A. Houghton County Revolving Loan Fund (RFL)
The Houghton County RLF has been active since 1988 and has a capitalization of $350,000. The Fund provides long-term "gap" financing for manufacturing, tourism or service sector projects that will create a significant number of permanent, well-paying jobs in the County. Specifically, it will provide up to one-third of total project funding or $15,000 per job created, whichever is less. The fund typically provides loans of $10,000-$75,000 for up to 15 years, sometimes with balloon payments after five years. It loans funds at fixed rates at about the current prime rate. The Houghton County RLF Board is made up of seven members including two Houghton County Commissioners, an attorney, banker, accountant and two with small business backgrounds. It meets as needed and can typically respond very quickly to loan applications. An applicant is requested to submit a business plan including historical and proforma financial statements. Phil Musser (906-482-6817) is the contact person for this fund, serving as both the County economic developer and as the RLF Secretary.
B. Superior Revolving Loan Fund (SRLF)
The SRLF is a six-county, Western Upper Peninsula fund that provides "gap" financing to manufacturing, tourism and service sector businesses. It was begun in 1993 and capitalized at $250,000 using local funds and federal funds from the U.S. Economic Development Administration. It will provide up to one-third of project funding or $10,000 per job created, whichever is less. It emphasizes semi-skilled or skilled manufacturing jobs and gives priority to those projects offering a higher job/cost ratio. The ratio of private sector dollars to RLF funds must be a minimum of 2:1. The SRLF can provide loans for up to 15 years depending on use of funds. It can provide funds at interest rates from four percent above to four percent below the current prime rate. The SRLF Board is made up of 13 members, two from each of the six counties and one at-large member. It meets on an as-needed basis and can take 3-6 months to process a loan application. The contact person is either Phil Musser (906-482-6817), Executive Director of the Keweenaw Industrial Council, or Jim Stingle at the Western U. P. Planning and Development Region (906-482-7205).
C. Northern Initiatives Revolving Loan Funds
Northern Initiatives is a regional economic development organization which has received federal funds to create small business revolving loan funds. Most start-up, newly established and growing businesses in the Upper Peninsula are eligible to apply, although preference is given to manufacturers, remanufacturers and service businesses. Funds can be used for working capital, equipment purchases, start-up costs, pollution control and abatement and other intermediate term needs. Interest rates charged are typically higher than bank rates. Northern Initiatives will loan from $25,000 to $150,000. Contact person is Scott Sporte (906-228-5571)
D. North Coast BIDCO (Venture Capital Firm)
This is a Michigan-licensed Business and Industrial Development Corporation located in Marquette, Michigan and serving the Upper Peninsula. North Coast may provide financing in the form of equity or loans. It is not limited to a particular industry, although it seeks financing opportunities where there is a high value-added component to the product or service. Financing ranges from $50,000 to $250,000. North Coast prices its financing according to the perceived investment risk. The contact person is Kathryn Polansky (906-228-6080).
E. Downtown Development Authorities (DDA)/Tax Increment Financing Areas (TIFS)
Both the cities of Hancock and Houghton have Downtown Development Authorities which have established TIFS in the downtown and other areas of the cities in which commercial and industrial growth is being encouraged. A TIF is a state financing instrument which allows a DDA to "capture" the city and county property tax growth that results from economic development in the TIF area. These "captured" taxes can then be used for infrastructure improvements in support of development projects including the acquisition and clearance of blighted land and buildings, site improvements to make land usable for new construction, street and utility upgrading, planning and engineering. Tax increment revenues can only be expended for public purposes and not as a direct loan to any private individual or company. To be eligible, a project must be located in the TIF district.
F. Industrial Development Districts/Tax Abatement
Many municipalities are willing to grant tax abatement of 50% of local taxes on real and personal property for up to 12 years. Tax abatement applies only to new manufacturing facilities, reuse of existing manufacturing facilities or to research and development facilities. In order to be eligible, the project site must first be designated as an industrial development district by the municipality. The business must then submit an abatement application to the municipality within six months of breaking ground or beginning rehabilitation in the case of reuse. The application must first be approved by the local municipality and is then submitted to the Michigan State Tax Commission to ensure that the correct process was followed. The contact person is Philip Musser, Keweenaw Industrial Council (906-482-6817).
II. State of Michigan Financing Instruments
A. Small Cities Infrastructure Grants
The State of Michigan receives funds on an annual basis from the U.S. Department of Housing and Urban Development to use to support manufacturing start-ups and expansions in the state that will create or retain jobs, and for economic development planning purposes. While formerly the state provided these funds as direct loans to expanding manufacturing companies, now the funds are provided as grants to municipalities to provide public infrastructure improvements necessary for the location, expansion or retention of a specific for-profit manufacturing business. Public infrastructure includes public water, sanitary and rainwater sewer lines, road construction or improvements, bridges and other public utilities. Minimum cost-per-job and private-to-public ration must be met. In addition, the local municipality must participate for at least 10% of infrastructure costs. The maximum grant amount is $500,000.
Economic development planning grants of up to $50,000 are available to municipalities to plan project-specific planning and design work which is likely to lead to an eligible economic development implementation project. Under this program, a municipality applies on behalf of a manufacturing firm to help that business plan a start-up or expansion project or to plan a relocation from another area.
The initial contact person is Philip Musser, Keweenaw Industrial Council (906-482-6817) who can provide access to State of Michigan personnel and municipal authorities.
B. Michigan Economic Growth Authority (MEGA)
MEGA is a new tax incentive program for companies that bring a large number of well paying jobs to Michigan. For a company that brings 150 new jobs from out-of-state or an in-state company that creates at least 75 new jobs, the company will receive a refund of its Single Business Tax for up to 20 years. The refund applies to the personal income tax withholding for the new jobs created and for the overall SBT liability attributable to the new project.
C. Michigan Department of Transportation (MDOT) Economic Development Funds
MDOT economic development funds provide funding for road projects related to specific business start-ups and expansions in manufacturing, agriculture or food processing, tourism, forestry, high technology research, and mining. Projects such as construction or improvement of access roads and paving of parking areas (if publicly owned) are included as eligible projects if needed to support the business expansion or start-up. The project must also create or retain permanent jobs, and all project funds must be committed prior to expenditure of MDOT economic development funds. MDOT Economic Development grants have most recently been approved in Houghton County to build an access road to the new Toivola Millworks plant in Trimountain and to the new Strandwood Molding plant in Dollar Bay. The Houghton County Road Commission is the applicant for these funds (Contact Person is Jim Manderfield, 906-482-3600).
D. Job Training Funds
The State of Michigan provides an extensive array of customized and off-the-shelf training programs for manufacturing and research and development companies which are expanding or moving into the state. The monies can be used for on-the-job training or for customized or standard training programs requiring instructors, training materials and supplies. This includes sending employees out-of-shop or out-of-state for specialized training. Michigan Technological University has been one source of trainers for local industry. The contact person for state training assistance is Cathi Cole, Michigan Jobs Commission (906-786-0842)
III. Federal Financing Instruments
A. Economic Development Administration (EDA) & Rural Community & Economic Development (RCED) Administration Infrastructure Funding
Both of these federal agencies provide infrastructure grants to municipalities to support manufacturing start-up, expansion or relocation. They do not have defined ratios that determine their maximum grant amount per project, but will typically come in for up to $750,000 per project, assuming the private sector investment is substantial and there is significant job creation. Processing times for grant funds can easily require 12-18 months to arrange. The RCED also loans funds to municipalities for infrastructure improvements in support of a specific manufacturing development. These funds are easier and quicker to obtain but, of course, must be paid back by the municipality. These programs are accessed through the respective state-level agency representatives. Phil Musser, Keweenaw Industrial Council, can make these contacts and arrange for applications to be completed.
B. Small Business Administration 504 Program
This program is a fixed asset financing program which offers small businesses long-term, fixed rate loans at a below market rate. Generally, projects estimated to cost between $200,000 and $2 million are suitable for the program. Local lenders provide 50% of project financing which is secured by a first collateral at current market interest rates. The SBA provides 40% of the loan through the sale of debentures and takes a second collateral position at below-market interest rates, not to exceed $750,000. The remaining 10% is provided by the small business in the form of equity. The borrower must create or retain one job for every $15,000 of SBA financing. Any for-profit business whose net worth is less than $6 million and whose average profit after taxes is under $2 million for the previous two years is eligible to apply. Initial contact is made through local lenders.
C. Small Business Administration 7(a) Guaranteed Loan Program
Loans are obtained from participating banks which then apply for an SBA guarantee of 90% on loans up to $100,000 and 80-85% of loans up to the maximum amount of $500,000. This program may be used in conjunction with the SBA 504 program above as a companion loan for working capital, although the SBA's total exposure may not exceed $500,000 for both programs. Loan maturities may go up to 7 years for working capital, 12 years for machinery and equipment, up to 20 years for construction and 25 years for real estate. Loans of up to seven years cannot exceed prime + 2 1/4%, and loans of seven years or more cannot exceed prime + 2 3/4%. Also, the SBA charges the bank a one-time 2% guarantee fee which is normally passed on the to borrower. The participating bank fills out and submits the guarantee application which is normally processed by SBA within 30 days or less.
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For more information - Email to: Phil Musser pmusser@mail.portup.com
Created by Bill Campbell (bill@nitrate.com)
Last Updated: 12 March 1997