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Showing You the Money! Finding the Resources You Will Need

Showing You the Money! Finding the Resources You Will Need. Presented by Al Bogdan President AAB Development Strategies, LLC. Getting Started. Business & Community Development Requires a Commitment Time Money Determination Step One - Create a Strong, Clear Enough Vision to Drive Everyone

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Showing You the Money! Finding the Resources You Will Need

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  1. Showing You the Money!Finding the Resources You Will Need Presented by Al Bogdan President AAB Development Strategies, LLC

  2. Getting Started • Business & Community Development Requires a Commitment • Time • Money • Determination • Step One - Create a Strong, Clear Enough Vision to Drive Everyone • Your Vision Must Become Everyone’s AAB Development Strategies, LLC

  3. Misconceptions • Fortune 500 Creates Jobs • No! Entrepreneurial Firms Grow 20%/ Year. Since 1975, 75% of Net New Jobs Created by 8% of Small Business • Access to Credit Major Obstacle • No! Equity is Major Obstacle • Venture Capital Funds Primary Source of Equity! • No! Angels Finance 30 to 40 Times VC • Venture Capital is Most Venturesome • No! Angel Money Provides up to 80% of Early-stage Deals Angel Investing by Mark Van Osnabrugge & Robert J. Robinson, Harvard Business School AAB Development Strategies, LLC

  4. Types of Start-Up Firms P e r c e n t o f A l l S t a r t-U p F i r m s >90% <10% <1% 50 High Potential Firms Middle Market Firms Lifestyle Firms 50+ 10-50 20-50 Annual Growth Rate (%) Five Year Revenue Projections ($ Million) <20 <10 Internal Bootstrapping & Business Angels Business Angels Venture Capitalists P r i m a r y S o u r c e o f F i n a n c i n g Angel Investing by Mark Van Osnabrugge & Robert J. Robinson, Harvard Business School AAB Development Strategies, LLC

  5. Financial Evolution of a Firm High- High Level of Investment Risk Assumed by Investor Low- Seed Start-Up Early-Growth Established AAB Development Strategies, LLC Angel Investing by Mark Van Osnabrugge & Robert J. Robinson, Harvard Business School

  6. Bootstrapping • Delayed or Reduced Compensation • Personal Savings • Home Equity Loans • Use Personal Credit Cards • Loans from Relatives & Friends • Buy Used Equipment vs. New • Hire People For Shorter Periods • Lease Instead of Buy • Buy on Consignment • Obtain Trade Credit From Suppliers • Delay Payments to Suppliers • Factoring • Share Premises • Run Business From Home • Form Business Alliances Angel Investing by Mark Van Osnabrugge & Robert J. Robinson, Harvard Business School AAB Development Strategies, LLC

  7. Angels • Prefer Smaller Investments • Usually Invest in Start Ups & Early Stage Ventures • Invest in Virtually All Industries • More Flexible Than Venture Capitalists • More Entrepreneurial Than Venture Capitalists • No High Fees • Value-added Investors – Offer Skills • More Geographically Dispersed • Angel Investments Heighten Venture Interests • Make Follow-up Investments • Not Adverse to Technology Firms • Some Invest in Nontechnology firms • Some Are Meddlesome • May Not Have National Reputation Angel Investing by Mark Van Osnabrugge & Robert J. Robinson, Harvard Business School AAB Development Strategies, LLC

  8. Angels • Angels Invest $50 - $60 Billion/Year of Which $15 Billion Goes Into 60,000 High-risk, Early-Stage Firms • In Contrast Venture Capital Firms Invest $4.8 Billion in 1,122 Early Stage Firms • Three Angel Networks in Michigan • More Around the Country http://activecapital.org/ Angel Investing by Mark Van Osnabrugge & Robert J. Robinson, Harvard Business School AAB Development Strategies, LLC

  9. Financial Chronology – Amazon. com AAB Development Strategies, LLC

  10. Key Elements In Attracting Investment • Good Solid Business Plan • Credible • Compelling • Comprehensive • Entrepreneur Understands the Business • Has Organized a Good Solid Team – Not a One Person Show • Presentation Is Confident & Self-assured • Clearly Understands the Competitive Positioning of the Product • Strategic Marketing Strategy • Market Growth Rate is Credible • What is Investment Strategy to Support Growth • Good Referral Helps • How Much Money & Sweat Equity is Entrepreneur Contributing • How Does Investor Cash-out AAB Development Strategies, LLC

  11. Casinos Finance New Detroit Funds • In Detroit, The City Council Voted to Set Up Business Financing Funds AAB Development Strategies, LLC

  12. Retail/Restaurant Loan Program • Goal:Foster Investment In Recognized Chain Retail/ Restaurant Ventures In Downtown/Rivertown Area. • Geographic Limitation:Loans Made Will Be Limited To Geographic Areas Further Detailed In Site Maps • Credit Limitations:All Loans Will Be Subject To Standard Credit Underwriting More Specifically Detailed In The Detroit Economic Development Corporation's "Credit Policy Manual" • Qualifications:Ownership Of Or Demonstrated Management Responsibility For Similar Ventures; Valid License/Operating Agreement For Proposed Venture; Demonstrated Financial Capacity To Complete Build-out And Provide Necessary Operating Capital For A Minimum Of One (1) Year. • Maximum Loan Amount:Loans Will Be Limited To A Maximum Amount Of $500,000 Or 40% Of Project Costs, Whichever Is Less. • Maximum AmountTo Be Allocated: $5,000,000. • Contact:DEGC 313 963-2940 AAB Development Strategies, LLC

  13. Non-Affiliated Retail/Restaurant Loan Program • Goal:Foster investment in in-fill ground floor retail/restaurant ventures in the downtown/Rivertown area. Preference will be given to full service restaurants and retail outlets providing services not otherwise available in the neighborhood. • Geographic Limitation:Loans made will be limited to the geographic areas. • Credit Limitations:All loans will be subject to standard credit underwriting more specifically detailed in the DEDC's "Credit Policy Manual". • Qualifications:Ownership of or demonstrated management responsibility for similar ventures; Demonstrated financial capacity to complete build-out and provide necessary operating capital for one (1) year. • Maximum Loan Amount:Loans will be limited to a maximum amount of $200,000 or 40% of project costs, whichever is less. • Maximium Amountto be allocated: $2,000,000. • Contact:DEGC 313 963-2940 AAB Development Strategies, LLC

  14. Real Property Rehabilitation Gap Fund Program • Goal:Foster Greater Investment In Real Property Rehabilitation Project By City Of Detroit Residents. • Geographic Limitation:Loans Made Will Be Limited To The Geographic Areas Detailed In Site Maps. • Credit Limitations:All Loans Will Be Subject To Standard Credit Underwriting More Specifically Detailed In The "Credit Policy Manual". • Qualifications:Loans Will Be Limited To Real Property Rehabilitation Projects To Be Owned, Operated, And Financed By City Of Detroit Residents. City Of Detroit Resident Ownership Is Defined As A Minimum Of 60 % Of The Ownership Entity Being Comprised Of City Of Detroit Residents (Minimum Two Year Residency Requirement). • Maximum Loan Amount:Loans Will Be Limited To A Maximum Amount Of $750,000 Or 40% Of Project Costs, Whichever Is Less. • Maximium Amount To Be Allocated:$6,000,000. • Contact:DEGC 313 963-2940 AAB Development Strategies, LLC

  15. African American Business District • Goal:Assist In The Establishment Of An African American Cultural District And Provide Economic Assistance To Retail/Commercial/ Entertainment Businesses Operating In The Established District In The Form Of Low Interest Rate Loans. Funding First To Go For Land Assembly, Then For Matching City, State And Federal Grants, And Finally To Establish A Loan Program. • Geographic Limitation:To Be Determined. • Credit Limitations:All Loans Will Be Subject To Standard Credit Underwriting More Specifically Detailed In The "Credit Policy Manual". • Qualifications:Ownership Of Or Demonstrated Management Responsibility For Similar Ventures; Demonstrated Financial Capacity To Complete Build-outAnd Provide Necessary Operating Capital For A Minimum Of One (1) Year. • Maximum Loan Amount:Loans Will Be Limited To A Maximum Amount Of $500,000 Or 40% Of Project Costs, Whichever Is Less. • Maximum AmountTo Be Allocated To Project: $6,000,000. • Project Management ServicesIncludes Assistance In The Location Of The District, Evaluation Of Grants For Physical Improvements To The District Are Appropriate, And Possible Construction Of Infrastructure Improvements Within The District. All Costs Of Loans, Grants, And Infrastructure Improvements Will Be Charged Against The Maximum Amount Allocated To This Project. • Contact:DEGC 313 963-2940 AAB Development Strategies, LLC

  16. Tech Town Business Development Fund • Goal:Grant Funds To Wayne State University's Tech Town Initiative For Investment In Promising High-tech Start-ups To Create Jobs In Emerging Sectors Of The Economy. Tech Town Will Provide An Environment Where Start-ups Can Take Advantage Of University Research, Student Internship Opportunities And Institutional Assistance In Contract Procurement, Grant-writing And Consulting Experience. Tech Town Will Provide Both Grants And Loans, Depending On Business Needs. Specific Program Objectives And A Budget To Be Negotiated Among Parties. • Maximum Grant Amount:$4,000,000. AAB Development Strategies, LLC

  17. Small Business Detroit Community Capital Micro-Loan Program • Program Description: Assist Small Retail, Restaurant Or Service Businesses To Begin Or Expand. The Small Business Detroit Community Capital Loan Program Will Serve As A Coordinating And Advocacy Body To Make Small Business Technical Assistance, City Services, And Other Forms Of Small Business Technical Assistance More Accessible To Detroit Small Businesses. • Geographic Limitation: Loans Made Will Be Limited To Business Located Or About To Locate Within The City Limits Of Detroit. • Credit Limitations: All Loans Will Be Subject To Credit Underwriting Review. The Stringency Of The Requirements Will Be Less Than A Standard Bank Credit Underwriting Review In Order To Create Access To Capital By Entrepreneurs And Existing Small Business Owners Who Otherwise Might Not Be Served By Existing Sources Of Capital. • Qualifications: To Be Determined By The Oncr Advisory Board And The Oncr In Cooperation With A Third Party Contracted Service Provider Selected By Oncr. • Maximum Loan Amount: The Maximum Microloan Allowable Will Be $35,000. The Fund Will Also Allow For An Additional Loan Product Targeted Solely For Façade Projects With A Maximum Amount Of $75,000. • Amount Allocated To Program: $1,500,000. AAB Development Strategies, LLC

  18. Micro-Loans • Very Small Loans To Start-up, Newly Established, Or Growing Small Business Concerns. • SBA Funds A Nonprofit Community Based Lenders • Which Loans To Eligible Borrowers • Maximum Of $35,000. • The Average Loan Is About $10,500. • Terms, Interest Rates And Fees: • Maximum Term = Six Years. • Loan Terms Vary According To The Size Of The Loan, The Planned Use Of Funds, The Requirements Of The Intermediary Lender, And The Needs Of The Small Business Borrower. Interest Rates Vary, Depending Upon The Intermediary Lender And Costs To The Intermediary From The U.S. Treasury. • COLLATERAL • Each Lender Has Its Own Lending And Credit Requirements. Generally Require Some Type Of Collateral, And The Personal Guarantee Of The Business Owner. • TECHNICAL Assistance • Required To Provide Business Based Training And Technical Assistance To Its Microborrowers. • Individuals And Small Businesses Applying For Microloan Financing May Be Required To Fulfill Training And/Or Planning Requirements Before A Loan Application Is Considered. • Go To AABDS.Com for Location Near You AAB Development Strategies, LLC

  19. SBA 7(a) Loan Program SBA 7(a) Loan Program GUARANTEE PROGRAM • SBA Reimburse The Lender For Its Loss, • Through Commercial Banks. • Up To A % Guaranty. • Borrower Obligated For Full Amount. • Applicant Must Be Both Eligible And Creditworthy. • All Owners (>20 Percent Of Business) Must Personally Guarantee. ELIGIBILITY CRITERIA • All Businesses Must: Meet SBA Size Standards, Be For-Profit, Not Have The Internal Resources To Provide The Financing, And Be Able To Demonstrate Repayment. USE OF PROCEEDS • Purchase Land Or Buildings, • Cover New Construction • Expansion Or Conversion Of Existing Facilities; • Acquire Equipment, Machinery, Furniture, Fixtures, Supplies • For Long Term Working Capital Including • Payment Of Accounts Payable And/Or • Purchase Of Inventory; • Refinance Existing Business Indebtedness; AAB Development Strategies, LLC

  20. SBA 7(a) Loan Program • For Short Term Working Capital • Seasonal Financing, • Contract Performance, • Construction Financing, • Export Production, • Existing Inventory And • Receivables • To Purchase An Existing Business. CHARACTER CONSIDERATIONS: Willingness And Ability To Pay Their Debts And Abide By The Laws Of Their Community. MAXIMUM LOAN AMOUNTS $2 million dollars SBA's maximum exposure is $1.5 million. INTEREST RATES APPLICABLE TO SBA 7(a) LOANS • Between Prime Plus 2.25 % and Prime Plus 2.75% GUARANTY PERCENTS • 85 % Of Loans Of $150,000 And Less, And • Up To 75 % Of Loans Above $150,000 • SBAexpress Loans Guaranty Of 50 % AAB Development Strategies, LLC

  21. 504 Certified Development Company Loan Program LONG-TERM FINANCING TOOL Provides growing businesses with • Long-term, • Fixed-rate Financing • For Major Fixed Assets, Such As Land And Buildings • No Working Capital Of Inventory • 9 CDCs in Michigan. • Senior Lien From Private Lender – 50% • Junior Lien from the CDC (100 percent SBA-guaranteed Debenture) – 40% • Equity From Small Business – 10% MAXIMUM DEBENTURE • The Maximum SBA Debenture = $1,500,000 • Business Must Create Or Retain One Job For Every $50,000 Provided By The SBA • Small Manufacturers = $100,000/Job Creation or Retention AAB Development Strategies, LLC

  22. 504 Certified Development Company Loan Program • The Maximum SBA Debenture = $2.0 million If It is a: • Business district revitalization • Expansion of exports • Expansion of minority business development • Rural development • Increasing productivity and competitiveness • Restructuring because of federally mandated standards or policies • Changes necessitated by federal budget cutbacks • Expansion of small business owned and controlled by veterans (especially service-disabled veterans) • Expansion of small businesses owned & controlled by women TERMS, INTEREST RATES AND FEES: Interest rates = above the current market rate for five-year, 10-year and 20 years. Fees = 3 % COLLATERALAssets Beubg Purchased +Personal guaranties of the principal owners. ELIGIBLE BUSINESSES: Must be operated for profit Tangible net worth in excess of $7 million average net income < $2.5 million after taxes for the preceding two years. AAB Development Strategies, LLC

  23. Real Estate • Working the Urban Landscape AAB Development Strategies, LLC

  24. Getting Land Control • Research Ownership • Assessor Office • Registrar of Deeds • City Records • Option it - Buy It! • Tax Reverted Property • City – Get Holding Letter • State • Fast Track Land Bank Authority • Wayne County • Join Project SAVED • Bid at County Treasurer Auction AAB Development Strategies, LLC

  25. Predevelopment Costs • Planning, Legal, Packaging, Architects, Fees, etc. • Sources • You • Michigan Interfaith Trust Fund • LISC • MSHDA • City • Community Foundation AAB Development Strategies, LLC

  26. Get Organized For the Money • Form Organization As a Community Housing Development Organization (CHDO) • 15% of HOME Funds Set Aside • Must Go to Nonprofits w Board of Directors • Less than 1/3 Government • More than 1/3 from Low Income Neighborhood • 501-c-3 Nonprofit • May Need City, County, &/or MSHDA Approval • MSHDA Matches Community Grant AAB Development Strategies, LLC

  27. Find a Bank Partner • Partner with Bank Community Development Corporation • They Are in Most Urban Areas • Equity Investor • Construction Financing • Mortgage • Purchase Tax Credits • Technical Assistance • Banks Need Community Reinvestment Points – You Can Help Them AAB Development Strategies, LLC

  28. Find a Government Partner • Follow the Money • Pastor Miles Finds Terrific Team in Wayne County • Technical Assistance • Government Funding • City is Vital – They make the Land Use Decisions • Depending On City Federal Funds May Come from City, County, or State • May Need to Shop for Right Person • Call Us AAB Development Strategies, LLC

  29. Plowing the Tax Incentive Field • State Industrial Tax Incentive • PA 198 • 50% Tax Reduction – 12 Years • 100% Tax Freeze – Rehab • Obsolete Property Incentive • 100% Tax Freeze – Rehab • Brownfield 10% SBT Tax Credit • State 25% Historic Tax Credit • Federal Historic Tax Credit • Façade Donation Tax Deduction AAB Development Strategies, LLC

  30. Low Income Housing Tax Credit Housing • Senior or Family • Multifamily or Single Family • Rental • Lease to Own • Requires Payment in Lieu of Taxes (PILOT) • Requires 15 Year Rental Commitment • Big Projects Are Highly Competitive • Need to Know the System • Can Produce Income for Your CDC • Tax Credits = 65-75% of Investment AAB Development Strategies, LLC

  31. Low Income Housing Tax Credit Housing • Michigan Tax Credit Program • Competitive 9% Tax Credit Round • Non Competitive 4% Tax Credit w Revenue Bonds • 24 Unit Noncompetitive 9% Tax Credit • Two Approaches • Partner • Find a Tax Credit Developer • Interview a Few • Do It Your self • Find Your Packager on Contingency • Hire Own Architect • Hire Own Management Firm AAB Development Strategies, LLC

  32. Tax Increment Financing • Captures Annual Increased Taxes from the Development to Repay a Capital Loan • Brownfield Redevelopment Authority • Use of Funds • Infrastructure • Environmental Remediation • Spend Only on Public Investment • Alley Improvement • Demolition • Lighting, Sidewalks, Curbs • County Financing Capital Expenditure • Repayment from Annual Taxes AAB Development Strategies, LLC

  33. Tax Increment Financing • For Salliotte, TIF Finances Infrastructure for New Development • Uses Wayne County Brownfield Redevelopment Authority AAB Development Strategies, LLC

  34. AAB Development Strategies, LLC

  35. Tax ReductionNeighborhood Enterprise Zone • Need to Attract Middle Income Buyers • 70% Tax Incentive For New Houses or Freeze Existing House Taxes • Public Hearing & New Ordinance • Requires all Inspection Upon Sale of All Houses AAB Development Strategies, LLC

  36. Housing Financing • Salliotte – Condominiums • Market Rate + Subsidized • Bank Partner Is Critical • Construction Financing • Mortgages • Wayne County Role • Technical Assistance • Subordinate Construction Loan • Converted to Grant & Loan to make House Affordable 9 of 15 • Home Buyer Training • Church/County Led Homeownership Crusade • Faith Community AAB Development Strategies, LLC

  37. Other Financing • City Commits $450,000 in Road Improvements • Church CDC to Receive Funds from Sale of Brownfield State Tax Credits >$300,000+ • To be Used for Infrastructure (i.e., lighting, sidewalks, street furniture for Rest of Street AAB Development Strategies, LLC

  38. Other Financing • Community Development Block Grant (CDBG)HUD 108 Loan • City Water & Sewer Fund • EPA Environmental Assessment Funds • Federal Home Loan Bank (2) • LISC - Foundations • Bank Grants • Obsolete Property Tax Abatement • Historic Tax Credits • Economic Development Administration • Brownfield Loans & Grants • HUD Brownfield Economic Development Initiative (BEDI Grant) • Clean Michigan Initiative • Fannie Mae • HUD 203 - K AAB Development Strategies, LLC

  39. New Other Financing • New Market Tax Credit for Commercial Development • Compensates for Development Costs & Risk • Replacement Housing Factor Funds (Detroit Housing Commission) • Mixed Finance Housing • Mixed Income HousingCan Replace HOME Funds AAB Development Strategies, LLC

  40. Every Project Is Different • No Two Projects Alike • Some Easier, All Are Hard • Resources Changes • Character of the Community • Financial Strength of Nonprofit Developer • Strength of Support Staff • e-mail to Bogdanaa@aabds.com • See This Slide Presentation on AABDS.com AAB Development Strategies, LLC

  41. Every Project Is DifferentThe Financing Smorgasbord $ $ $ Low Income Housing Tax Credits HUD 108 $ SBA 504 Revenue Bonds Wayne County $ H.O.M.E Venture Capital $ Historic Tax Credits MSHDA Replacement Housing Factor Funds Bootstrapping $ New Market Tax Credits SBA 7a Brownfield Loans & Grants $ B.E.D.I Grant C.D.B.G. City $ $ Angels Single Business Tax Credits AAB Development Strategies, LLC

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