Revolving Loan Fund
Mountain Electric Cooperative is very concerned about economic stability and quality of life for its members and people residing in rural areas. The attraction of new business and industry, the expansion of present business and industry, the creation of additional jobs, adequate infrastructure, and necessary community facilities and services are some of MEC’s primary concerns. RLF funding is extremely important for the accomplishment of these goals. MEC’s RLF will provide funding in part for properly selected applicants who meet all RLF requirements. Funding will be contingent upon funds being available in the RLF account.
RLF POLICY STATEMENT
Mountain Electric Cooperative will accept and consider applications for loans from the RFL for projects that will significantly benefit rural areas, without restriction to Mountain Electric Cooperative’s service area. It is the intent of Mountain Electric Cooperative that funds from the RLF program serve as seed money to generate economic development.
Mountain Electric Cooperative will work with local lenders and others to maximize the leverage of the RLF dollars so that the result is the maximum possible economic development. It is the further intent of Mountain Electric Cooperative to use the RLF program to supplement, but not compete with, capital that may already exist within the communities.
Mountain Electric Cooperative will not condition the approval of a loan from the RLF with the requirement that the prospective recipient take electric service from Mountain Electric Cooperative or any other electric utility.
The Board of Directors of Mountain Electric Cooperative is the sole authority for approval of loans from the RLF and is responsible for all decisions and actions of the RLF.
A. ELIGIBLE APPLICANTS
- Business Ventures
- Sole Proprietorships
- Governmental Units
- Local Townships
- Non Profit Entities
- Tribal Authorities
B. TYPES OF PROJECTS ELIGIBLE FOR RLF FUNDING
- Industrial/Commercial Development
- Small Business Expansion
- Small Business Startup
- Business Incubators
- Community Infrastructure
- Community Facilities
- Medical Facilities
- Training Educational Facilities
- Non-Profit Business Model Demonstration Projects
Projects must be employment creation/retention projects or projects that provide needed community infrastructure, facilities and services.
C. TYPES OF PROJECTS/ACTIVITIES INELIGIBLE FOR RLF FUNDING
- Refinancing of existing debt, or payment to business owners or partners
- Activities determined to be for investment purposes
- General improvement loans related to normal replacement needs of a business and unrelated to business expansion / job creation
- For Profit Agricultural production costs (i.e., cultivation, production, harvesting)
- Vehicles used for general purposes or that may be considered for personal use
- Projects without any supplemental financing
- Projects that are primarily working capital with limited security
- Construction projects of a residential nature
- Illegal activities and legalized activities (e.g. gambling casinos) that in the opinion of Board of Directors adversely affect RLF interests
- Projects in which any director, officer, general manager, supervisor, or employee of Mountain Electric
- Cooperative, or close relative thereof, is an owner, stockholder, partner, or director, or which would, in the judgment of the Mountain Electric Board, create a conflict of interest, potential conflict of interest, or any appearance of a conflict of interest.
D. TYPES OF FINANCING AVAILABLE:
Fixed Asset Financing:
- Land, buildings, manufacturing equipment, office and work equipment.
- Infrastructure improvements.
Working Capital Financing:
- Available in a limited amount only in conjunction with other RLF financing.
E. LOAN TERMS AND CONDITONS
The RLF will not lend more than 75% of the total amount that is needed for a project. The maximum amount of a single loan may not exceed $200,000.00 the minimum amount is $10,000.00.
The maximum interest rate for loans made from the RLF is the prime rate as published in the Wall Street Journal on the date of loan closing. Dependent on loan security, RLF Loans may bear a rate as low as, but not less than, one (1) percent.
Repayment terms will not exceed 15 years. The following payment period will be used as a general guideline:
|Real Estate||10-15 years|
|Equipment||5-7 years or depreciable life|
|Working Capital||1-3 years|
The loan committee will provide a recommendation on term options on a project-by-project basis.
A minimum of a one percent service charge on the remaining unpaid principal balance will be assessed on each succeeding anniversary. This charge will be used for the expense of auditing, maintaining, and reporting, and servicing the loan.
Legal & Closing Costs
RLF loan recipient will be responsible for all legal fees and closing costs associated with their loan.
RLF loans are limited to financing 75% of a project. Supplemental financing of 25% will be required. Of the supplemental financing, a minimum of 10% of new equity infusion must be provided by the project owner. Evidence of availability of supplemental financing will be required prior to advance of RLF funds.
Mountain Electric Cooperative will work with the potential borrower to obtain security that is adequate for the term of the loan. The nature of the collateral pledged by the loan applicant shall be determined by the loan committee on a project by project basis. Generally, security will consist of a first lien position on real property. If the same collateral is used in joint financing, the RLF will require a parity position with other lenders. Other types of security may include:
- Letters of irrevocable credit from acceptable financial institutions.
- Machinery and equipment which have a developed market.
- Accounts receivable and inventory for short-term loans.
- Securities issued by the Federal Government or its agencies.
The loan recipient will be required to maintain fire insurance, and flood insurance if necessary, on secured assets. In some cases, credit life or key man insurance will be required with the RLF as loss payee.
Personal guarantees from partners or majority stockholders may be required for all corporate or partnership borrowings where the equity requirement is not met by cash.
All applicants for RLF funding will be required to complete an application form, providing data which demonstrates that their proposed projects are economically feasible and will provide benefits to rural areas, either through job creation or infrastructure improvements. Information required from each applicant is attached as Exhibit 1.
APPLICATION SELECTION PROCESS:
A Loan committee has been established to review applications and submit their recommendation to Mountain Electric Board of Directors for final consideration. The committee is comprised of the general manager and 4 of his appointees as appointed by the Mountain Electric Board of Directors. Johnson County, Tennessee, Avery County, North Carolina, and Roan Mountain, Tennessee will each have one representative. The fifth member will be at large. The committee will be chosen based on financial experience as well as awareness of community needs. The committee will consider such issues as:
- Feasibility of project
- Benefit to rural areas
- Number of jobs created or retained
- Credit worthiness
- Supplemental project financing
- Collateral and security
- Other pertinent criteria
Final loan approval will be the sole responsibility of the Mountain Electric Board of Directors.
F. LOAN MONITORING
Loan monitoring will require regular reporting by the loan recipient. This includes:
- Annual income statements and balance sheets. Depending on the nature of the project and security arrangements, Mountain Electric Cooperative reserves the right to require the submission of annual financial reports as audited by a certified public accountant.
- Periodic management information reports. Management reports will be required on a semi-annual basis beginning six months after the advance of RLF funds and continuing semi-annually thereafter for a period of three years or until completion of the project, whichever is the later period. Management reports will include (i) information on the number of jobs created or retained during the reporting period; (ii) a comparison of accomplishments during the reporting period to the objectives established for the project, and (iii) problems, delays, or adverse conditions which will materially affect the attainment of planned project objectives and a statement of action taken or contemplated to resolve the situation. Mountain Electric Cooperative reserves the right to require these reports on a more frequent basis if it is determined to be in the best interests of The RLF.
- Telephone contact and site visits. A minimum of twice annually, an RLF representative will initiate a phone call to the loan recipient to review performance and issues. On-site visits will be conducted annually to verify and evaluate the use of RLF funds.
An annual review and report of the outstanding loans of the RLF will be compiled by the loan committee for presentation to the entire Mountain Electric Cooperative Board of Directors.