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CDBG UNDERWRITING GUIDELINES

CDBG UNDERWRITING GUIDELINES. Found in the Regulations at § 24 CFR 570.209 and Appendix A to Part 570. SIX CRITERIA. Are the Costs Reasonable? Is all project financing committed? CDBG Funds should not be used in place of non- federal funds.

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CDBG UNDERWRITING GUIDELINES

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  1. CDBG UNDERWRITING GUIDELINES • Found in the Regulations at § 24 CFR 570.209 and Appendix A to Part 570

  2. SIX CRITERIA • Are the Costs Reasonable? • Is all project financing committed? • CDBG Funds should not be used in place of non- federal funds. • Is the project financially feasible? • Owners return on equity should not be unreasonably high. • CDBG funds should be disbursed on a pro-rata basis with other funding.

  3. COST REASONABLENESS • Common Sense is the first rule. • For some costs, a reasonable reviewer can make a rational determination • For others a third-party fair-market cost estimate is necessary

  4. COST REASONABLENESS-CONT. • Approach this as you would in your personal life. • Evaluate – review – confirm. • Information is available everywhere today – use these resources.

  5. Commitment of all Sources of Financing • Review the sources and uses of funds to ensure that all funding has been identified and is available.

  6. AVOID SUBSITUTATION OF CDBG FUNDS FOR OTHER FINANCING • Normally an analysis of financial statements is conducted to review expected revenue, expenses, debt service, and return on equity. • For many small business, this becomes more difficult since accurate, up to date, financial statements may not be available.

  7. FINANCIAL FEASIBILITY • Determine the likely financial success of the project. • Consider the business plan, market share, sales, growth revenue projections debt service. • Business should be capable of a positive cash flow.

  8. OWNERS EQUITY RETURN • CDBG Investment should provide a reasonable return on equity. • There is no definition of reasonable – it varies depending on the business.

  9. PAYOUT OF FUNDS • This aspect of underwriting assumes other financing in the project, which is not relevant here. • However, the BRGL funds should be disbursed based on demonstrated business need.

  10. REFINANCING DEBT • An eligible use of funds is to refinance more expensive business related debt that was incurred due to the hurricanes. • Obligation must have been incurred after September 1, 2005. • Must be business related, not personal debt.

  11. Refinancing Debt - Continued • Refinancing should increase the businesses viability. • The loan should be current before payoff. • Make payment to the debt holder not the applicant.

  12. Refinancing Debt • Evaluate the terms and conditions of the loan to insure the applicant will be better off given refinancing. Loans incurred two plus years ago may be close to satisfaction – and refinancing could result in a longer obligation and more interest paid over the long fun.

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