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Council Provided Information - 11/19/2024CITY COUNCIL OF SALT LAKE CITY 451 SOUTH STATE STREET, ROOM 304 P.O. BOX 145476, SALT LAKE CITY, UTAH 84114-5476 SLCCOUNCIL.COM TEL 801-535-7600 FAX 801-535-7651 COUNCIL STAFF REPORT CITY COUNCIL of SALT LAKE CITY TO:City Council Members FROM: Austin Kimmel Public Policy Analyst DATE:November 19, 2024 RE: ORDINANCE: ECONOMIC DEVELOPMENT LOAN FUND LOAN TO HK BREWING COLLECTIVE, LLC, AT 370 WEST ASPEN AVENUE ISSUE AT-A-GLANCE The Council will consider approving a loan from the City’s Economic Development Loan Fund (EDLF) to a business called HK Brewing Collective, LLC, at 370 West Aspen Avenue. HK Brewing Collective, LLC is a business which offers non-alcoholic kombucha, through its brand Han’s Kombucha, and a bar and taproom. The business recently signed a contract with United Natural Foods (UNFI), a national wholesale distributor of health and specialty foods. The City’s Economic Development Loan Committee recommends the Council approve a $250,000 loan at an 8.50% fixed interest rate over seven years. This loan will assist in the creation of 10 new jobs in the next year and the retention of 20 existing jobs. Funds will pay for equipment purchases, hiring staff, and working capital. The interest rate reflects the 8.50% prime rate at the time of the application (February 20, 2024) plus the standard EDLF four percentage points. The project did qualify for a four percentage-point reduction based on location within a priority area (State Street RDA Project Area), being owned by a socially and economically disadvantaged individual, with low income, and sustainability (see section B below). Council staff reminder: EDLF loans are now scheduled for a vote on the same day as the briefing, so this is scheduled for action on the November 19 formal meeting agenda. Goal of the briefing: Consider a potential $250,000 loan from the Economic Development Loan Fund to a business called HK Brewing Collective, LLC. Item Schedule: Briefing: November 19, 2024 Public Hearing: N/A Potential Action: November 19, 2024 Page | 2 ADDITIONAL AND BACKGROUND INFORMATION A.Interest Rates. For context, the nationwide median rates for urban small business commercial and industrial loans in the second quarter of 2024 (the most recent data available) were 7.77% for fixed-rate loans at and 8.88% for variable rate loans, according to the most recent U.S. Federal Reserve Small Business Lending Survey.i In the second quarter of 2022, these rates were 4.50% and 5.55% respectively. Interest rates for EDLF loans consider an assessment of the risk level of different applicants, among other factors, and include potential interest rate reductions. Interest rates have ranged from 7.25% for nearly all 2022 EDLF loans to an average of 9.55% in 2023 and 2024. B.Interest Rate Reductions. The bases for potential reductions are as follows: 1.Location within a priority area: RDA Project Area; Opportunity Zone; West of I-15; or Neighborhood Business Improvement Program (NBIP, previously known as Façade Improvement) target area. 2.Socially and Economically Disadvantaged Individuals (SEDI)-Owned Businesses: 51% of the business is owned by at least one SEDI individual. 3.Low Income Business Owner: Income does not exceed 80% of Salt Lake County average median income (AMI) as defined by the U.S. Department of Housing and Urban Development (HUD). 4.Sustainability: Either, a. Membership in SLC Green’s E2 Business Program; or b. Loan proceeds will be used for the purchase of electric vehicles, electric vehicle charging stations and infrastructure, renewable energy including but not limited to wind and solar, heat pumps, high efficiency equipment, and/or energy efficiency. The interest rate reductions applied to this application are detailed below: HK Brewing Collective, LLC 8.50% prime rate + 4% ELDF charge – 1% for location within a priority area – 1% for owned by a socially and economically disadvantaged individual – 1% for low income – 1% for sustainability ___________________________ 8.50% final interest rate C.Program. The EDLF is administered by the Department of Economic Development, which is charged with maintaining the corpus of the EDLF in a manner sufficient to perpetuate the program's goals. Each loan application is pre-screened, and an underwriting analysis and economic impact statement are completed before an application may be recommended for Loan Committee (see below) review. Information on successful applications is transmitted to the Council to consider for final approval. D.Available balance and amount of outstanding loans. The Department reported that the Fund’s available balance was approximately $8,200,000 on September 30, 2024, and outstanding loans totaled $3,932,437 on October 1. Page | 3 E.EDLF Committee Membership. The Department of Economic Development lists nine members of the EDLF Committee as follows: City Employees Community Volunteers 1. Finance Director, Community and Neighborhoods Department 2. Salt Lake City Business Advisory Board (BAB) member 3. Representative of the Mayor’s Office 4. Banker 5. Salt Lake City employee at large 6. Community lender 7. Representative of the Division of Housing Stability 8. Business mentor 9. Director, Department of Economic Development 10. POLICY QUESTIONS 1. The Council may wish to have a policy discussion with the Administration about interest rates charged by the City from this and other loan funds and whether it makes sense to reevaluate how interest rates are determined for lenders, especially since the City typically offers loans as a lender-of-last-resort. 2. The Council may wish to ask the Administration whether the EDLF Committee considered any other unique information about this business that would help Council Members evaluate how this application compares to others. For example, are risk factors evaluated for each company, like outstanding loans, years in business, etc.? 3.What outreach does the Department do to ensure a diverse pool of businesses successfully applies to the EDLF? Are applications from diverse owners, particularly those whose businesses are located on the Westside, offered additional support through the application process? Does EDLF staff have ideas for improving access that would benefit from program changes or additional funding? 4. The Council may wish to request a more general update on EDLF use and processes. This could include the number of applications, review criteria used, loan program goals, etc. i i Source: Small Business Lending Survey, New Small Business Lending Declines as Credit Standards Continue to Tighten. Consulted on October 29, 2024, at https://www.kansascityfed.org/surveys/small-business-lending- survey/new-small-business-lending-declines-as-credit-standards-continue-to-tighten/.