The Ohio Development Services Agency recently launched the $25 M Rural Industrial Park Loan Program (“RIPL”) to promote economic development in eligible rural areas by providing low-interest direct loans to assist public and private sector organizations in financing the development and improvement of industrial parks and related off-site public infrastructure improvements in 35 of Ohio’s 88 counties. The Ohio RILP does the following:
- Applies to the following Ohio counties: Adams; Ashtabula; Athens; Belmont; Brown; Carroll; Columbiana; Coshocton; Crawford; Fayette; Hardin; Gallia; Guernsey; Harrison; Highland; Hocking; Huron; Jackson; Jefferson; Lawrence; Morgan; Muskingum; Marion; Meigs; Monroe; Noble; Ottawa; Perry; Pike; Richland; Ross; Scioto; Seneca; Vinton; and Washington;
- Permits public and private sector applicants;
- Requires sites to be 25 or more acres and planned for industrial or R&D uses;
- Covers capital expenses associated with industrial development;
- Finances up to 75% of project costs with loans of $500,000-$2,500,000;
- Provides forgivable loans for 50% of balance when project complete;
- Requires a 10% minimum borrower equity contribution toward project costs;
- Requires approval from DSA to transfer project ownership;
- Imposes relatively small fees and no pre-payment penalty; and
- Awarded through a competitive rolling application process until $25 M is spent.
Public and Private Sector Applicants are eligible for Ohio Rural Industrial Loan Program. Eligible applicants include counties, municipalities, townships, non-profit organizations, port authorities, community improvement corporations, private developers, and other eligible applicants willing to develop eligible RIPL projects in one of the designated rural counties, the county commissioners of that county have certified the project would not compete against existing industrial parks, and can provide documentation that they have the capacity to develop these rural sites.
RILP sites must be 25 or more acres planned for industrial or R&D development. Eligible RIPL project sites of 25 or more acres planned and zoned for the development and improvement of industrial parks in rural areas designed to attract and retain businesses related to manufacturing, distribution and warehousing, research and development, high technology, industry and commerce with adequately served with utilities and infrastructure. As a condition of receiving assistance under this program, an applicant must agree, for a period of five years, not to permit the use of a site that is developed or improved with such assistance to cause the relocation of jobs to that site from elsewhere in the state without prior approval of the Development Services Agency.
RIPL eligible costs focus on traditional capital expenditures. Eligible projects costs include:
- Land and/or building purchase;
- Machinery & equipment purchase;
- Building construction and/or renovation costs;
- Long-term leasehold improvements;
- Infrastructure and site preparation;
- Retention ponds and/or flood and drainage improvements;
- Street, road and bridge construction and traffic control device installation;
- Water, sewer line and wastewater treatment plant installation;
- Gas, electric and telecommunication hook-up installation;
- Waterway and railway access improvements; and
- Limited soft costs directly related to fixed asset expenditures.
The following projects/costs are ineligible: Refinancing, retail projects, financing management buyouts or leveraged buyouts of an existing business, the purchase of company stock or goodwill, working capital financing.
RIPL can finance up to 75% of project costs with loans of $500,000-$2,500,000. The RIPL may finance up to 75% of allowable project costs with loans ranging in size from $500,000 to $2,500,000. The Development Services Agency program guidelines requires a minimum of 10% equity contribution from the borrower in the eligible project, however a greater equity contribution may be required based on due diligence. The remaining eligible project shall be funded by the borrower either directly or indirectly through third-party investors and/or private lenders. The loan term shall be determined for each project considering factors such as the useful life of the property being financed with the RIPL proceeds and the term of the third-party financial institution loan in the project, if applicable. Regardless of a longer useful property life, the maximum term for real estate (only) loans is up to 20 years and the maximum term for loans used to acquire machinery and equipment is up to 10 years. The RIPL interest rate is determined by Development Services Agency staff and may be as low as 0% for the first five (5) years. Interest rates shall be fixed at/or below local market rates at the discretion of Development. Payment of loan principal and interest may be deferred up to five (5) years to allow the applicant to market the property. If the principal and interest are deferred for any period of time, the balance of the loan shall be amortized within the remaining term of the loan. The sale or leasing of the project site or facility may trigger repayment, as determined by Development. The RIPL is “take-out” financing. Eligible project costs/uses must be purchased with interim financing with the RIPL disbursing upon project completion. Program guidelines do not set a specific job creation metric, but the creation and retention of jobs will be a critical factor for the award of the loan.
RIPL can provide forgivable loans for 50%% of balance upon successful completion of project.
At least 50% of the outstanding loan balance will be forgiven by Development upon successful completion of the project as described in the application and loan agreement. If the RIPL funds represent less than 50% of the total project costs, the percentage of loan forgiveness will be increased to an amount equal to 100% less the percentage of the project being funded by the RIPL. As an example, if the RIPL funds represent 30% of total project costs, the Borrower would be eligible for 70% forgiveness of the outstanding loan balance (100%-30%) upon successful completion of the project as described in the application and loan agreement.
RIPL requires a 10% minimum borrower equity contribution toward project costs. The Development Services Agency program guidelines require a 10% minimum Borrower equity contribution towards the project costs/uses. The following shall not satisfy the Borrower’s Equity contribution: expenditures made by or on behalf of the Borrower prior to the RIPL application; in-kind contributions of labor or similar items; debt financing; and convertible debt. The Development Services Agency will require a first and/or shared first priority mortgage and/or lien position on project costs/uses financed with the RIPL proceeds. Development may require the following additional collateral or credit enhancements: personal guarantee from owners with more than 20% ownership in the company; corporate guarantee from related companies; full or partial letter of credit; pledged security interest in other revenue streams; life insurance on key business owners and/or managers; other types of credit enhancement, if necessary. Assets offered as collateral will be required to undergo third-party evaluation(s) (i.e. appraisal/ environmental assessment). Loan applications from any borrower with outstanding liabilities with the Ohio EPA or Ohio Department of Taxation will not be considered by Development until those liabilities have been resolved.
RIPL requires approval from DSA to transfer project ownership. Borrowers cannot transfer ownership of the project without approval from Development. It is the borrower’s responsibility to inform Development before such sale or change in ownership interest is complete. If the borrower is sold or substantially sells all of its assets, Development may require the loan to be repaid as part of the sale. However, assumption of a loan may be considered on a case-by-case basis and must be approved by Development.
RIPL imposes relatively small fees but no pre-payment penalty. A number of program fees are required including:
- Non-refundable $1,500 application fee is due upon submitting a completed Financial Assistance Application, and, if the applicant is approved for funding under the program, the application fee will be credited against the commitment fee identified below;
- Non-refundable commitment fee of at least $12,500 (based on complexity of deal) is due upon receipt of a signed loan approval, confirmation and commitment letter; and
- Annual servicing fee equal to ¼ of 1% (.25%) of the outstanding principal amount of the loan is pro-rated and payable monthly after closing of the loan.
Development imposes no RIPL pre-payment penalty. During the deferral period, if the property is sold or leased, Development may require repayment of the outstanding loan amount. The borrower will be required to submit annual reports to Development detailing job creation, investment and other Project related information as required by the Director, and the borrower and corporate guarantors will be required to submit annual financial reports to the Director and at other times as the Director may request.
RIPL is awarded through a competitive rolling application process until funds are spent. Applications are required to be submitted electronically and will be reviewed upon receipt on a first-come, first-served basis. Applications will only be considered for funding once the required application fee has been received by Development and the Applicant has provided proof that all other sources of funds are available/committed. Proof of the required equity contribution can be satisfied by submitting information from a bank, financial institution or third-party accountant that clearly demonstrates the committed equity is unencumbered and available for this project. Other sources of financing for the project can be demonstrated by way of an executed loan agreement, term sheet or commitment letter. The Applicant will also be required to submit the following information to be considered for funding:
- Borrower such as a description of borrower’s & guarantor’s (if applicable) business and operating history, description of market and competition, and bios of owners and/or key managers;
- Capitalization table with ownership, subsidiary and affiliates information;
- Three years of Borrower’s historical financial statements, accompanied by interim financial statements;
- Project description;
- Uses of funds with detailed project plan, equipment lists and contractor quotes;
- Marketing plan and management strategy;
- Cost verification-purchase agreement and/or third-party cost estimates;
- Anticipated project timeline;
- At least three years of project financial projections;
- Appraisal from a qualified appraiser;
- Phase I Environmental Review; and
- Evidence of local support.
The Ohio Rural Industrial Loan Program offers an opportunity to spur development in Ohio’s rural counties primed for economic success but lacking adequate sites prepared for capital investment.