Legacy Revolving Loan Fund
When an entrepreneur has a dream and a plan, they start looking for capital to fund their business. But sometimes traditional lending institutions won’t lend to a risky venture, and so the City of Orem steps in to help. The City of Orem offers these businesses funding through the Legacy Revolving Loan Fund program.
The Legacy RLF is a program that provides financial assistance to new and expanding local businesses. The purpose of the RLF is to stimulate private investment and create employment opportunities in Orem. Funding for the RLF comes from the Department of Housing and Urban Development (HUD) and the Economic Development Administration (EDA).
Our Revolving Loan Fund is the oldest of its kind in the state of Utah. Since the inception of the RLF in 1985, it has provided loans to over 148 Orem businesses, with the total amount loaned recently surpassing $10.2 million.
The Legacy RLF was designed to provide funding to new and expanding businesses, and its features include:
- Minimum loan amount is $15,000 and the maximum amount is $80,000
- Interest rate is up to three points above the Wall Street Journal Prime Rate (fixed over the loan term). Typical interest rates have been between 8-12%
- Minimum leverage is 2:1 (which means a minimum of two private sector dollars for every one RLF dollar loaned)
- Applications are accepted year-round and are due by the end of the month prior to the month in which applications will be considered by the RLF committee.
- Acceptable uses – Fixed asset purchases & Working capital
- The business must be located in Orem for the duration of the loan
- The RLF must take collateral position in assets financed or assets pledged
- Personal guarantees are required for all principals holding a 20% or higher interest in the company.
- Job creation – one job created or maintained for every $35,000 of RLF money. 51% or jobs created must be made available to persons of low to moderate income.
WHO IS ELIGIBLE FOR THE LEGACY RLF?
The Legacy Revolving Loan Fund is open to all Orem businesses who:
- Are an industrial, manufacturing, commercial, or service business
- Are an owner-user business or a for-profit company
If you fall into the above categories, businesses must also meet these additional requirements:
- Must provide at least 2 private sector dollars for every 1 RLF dollar
- Must use loan money as a source of working capital or financing of the acquisition of machinery or equipment used at the Orem place of business
- Must create or maintain at least one job for every $35,000 borrowed
- 51% of jobs created must pay at least minimum wage and be available to people with a low/moderate income
Businesses can NOT use the loan proceeds to refinance existing debt and business relocation
WHO DECIDES ON THE LOANS?
Eligibility for a loan through the Legacy RLF program is decided by the Loan Approval Board. The Loan Approval Board is comprised of qualified business, financial, and community leaders who are experts on Orem’s revolving loan fund. The Loan Approval Board approves or rejects loan applications based on the criteria outlined on this page, and then assigns an interest rate on the loan based on risk.
WHAT CAN PROCEEDS FROM THE LEGACY RLF BE SPENT ON?
Projects funded by the RLF must meet the eligibility requirement under the Revolving Loan Fund. The following types of activities are eligible for use of RLF funding.
● Acquisition of fixed assets such as machinery and equipment
● Working capital
The following activities are NOT eligible uses of RLF funding
● Acquisition of an equity position in a private business
● Subsidizing interest payments on an existing RLF loan
● Providing a loan to a borrower for the purpose of meeting the requirements of equity contributions under another Federal agency’s loan program
● Providing a loan that would result in the relocation of jobs outside of the City of Orem, the eligible lending area.
● Enabling a borrower to acquire an interest in a business either through the purchase of stock or through the acquisition of assets, unless sufficient justification is provided in the loan documentation. Sufficient justification may include acquiring a business to save it from imminent closure or to acquire a business to facilitate a significant expansion or increase in investment with a significant increase in jobs. The potential economic benefits must be consistent with the strategic objectives of the RLF
● Providing funds to a borrower for the purpose of investing in interest-bearing accounts, certificates of deposit, or any investment unrelated to the RLF
● Refinancing existing debt, unless: (a) Recipient sufficiently demonstrates in the loan documentation a “sound economic justification” for the refinancing (e.g., the refinancing will support additional capital investment intended to increase business activities). For this purpose, reducing the risk of loss to an existing lender(s) or lowering the cost of financing to a borrower shall not, without other indicia, constitute a sound economic justification; or (b) RLF funds will finance the purchase of the rights of a prior lien holder during a foreclosure action which is necessary to preclude a significant loss on an RLF loan. RLF funds may be used for this purpose only if there is a high probability of receiving compensation from the sale of assets sufficient to cover an RLF’s costs plus a reasonable portion of the outstanding RLF loan within a reasonable time frame approved by EDA following the date of refinancing
● Serving as collateral to obtain credit or any other type of financing without EDA’s prior written approval (e.g., loan guarantees)
● Undertaking any activity that would violate EDA Property regulations found at 13 CFR part 314;
● Financing gambling activity, or any illegal activity, including the cultivation, distribution, or sale of marijuana that is illegal under federal law
● Providing a loan that would create a conflict-of-interest
WHEN IS THE DEADLINE TO APPLY FOR THE CARES ACT RLF?
Applications are accepted year-round and are due by the end of the month prior to the month in which applications will be considered by the RLF committee.