State of Alabama CDBG Loan Program

ED LOANS

Eligible applicants may apply for ED funds anytime during the program period to make loans to private businesses for locating or expanding in the community and creating or retaining jobs for low and moderate income persons.  ED loans can be used for purchasing land, buildings and equipment, site improvements, construction or renovation of buildings, operating capital, or any other CDBG eligible activity.  A reasonable percentage of ED loan projects may be a grant to cover administrative costs.  Deferred payment loans will have a write-off provision.  Loans made from the CDBG Revolving Loan Fund will be governed by the same requirements as loans from the CDBG ED Fund.  ED funds used by communities to make loans to private businesses will have a payback requirement.  The determination as to the local government’s disposition of the proceeds of repayment of loans will generally be made at the time an ED loan is funded.  As required by Section 104(j) of the Housing and Community Development Act, the State will, as part of all application reviews, recognize the applicant’s right to retain program income to the extent such income is applied to continue the activity from which such income was derived.  The repayments may be allowable to the regional commissions/councils to be used for similar purposes if they are determined to be nonprofit organizations serving the development needs of the communities in non-entitlement areas.  A grant ceiling of $250,000 will apply to applications requesting ED loans, although there is a waiver provision.  The State will maintain the right to deny funding of any application or activity during the program period depending on the quality of the loan, or appropriateness of the proposed project; or the capacity of the community to undertake such a project.  Threshold requirements for the ED loans are listed as follows and are in addition to overall thresholds listed earlier in the Action Plan.

Thresholds

  1. The proposed activities generally must be associated with an economic development project
    creating and/or retaining permanent jobs.
  2. The proposed project must not involve intrastate relocation of a business, except when such
    relocation may have been necessitated due to inadequacies associated with the existing location
    and a move to a new location will result in a greater number of jobs.
  3. The applicant must have a commitment from the business to create or retain jobs.
  4. Beneficiaries of ED fund projects must be at least 51 percent low and moderate income persons.

Threshold Evaluation Criteria

Applications for ED loans will be considered on a continuous basis. Each application will be reviewed for
conformance with the thresholds and other regulatory requirements. The following factors will be considered
in making funding decisions:
  1. CDBG dollars per permanent job.
  2. Leverage ratio (private dollars as compared to CDBG dollars).
  3. The actual number of permanent jobs to be created or retained.
  4. Potential for spin-off benefits.
  5. Job diversification.
  6. Loan pay-back/collateral.

ED Float Loans

 ED Float Loans are short-term loans which will be made out of appropriated, but unexpended, CDBG program funds (such funds may be from any fiscal year) that may have been allocated to specific program activities.  The purpose of ED Float Loans is to allow the State to fund activities necessary to take advantage of economic development opportunities, which will principally benefit low and moderate income persons.  Funds used for short-term loans will come from all categories of grants.  A reasonable amount of program income or recaptured funds may be used to provide a grant to administer a float loan.  As loans are repaid, the repayment of principal will be used to restore all funds from which the moneys initially came while the interest will generally be used to increase the State’s CDBG ED Fund (As indicated above under the Section on ED Loans, the State will recognize the local government’s right to retain program income when such income is to be applied to continue the activity from which the income was derived.)  The amount of funds available for the “float loan program” will be determined by careful monitoring of the fund flow needs of the CDBG program.  Because the State recognizes that the “float loan” program entails some risks, each request will be analyzed on the basis of the need of grants previously funded.  Float loans will be made only after it has been determined, to the maximum extent possible, that the amount and term of any float loan will not commit the state’s letter of credit balance to the degree that other previously funded grants are delayed or jeopardized.  Float Loans may come from more that one year’s funds with the amount from one year being less than the minimum.  Eligible applicants for ED float loans are all non-entitlement local governments that meet eligibility thresholds listed earlier.  The Float Loan program will be governed by the following requirements:

Program Objectives

A primary objective of the float loan program is to expand economic opportunities, principally for persons of low and moderate income.  Normally, the program will be used only to aid the creation of new jobs and on projects where there is likely to be a substantial economic development impact.  In exceptional circumstances the float loan program may be used to help retain jobs.  Of the jobs to be created (or retained), at least 51 percent must be occupied by or made available to low and moderate income persons.  If float loans are made in order to retain jobs, the applicant must clearly demonstrate that, without CDBG assistance, the jobs would be lost.

Eligible Activities

The float loans can be used to finance any necessary activity including acquisition, site preparation, new
construction, renovation, purchase of machinery and equipment, working capital, refinancing, and other
CDBG eligible activities approved by the State.

Loan Amount and Terms

The minimum loan amount shall be $1 million and the maximum loan amount shall be $10 million.  The maximum
and minimum loan amounts may be waived by the State when significant long-term economic benefits for low and
moderate income persons are involved.  The loan will normally be for one year with an option to extend for one more
year.  Interest earned on float loans will be treated as program income and will be used for CDBG eligible activities.

Float Loan Evaluation Criteria

Applications for ED float loans will be considered on a continuous basis.  However, due to the unique nature of this
program, the State intends to fund only a limited number of projects.  Prior to accepting any application, the State
will require a thorough review of the project with the State.  Float Loan funding decisions will be based on the following
factors:

  1. Conformance with the national objective.
  2. Loan security (Loan security shall be in the form of an irrevocable letter of credit or such other security acceptable to the State).
  3. Number of jobs involved.
  4. Private investment.
  5. Unemployment/community distress.
  6. Job diversification.
  7. Indirect/spin-off benefits.