staff will conduct a complete and thorough due diligence review of the proposed loan
including but not limited to a) cash flow projections of assumptions and projections received from the applicant, b)
researching the industry, c) making a site visit (if appropriate), d) researching borrower credit rating and other
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underwriting criteria as detailed in the above-provided underwriting criteria grid and e) structuring the loan payment to
meet the borrower’s needs. Tax records, bank statements, sales records, and other documents required for completion
of the underwriting process will be collected at this time.
Loan Risk Rating- The due diligence process is finalized when a loan risk rating is assigned, in accordance with the Loan
Risk Rating chart provided in Exhibit A. A potential borrower with a rating of D or greater will be declined.
Loan staff will notify the potential borrower with a rating of D or greater in writing and provide the reason for the denial.
The loan staff will also recommend possible changes, if any, that could be made to make the loan acceptable upon
reapplication. Should an applicant receive a rating of C, the applicant must agree to loan counseling as prescribed by the
San Joaquin County Small Business Development Center following an evaluation of the loan risk rating by SBDC staff. The
loan staff will also recommend financial and practical business training to the applicant and make a referral to the SBDC.
The loan risk rating criteria is found in Appendix 1 to this document.
Credit Memo - The credit memo will contain microlending industry-standard assessment based upon best practices. The
contractor to the San Joaquin RLF serving as underwriter will provide the City with a sample credit memo and receive
approval as to form and content.
If the due diligence results are acceptable (a microloan loan request of C, B or A), loan staff prepares a credit memo. The
credit memo will contain a summarized analysis of all relevant risks ascertained by the loan staff during the due diligence
process and explain the proposed loan rating. The credit memo also includes a list o f conditions that must be satisfied
prior to closing.
Loan Approval
Staff Recommendation-The loan staff recommends the loan for approval based on the contents of the credit memo and
submits a draft credit memo to the microloan administrator (MA). The MA may make changes to the structure of the
loan, risk profile and/or the credit memo. The MA schedules the loan for review at the next meeting of the loan committee
and distributes the draft credit memo to the LC at least five days before the meeting. The loan staff or loan administrator
will prepare an agenda, invite discussion from LC members, and call for the vote to recommend, or not recommend the
microloan to the lending authority. The LC may deny a loan request for any of the following reasons:
a. The loan does not fit within the goals and objectives of the Hometown Microloan Program
b. The risk of repayment is unacceptable
c. The loan would result in altering the balance required for loan portfolio diversification
d. The loan application is insufficient or incomplete
The MA will prepare a LC decision sheet stating the decision and reason. The MA will sign the decision sheet.
Lending Authority-For loans in compliance with this loan policy, and that have been recommended for approval by the LC,
the lending authority for loans up to $15,000 is the Business Development Manager, City of Lodi. For loans above $15,000
and not to exceed $50,000, the lending authority is the City Manager, City of Lodi.
Following an approval of a loan, the lending authority signs the signature page attached to the Credit Memo, making note
of any additional terms or conditions imposed by the approving body (LC decision sheet).
Loan Closing
Loan Documentation- Loan staff will prepare a draft of the loan agreement and other documents that reflect the terms
and conditions contained in the loan committee decision sheet as well as other terms required by California lending laws.
Loan documents reflect the terms and conditions of the credit memo.
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Loan staff works with the borrower to schedule a closing date by which all conditions to closing will be satisfied. On the
closing date, the borrower and loan staff will meet and discuss the terms and conditions of the loan agreement and sign
the loan documents. Upon completion of signing, the loan staff will provide borrower the disbursement check(s).
When appropriate, disbursement checks can be made payable to and sent directly to vendors.
Loan Monitoring
Upon closing, the loan file will consist of the following:
a. Loan application
b. Research and analysis upon which credit memo is based
c. Loan committee decision sheet
d. Copies of funding request issued to Finance
e. Copies of disbursement check issued to borrower
f. Proof of collateral
g. Other closing documents as necessary
Monitoring Responsibility
Loan staff will have the responsibility of monitoring loan agreement status for each borrower quarterly for any periodic
disclosures (milestone schedule, updated financial statements, proof of insurance). If disclosures are not received when
due, loan staff will contact the borrower to discuss improved performance of loan agreement disclosures.
Loan staff will maintain a list of outstanding loans showing the original amount of the loan, disbursement date, outstanding
balance, and delinquency status.
Loan Payments
Loan staff are responsible for collecting payments and confirming that payments have been made.
Delinquency
The loan staff will maintain a log of all verbal and written communication about past due payments according to the
following schedule:
a. 5 days late-In the event the payment is five days late, loan staff will attempt to reach the borrower within five
days to ascertain why the payment is late and to obtain a commitment for a payment date within ten days from
the date of outreach. This is a good opportunity to determine if the agency can assist the borrower with technical
assistance, to find out the status of the business, and let the borrower know that agency staff can assist.
b. 15 days late-In the event a loan payment is more than fifteen days late, the loan staff will attempt to reach the
borrower to ascertain why the payment has not been made and to further reassurances of a forthcoming
payment.
If within 10 days of the due date payment has not been received, a five percent late charge can be assessed. Loan
staff has the discretion to waive the late fee upon request once in a 12-month period. Borrower will incur all non-
sufficient funds (NSF) fees.
c. 30 days late- In the event that loan payments are more than 30 days late, the loan staff will follow up with a letter
stating the amounts past due and explaining the borrower is in default, and continue to help by meeting with loan
staff to determine the best remedy to increase the chances the loan payment will be made.
Staff will update the Delinquency Report to reflect the loan payment is more than 30 days past due and report a
downgrade in the loan rating.
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d. 45 days late-If payment has not been received by the 45th day, loan staff will contact the borrower a fourth time
and may follow up with a site visit. The loan staff will offer technical assistance to the borrower to work on
problems identified by the borrower and/or lender. Guarantors of the loan may be notified of the past due
situation.
Staff will update the Delinquency Report and downgrade the loan rating.
e. 60 days late-By the 60th day of a late payment, a mandatory site visit will be made. For delinquent loans, there
will be at least two individuals conducting the site visit. The loan staff will brief the other person fully on the
situation and determine the appropriate collection strategy prior to the visit. The goal of this meeting will be to
develop an agreed upon payment plan to bring the borrower current.
Staff will update the Delinquency Report and downgrade the loan rating. The loan staff will confirm that all
collateral documentation is in place and in order and that all insurances required by borrower are in place.
f. 75 days late- If the payment has not been received by the 75th day, the loan staff makes a full report to the LC
detailing the nature of the problem and recommending actions including:
• Informing any additional guarantors to the loan of the situation
• Inspection of the borrower’s operations, including financial books
• Sending notice of default
• Sending a technical assistance provider to the borrower to work on the problems identified by the
borrower and/or the lender
• Restructuring the loan in cases where staff can demonstrate a reasonable assumption the
borrower can repay the loan in the future
g. 90 days late- If a restructuring has not occurred and no payment has been received, staff will update the
Delinquency Report and downgrade the loan risk rating. Staff will present a detailed account of the borrower’s
operational information and a review of the collateral to the LC. The LC will develop a strategy for further action
including:
• A loan restructuring
• A strategy to liquidate collateral
• A notice of default and the intention to foreclose
• Send the loan to a collection agency
Repossession/Foreclosure Collateral
In most instances, a repossession/foreclosure of collateral will be viewed as the last option. There are, however, instances
when repossession/foreclosure is the best option and the only remedy to a deteriorating situation. Foreclosure may only
take place upon the decision of the full Loan Committee.
All repossess/foreclosure proceedings and actions should be done in such a way as to provide maximum protection of
capital and in the interest of affected parties, including customers and employees of the borrower.
Collateral liquidations will be used to cover the cost of outstanding loan principal, any accrued interest owed to the City,
and the transaction costs of liquidation (i.e. legal, marketing, staff time).
The City and its administrator will attempt to collect all of the fund’s reasonable attorney fees and costs incurred.
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Appendix 1
Loan Risk Rating System
Step 1: Upon the analysis of all information, evaluate loan’s risk factors below.
Step 2: Assign a loan risk rating score.
Step 3: Record the score in the loan file/loan tracking system
Step 4: A risk rating is assigned at conclusion of underwriting, at closing, and each month of the term of the loan.
Step 1: Evaluate Loan’s Risk Factors
Highest Quality- Grade A
Credit is strong in all respects, client’s bank statements, business plan proforma, tax returns demonstrate good cash flow
history and projections for the life of the loan. Debt service coverage ratio requirement is met. Borrower has collateral
which covers 100 percent of loan amount but due other bank lending policies (loan size, other) have made credit
unavailable to the borrower. Identify other bank lending policy. Equity requirement is met. Loan repayments are made
on time.
Good Quality- Grade B
Credit history is good. Borrower’s bank statements, business plan proforma, tax returns demonstrate a fair cash flow
history and projections for the life of the loan, and an ability to repay the loan amount. Debt service coverage ratio is met.
Collateral covers 100 percent of the loan amount. Equity requirement is met. Loan repayments are made on time.
Borrower is responsive and communicative about foreseeable delays in maintaining repayment schedule.
Moderate Risk- Grade C
Credit history is average. Borrower demonstrates capacity for repayment from cash flow and meets debt service coverage
ratio but the client does not possess adequate collateral and/or does not sufficient years in business to mitigate perceived
credit risk exposure. Qualified guarantor(s) to cover 100 percent of the loan is required. Equity requirement is met.
Borrower agrees to participate in regular borrower meetings and technical assistance provided by the SBDC. Borrower
periodically is late with a payment. (Or, quantify a specific number of occurrences of late payment within a time interval)
High Risk- Grade D
While equity requirement may be met, credit history exhibits credit deficiency, which if not corrected could result in loss.
Any existing loans have a strong potential for future loss due to a severe deficiency in the financial condition of the
business, borrower payment performance, and/or collateral position/value. Summary of the past payment performance
deficiency/credit deficiency must be recorded in credit memo. Repayment performance has deteriorated from periodic
to consistently late. Borrower is difficult to reach and often non-responsive. (Or, quantify a specific number of occurrences)
Extreme Risk- Grade F
While equity requirement may be met, credit history and payment performance exhibits credit deficiency, which if not
corrected would result in loss. Borrower has insufficient collateral or assets have become uncollectable and of such little
value their continuance as bankable assets is not warranted.
REQUEST FOR PROPOSALS
HOMETOWN MICROLOAN LOAN PROGRAM SERVICES
I. Description of Proposal
The City of Lodi (“City”) seeks to retain a nonprofit lender to provide turnkey microloan
services and technical assistance to microbusinesses and entrepreneurs located within the
City of Lodi. This document constitutes a Request for Proposal (“RFP”), in a competitive
format, from qualified organizations to provide turnkey microloan services and technical
assistance.
The respondents to this RFP shall provide a proposal, in accordance with the terms and
conditions set forth herein, to provide all services to the City of Lodi as described in the
Hometown Microloan Program Financial Policy and Administrative Procedures Guidelines
(“Exhibit 1”) attached to this proposal.
II. Background and Purpose
The City of Lodi Hometown Microloan Program lending will be guided by the desire of City
Council to help create conditions of economic growth for local entrepreneurs and very small
business who have experienced barriers to traditional lending.
The City of Lodi City Council has established a strategic priority to implement a Hometown
Microloan Program to microbusiness defined as having 10 or fewer employees and
entrepreneur business loans ranging from $5,000 to $50,000 in accordance with goals
objectives, and policies identified in Exhibit 1.
The borrower will not incur any application or loan fees. Borrowers may be required to
purchase additional insurance to cover collateralized assets or life insurance to cover the
loan. These are not fees paid by the loan fund, but are additional costs incurred by the
borrower as a condition of the loan.
The City Council has allocated $470,000 for the Hometown Microloan Program This
allocation represents the maximum amount available regardless of the approach to lending
chosen by the City. These approaches are more fully explained below.
III. Instructions to Respondents
Proposals shall provide information in sufficient detail to allow the City to decide between
three approaches to the implementation of the microloan fund. The respondent may
respond to each approach, two approaches, or to all three approaches.
The first approach requires the respondent to describe leveraging additional loan capital
and the payment of fees by the City with the maximum allocation of $470,000. Any
conditions and/or limitations associated with the leveraged capital must be identified by the
respondent. A breakdown of the proposed fee structure shall be provided in a format
reflective of the below. Responder may use alternative format. Respondent is expected to
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provide detail on all fees to be charged to the City not to exceed the maximum allocation as
identified above.
Type Description Cost Percentage
Loan Capital Leveraged
Estimated number of
loans
Origination
Underwriting
Closing
Servicing
Monitoring
Interest Rate Buydown,
if applicable
Total
Respondent will identify interest rate charged and the interest rate buydown. Responder
will identify a loan guarantee component, if any.
The City’s interest in lending includes the ability to make new loans from the repayment of
old loans. Respondent will describe the portion of the repayment of leveraged capital to
revolve to the City of Lodi to help make new loans, if any.
The second approach requires the respondent to make loans and the City to pay loan fees
from the $470,000 maximum allocation. This is not a leveraged capital approach. A
breakdown of the proposed fee structure shall be provided in a format reflective of the
below. Responder may use an alternative format. Respondent is expected to provide detail
on all fees to be charged to the City not to exceed the maximum allocation as identified
above.
This proposal does not anticipate the payment of 100 percent of loan fees in advance of
loan approval. A portion of loan fees may be paid in advance to offset respondent’s upfront
costs. The rationale for collecting upfront costs must be included in the response to the
RFP.
Should proposal reflect the collection of fees in advance of loan approval, the City
anticipates mitigating the risk of fees paid for loan applications that do not move beyond
the application and underwriting phases. This proposal to mitigate risk does not extend to
loans that have reached the approval stage and are denied by the loan committee or City.
Type Description Cost Percentage
Estimated number of
loans
Origination
Underwriting
3
Closing
Servicing
Monitoring
Total
No loan loss reserve fund has been set aside by the City.
The third approach is a hybrid approach. The respondent will determine if a hybrid
approach is necessary in the event a borrower may not qualify for a loan from leveraged
capital from other sources in accordance with loan criteria tied to the leveraged capital. The
respondent is asked to provide the detail necessary to explain this approach and its
associated costs.
The successful respondent will be required to enter into a professional services agreement
as prescribed by the City. A copy of the professional services agreement is attached.
IV. Proposal Requirements
Respondent will consider the lending approaches described above in his/her provision of
information related to each requirement. It is anticipated that under a fee only approach,
policies and procedures will comply with Exhibit 1. If responding to the leveraged capital
approach, or the hybrid approach, respondents are expected to describe how loan policy
and administrative procedures reflected in Exhibit 1 align with loan policy under a
leveraged capital approach or hybrid approach.
1. Proposals shall contain sufficient detail to assure the City of Lodi Hometown Microloan
Program will be administered in accordance with stated goals and objectives in Exhibit
1, including target borrowers.
2. Proposals will contain sufficient detail to describe Loan Financial Policies including but
not limited to eligible borrowers, eligible activities, ineligible activities, interest rate,
loan term, loan fees, equity requirements, credit score, collateral, debt service coverage
ratio, co-signor and portfolio diversification as specified in Exhibit 1. The respondent
may propose alternatives to the Loan Financial Policies in Exhibit 1 and explain the
rationale for the alternative.
3. The interest rate under consideration by the City is the federal funds rate to remain
fixed for the borrower for the term of the loan. Currently, the prime lending rate is
considered by the City to be too high for the disadvantaged borrower. This policy is to
be reviewed at least semi-annually. The respondent may propose an alternative
interest rate and provide the rationale for the alternative.
4. Proposals shall contain sufficient detail to describe Loan Administration Policies
including an explanation of the respondent’s organizational ability to underwrite and
administer loans within a 60-day time period. The respondent may propose an
4
alternative length of the loan approval process and explain the rationale for the
alternative.
5. The City seeks a simple, efficient and relationship-oriented application and loan
preparation process for the Lodi borrower. The proposals will describe the application
process, prescreening, and method by which applicants are assisted during the
application process.
6. The proposals will describe in sufficient underwriting criteria and the steps of due
diligence review of the proposed loan including but not limited to a) cash flow
projections or assumptions, b) researching the industry, c) making a site visit, if
appropriate, d) credit rating, e) structuring the loan payment to meet the borrower’s
needs as specified in Exhibit 1. The respondent may propose alternatives to the
underwriting criteria and due diligence in accordance with industry best practices and
explain the rational for the alternatives.
7. The proposals will describe in sufficient detail the loan approval process, reasons for
denying a loan and communication with the loan applicant. The proposals will describe
the use of a loan risk rating system.
8. The proposals will describe in sufficient detail the loan closing and documentation
process.
9. The proposals will describe the loan servicing and monitoring process including
delinquencies as specified in Exhibit 1. The respondent may propose alternative loan
servicing, and monitoring procedures in accordance with industry best practices.
10. Describe the capacity, skills, size and experience of the respondent’s management team,
partners, key staff, including members of the loan review committee.
11. Provide the organization’s document that best describes the organization’s capital
structure for lending activities, total loan funds, outstanding loans, loan diversification,
and delinquencies shall be provided.
12. Provide existing and proposed technical assistance services readily available to the
applicant by the respondent. Describe the technical assistance requirements, if any, for
first-time borrowers, or for those who have been determined to not be loan-ready.
Technical assistance requirements are anticipated to avoid delinquencies.
13. Describe how the respondent will market the Hometown Microloan Program to the
target market of the City of Lodi. The marketing plan should contain strategies that will
target the service delivery region as a whole and reach certain market subsets in specific
communities, such as in underserved neighborhoods or to MWBEs, disabled, veterans,
and other microbusiness loan applicants.
5
V. Evaluation Criteria
The criteria for selection will include the following:
A. Completeness of proposal
B. Organization experience and capacity
C. Leveraged loan ratio (for leveraged loan approach only)
D. Fee structure
E. Compliance with Hometown Microloan Program Goals and Objectives
F. Compliance with Hometown Microloan Financial and Administrative Policy Guidelines
G. Marketing
H. Technical assistance provided
I. Technical assistance required for borrower to safeguard against delinquencies
VI. Submission Deadline
Please provide your proposals in pdf by email by 5:30 pm on Friday, August 18, 2023 signed
by the organization’s authorized representative to:
Astrida Trupovnieks, Economic Development Manager
atrupovnieks@lodi.gov
A decision by the City is anticipated by Friday, August 25, 2023. The execution of a
professional services agreement is contingent on City Council approval. The City reserves
the right to ask for additional clarification of the proposals. The City reserves the right to
accept and/or reject the proposal and parts thereof.
<End of RFP>
Hometown Microloan Program
Overview of RFP Responses to Lending Approaches
October 3, 2023
PRESENTATION OUTLINE-REVIEW TWO APPROACHES
California Capital-Hybrid Approach
1. Use $340,000 of City’s capital
✓City pays loan fees
2. Use $250,000 of California Capital funds
✓City pays loan fees
✓City buys down interest to 5 percent
✓Make 21 loans
Main Street Launch-Leveraged Capital Approach
1.Use $1,500,000 of Main Street Launch funds
✓City pays loan fees
✓City buys down interest to 5 percent
✓Use no City funds as loan capital
✓Make 38 loans
California Capital-Hybrid Approach (Fee-based & Leveraged Capital)
Cost per loan Loan Fund
Fee-based Approach City of Lodi Hometown Loan Fund 21,250$ 340,000$
City of Lodi Estimated Number of Loans 5-year Term Loans @ 5% interest 16
Origination 638$ 10,200$ 3%
Underwriting 750$ 12,000$ $750 per loan
Closing 500$ 8,000$ $500 per loan
Servicing 1,063$ 17,000$ 5%
Monitoring 213$ 3,400$ 1%
Total Fees 3,163$ 50,600$
Interest from Borrower Repayments (Amortized)5.0%2,722$ 43,557$
FEES
California Capital-Hybrid Approach (Fee-based & Leveraged Capital)
Cost per loan
Leveraged Capital Approach Leveraged Capital $50,000.00 $250,000.00
Estimated Number of Loans 5-year Term Loans @ 5% interest 5
Origination 1,500$ 7,500$ 3%
Underwriting 750$ 3,750$ $750 per loan
Closing 500$ 2,500$ $500 per loan
Servicing 2,500$ 12,500$ 5%
Monitoring 500$ 2,500$ 1%
Total Fees 5,750$ 28,750$
Interest Rate Buydown (Amortized)4.75%6,073$ 30,364$
11,823$ 59,114$
Interest from Borrower Repayments (Amortized)5.0%6,405$ 32,027$
FEES
California Capital-Hybrid Approach (Fee-based & Leveraged Capital)
Estimated Lodi RLF based on full repayment over a 5 year period
Principal 340,000$
Interest 43,557$
383,557$
City of Lodi Revolving Loan Fund
Main Street Launch-Leveraged Capital Approach
Cost per loan
Leveraged Capital Approach Main Street Launch $40,000.00 $1,500,000.00
Main Street Launch Estimated Number of Loans 5-year Term Loans @ 5% interest 38
Origination $1,200 $45,000 3%
Administration $6,500 $247,000
Closing included
Servicing included
Monitoring included
Total Fees $7,700 $292,000
Interest Rate Buydown (Amortized)4.00%$4,144 $157,486
$11,844 $449,486
Interest from Borrower Repayments (Amortized)5.0%$5,124
FEES
Comparison of Compensation (Cost)
Item California Capital Main Street Launch
Average Loan Amount $21,250 $50,000 $40,000
# Loans 16 5 38
Fees per Loan $3,163 $5,750 $7,700
Interest Buydown per Loan n/a $6,073 $4,144
Total Cost per Loan $3,163 $11,823 $11,844
Cost as % of Loan Amount 14.88%23.65%29.61%
Fees to Applicant $0 $0 $0
Interest Paid by Applicant
(Average 5-yr term @5%)
$2,722 $6,405 $5,124
Comparison of Compensation (Cost)
Item California Capital Main Street Launch
Total Loan Capital $590,000 $1,500,000
# Loans 19 38
Total Fees $79,350 $292,000
Total Interest Buydown $30,364 $157,486
Total Cost $109,714 $449,486
Cost as % of City Loan
Capital
24.38%99%
Return of Principle $340,000 $0
Return of Interest
Payments
$43,557 $0
Total Available-New Loans
(over 5 years)
$383,557 $0
Years to $1,500,000 3.9 n/a