To: Honorable Mayor and Members of Town Council
From: David L Corliss, Town Manager
Frank Gray, President/CEO, Castle Rock Economic Development Council
Title
Economic Development Fund to Support Castle Rock Based Business Establishments Affected by COVID-19
Body
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The purpose of this memorandum is to advise Town Council of the EDC’s activities following the Declaration of Emergency by the Town, County and State of Colorado, and to request the Council’s support in accessing the Town’s Economic Development Fund to facilitate private sector short-term financing to Castle Rock-based businesses.
Background
Following the Declaration of Emergency issued by the Town of Castle Rock, Douglas County and the State of Colorado related to COVID-19, the EDC - in partnership with the Downtown Alliance and the Castle Rock Chamber of Commerce - engaged in a variety of activities designed to solicit feedback from our business community on their ability to navigate the effects of the COVID-19 crisis. We initiated a rapid response business survey, held several forums with local lenders and Colorado Lending Source (local SBA provider), hosted two virtual Town Hall meetings (with over 100 participants). Topics included updates on the SBA Disaster Relief Fund, deferment options provided by local lenders, and SBA and KIVA loan options (a crowd funding platform designed to engage community investors willing to make micro loans that offer small businesses the opportunity to borrow up to $15,000 at 0% interest).
SBA Disaster Relief Loan
• Support businesses affected by COVID-19
• Loan amount up to $2 million based on businesses’ ability to repay
• Rates = 3.75% for profit businesses / 2.75% for non-profit businesses
• Term = 30 years
• Use of funds include - operating expenses (employee salaries, leases, mortgages, supplies, etc.)
• Timing = application to funding is listed as 6 to 8 weeks *** On 3/25 the EDC met with Dan Norberg, the regional SBA director covering Colorado, who identified the anticipated release of these funds will take longer. Disaster loans were intended to be used on specific regions affected by disaster (think Katrina), not the whole country.
Lending
• Lenders and SBA providers are clearly looking for solutions. Most have offered their borrowers the option of 2 to 6 months of deferment. Lines of credit and refinancing. Serious challenges arose as to how underwriters would handle line of credit and refinancing requests if businesses shared current revenue projections and/or were forced to temporarily shut down.
Kiva
Kiva was introduced to the EDC through Colorado Lending Source as an option to assist small businesses in gaining access to capital under stressful circumstances. It was originally designed to support underserved businesses in gaining access to capital through community crowdfunding microloans but has recently been expanded to included small businesses negatively affected by the COVID-19 outbreak. Here is short video outlining the KIVA platform: <https://vimeo.com/168392276>
(i) Maximum loan is $15K
(ii) Interest rate 0% (philanthropic lending)
(iii) Access to capital can be as fast as 10 days
(iv) All or nothing - Kiva applicant has up to 30 days to raise their campaign amount. If they fall short, no money is dispersed
(v) Payments start 6 months following funding
(vi) Process <https://www.kiva.org/about/how>
1. Apply to Kiva.
2. Underwriting by Colorado Lending Source and KIVA determines the maximum loan amount.
3. Launch campaign to family and friends - Kiva requires applicants to raise $25 dollars from 25 members of their community sphere in order to demonstrate their credit worthiness (if they have a Kiva Trustee endorse them, they are only required to raise $25 dollars from 15 members of their sphere).
4. Once they have raised these initial funds, Kiva launches their campaign to KIVA investors.
5. At this point, the applicant has 30 days to complete their raise.
6. Funding takes about 5 days following the completion of the raise.
Conclusion
The EDC has concluded that one of the areas we can be most effective is in the support of the Kiva lending program. 62% of businesses that were surveyed said they would not make it past 8 weeks. Our most vulnerable business category, retail, commented that they would not make it past 4 weeks under the current business climate. The availability of funds was the #1 requested need. The EDC has decided to join Colorado Lending Source as a Kiva Trustee, which would enable us to promote Castle Rock businesses to the larger investment group and make the process simpler for Castle Rock-based businesses. We have also begun correspondence with our investors, business leaders and the banking community in the hopes that they will participate in a matching fund or become KIVA lenders themselves to support our local businesses. It is our expectation that this platform would be used on a short-term basis until funds are exhausted, or until October 2020, at which time any remaining funds would be returned to the Town Economic Development Fund. As loans get paid back over the 3-year period, they would be returned to the Town Economic Development Fund. There are no penalties for early payback.
KIVA-Broad Criteria
• No Bankruptcies
• No Franchises
• No Illicit Businesses (includes marijuana)
Underwriting Criteria - Kiva/Colorado Lending Source (Character Lending)
• Stated financials (debt to income)
• Soft pull of their credit history
• No financial crimes
• No violent or sexual crimes
• Business is property registered
• Business banking is separate from personal banking
Local Criteria
• Requires each applicant to find 15 people within their physical or personal community to lend them $25 dollars each (Character Lending)
• Requires all loans to be fully funded within 30 days (All or Nothing). If funding is not secured, all money is returned to the original investor.
Town of Castle Rock/EDC - Funding Criteria
• Castle Rock-based business in good standing with the Town
• Has more than 2 employees
• Has been in business > 1 year
• Town of Castle Rock Brick and Mortar location
Request
As the goal of this request is to get funds out quickly, we are requesting that Castle Rock Town Council direct the Town Manager and CEO of Castle Rock EDC, under their co-signing authority, to launch the Castle Rock COVID-19 KIVA Community loan program, allocating $50,000 from the Town of Castle Rock Economic Development Fund to the Castle Rock EDC, which will use 100% of these funds in support of small businesses that meet the KIVA and Town/Castle Rock EDC criteria. The COVID-19 Town/EDC would fund the first $500 and then close out the last $500.
Attachments
Attachment A: COVID-19 Rapid Response Survey Summary - RETAIL