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LRAC PKT 07-22-2013 CITY OF Fed�ral Way CDBG Loan Review Advisory Committee July 22, 2013 5:30— 7:30 pm Hylebos Room A�enda 1. Call to Order Chair Evans 2. Roll Call Catalano 3. Approval of April 18, 2013 Minutes Chair Evans 3. Committee Member Reports Chair Evans 4. Old Business a) Universal Cartridge USA, LLC loan application Chair Evans , Underwriting Recommendation Dunn/Bartlett Committee Discussion Recommendation to City Council Chair Evans 5. New Business a) Loan Review Policy Changes Bennett b) Commercial Exterior Improvement Program Bennett Underwriting Requirements � 6. Staff Reports a) Amendment to CDBG PY 2013 Annual Action Plan Bennett b) Commercial Exterior Improvement Program activity Bennett 7. Adjournment Next regularly scheduled meeting: October 16, 2013 5:30—7:30 pm Hylebos Conference Room CITY OF FEDERAL WAY LOAN REVIEW ADVISORY COMMITTEE , MEETING SUMMARY APRIL 18, 2013 COMMITTEE MEMBERS PRESENT: Graham Evans; Keven Dunn; Frank Spicer; Lori DeVore. COMMISSION MEMBERS ABSENT: Mark Hutson; Donald Bartlett. STAFF PRESENT: Jay Bennett, Community Services Manager; Dee Dee Catalano, CDBG/Human Services Coordinator. GUESTS: Charles Gathu; Phon Sivongxay, Highline Community College. CALL TO ORDER The meeting was called to order at 5:37 pm. ROLL CALL Dee Dee Catalano took the roll. APPROVAL OF MINUTES Lori DeVore moved to approve the January 16, 2013 meeting minutes. Frank Spicer seconded the motion, which carried 4—0. Keven Dunn moved approval of the February 11, 2013 meeting minutes. Frank Spicer seconded the motion, which carried 4—0. COMMITTEE MEMBER REPORTS NEW BUSINESS OLD BUSINESS a) Resubmitted Universal Cartridge Application Keven Dunn summarized the resubmitted documents for Universal Cartridge. Committee members asked clarifying questions of Charles Gathu and Phon Sivongxay. 1 Keven Dunn moved to submit Universal Cartridge's loan application to underwriting. Lori DeVore seconded the motion. Frank Spicer moved to amend the motion to make submitting the application to underwriting subject to Universal Cartridge researching the option of key man life insurance, and to resubmitting a more detailed competitive analysis. Keven Dunn seconded the motion on the amendment, and the motion carried 4—0 as amended. The Chair said that the application will not be sent to underwriting until the additional . information has been submitted. STAFF REPORTS None. ' ADJOURNMENT �� The meeting adjourned at 6:32 pm. NEXT MEETING Regular Meeting July 17, 2013 5:30 —7:30 pm Hylebos Room 2 LOAN RECOMMENDATION City of Federa! Way July 9, 2013 BORROWER: Charles Gathu Universal Cartridge USA, LLC LOAN ASSESSMENT SUMMARY Our underwriting assessment suggests loan approval in the amount of$8,000 and is contingent upon the applicant being able to work with the lower loan amount. This recommendation is based on information provided by applicant, qualifying credit,verified debt coverage with projected draw from the business, and collateral value securing the note. RECOMMENDATION DETAILS The recommendation for this loan to be approved for$8,000 and not the requested loan amount of$18,500 is based primarily upon the following factors: 1. Tier Ratin�: Following the established Tier System (see attached),the applicant would qualify for a maximum loan amount of$8,000. His FICO Score ofwplaces the applicant under Tier 4, which represents a higher risk and lower loan amount. 2. Credit Ratin�: Borrower does not have a strong history of repayment on any account in his credit report. The report indicates two unpaid collections,no open accounts, and several charged-off accounts, most notable a repossession of an automobile for$49K. Please note that there is noted on his report that the borrower is contesting some of what is found on the credit report. FICO score aside, overall credit is ok for a reduced loan amount in the$5,000 to$8,000 range. 3. Capacity: The Debt Coverage Ratio is$2.26:1 for the recommended $8,000. FURTHER ASSESSMENT If the City of Federal Way does nat wish to use the FICO as a factor for determining the loan amount,then in addition to the information above,the following information may be used for ' further assessment. 1. Credit Ratins: See above. **Internally, lender may wish to approve loan based on cash flow in spite of credit shortcomings. 2. Capacitv: The capacity to carry the requested loan amount of$18,500 is present. Under the requested terms and rate ($18,500/36-months/6.5%/monthly payment $567.01),the Borrower's Debt Coverage Ratio is$1.31:1(Suggested DCR is$1.25:1). 3. Debt Coverase: Personal income was verified with Borrower's pay stubs. Year-to- date net pay per month is$1,905; Personal Debt-to-Income Ratio is 21%; Personal monthly cash surplus after stated personal expenses is$1,005. 4. Collateral: The pledged collateral has a stated value of$12,000*for Equipment and $4,000*for a 2004 Kia Spectra. Additionaily a Key Person Insurance Policy was noted in the amount of$100,000. *These amounts should be verified by lender and applied per policy. 5. The loan request is for start-up funding, which is an indicator that the project is higher risk. 6. Additional Attachments a. Tier System Grids b. Underwriting Summary . c. Cash Flow Analysis (1.) Based on $8,000 and (2.) Based on $18,500 . a me nayss I 1'IER SYSTEM GRIDS Tier Lending Conceptual Framework Tiers 5 4 3 2 1 Credit Risk Higher Lower loan Amount Lower Higher Interest Rate Higher Lower Closing Fees Higher Lower Loan Amount Tier 5 3 2 1 la Maximum Loan Size N/A-Minimum 500 $12,000' $ 20,000.00 $ 35,000.00 $ 300,000.00 fico score is required. UNDERWRITING SUMMARY Universa/Cattr�� USA,LLC ress: 33442 First Way S.,�2oi ., ~,";"'"'_��,w,�: .Fhcycrosandse9� an�1�d ktandb4arwne►ca�aid9esw Adress: Federal Way,WA 98003 Tiar Color , Underwritin Recommandation individuals ard businessea aa well as export meAcets 4 Tier-4 Oue b0 FICO score � � a ma�s �s;�"�':��. ��` SOte j .�� - L' "'=�, P��' �` otlProfil Home Pert�nnta9e Owner'S VerHicadon owned 10096 Office Butlding Street Other. Charles Gathu o HD�ISEEK�L'D�>r�:`�� 2 Gredft Nec�: 5t22/2013 Credit ulled: 5SN S5N OQB 91�19l1958 DOB A 54 A Homa address 2�830 Pat�c souih�101 Federai Wa WA 88 Home 8tfak�s F �'=;"t � > 179 Revolvina y �� IRorinas�e lnstallment � � � � Nane None None None •-0y6 ~ • �w 'A.. �.�' ' ��ons 2 -High credR of�on credit report far a studer�t loan that was charged off.No history �'� of paying off accounts higher than that. � `� � -Oldest trede is in 2002_ � -0utsW nding collection from 2010 Charge-ofrysj 3 . Totat . . Paid as A reed 3 _.. _. .....__' - - - - � � 0 , 2010 7040 TR $ 10 21.00 E 10,021.00 2011 1040 TR 28'718.00 $ 28 718.00 2012 1040 TR 28.087.00 3 ,097.m Ave e Anrtual Irtcome S 19. .50 � Owners Draw �S p� �se's Income s Income Em lo mentincome 1,905 E m�t Income Rental Income ��y� Other lncome py1ef�� Toa1 $ 1905 � p raona Pcrsonal Debtl�ncoma Ralio 2�� p � Excess of Cash Flow a 1 006 Usin Loan Fornqtt8 Exoasa af Casn tbw 0 Usi La L 8n Fortnuld Excess of Cash flow S�tl4oan Fexrrwla �ss a c�,now Usi Small L Fom�ip ' II UNDERWRITING SUMMARY ' 3 $ $ $ 0% 0 $ 0% 0 P r end $ $ b $ $ 3 0 0°� 0 Avetage Revenue: �VIO! Underwriting Notes From To � New Start-up Business-no historical data vailable. Buslness Bank Acct Malysis Revenue 0 0�►v6oepsrmo Profit 0 0"12 De reciation 0 0 Interest 0 0 Ex ense to be re lace�d 0 0 i Net Cash flow 0 0 0 OffiCe�Sala /Owner'g draw 0 0 0 Cash flow Aftet owrters draw 0 0 0 ' ' � 'i' M��IIIIIIIII �� Cash Invento Accounts Receivable 7atal Cumant Asseis Total Current Liabilities � CumentRaUo 0 Quick Ratio #DIV/0! NI OE E uit Retained Rarnin s 0 EqufpmeM FFE 12,�00.00 $�el��/B�UEE $ 12,000.00 0 �Kr sv.� S 4 000.00 Stated Value S 4,o0a.0o o P�,��,� a�o0 000.0o scatea vaiue a ��,000.00 o s o a o $ o s 0 70ta1: S 116 000.00 0 L1Y: 0.16 0 0 0 TOTAL 0 0 0 �}�N tK. S`C�1`E,M�,N�C A iJ(�LYSI� Nameof File _.... ,., _�„�._,___.._.__ ____._.___...�.��..�� S ._..� Tolal Ga aci $4b6 ____�.______,._,__ i 7 DEPOSI7S DEBITS� BALANCE OD Alpha Payroll Janua Fabrua i March E I S 602 ' -' Ma S ��2,89L49 S �3.346�5 .__.._. 47.39'.w ,y�„_, y N65.Q5. Juae + � ' .�U� i ._ .�,,._ ........__....._ .�. .r a �.... .____..�. .. __ ,.____.__— i Se tember "T ; October '�� November �� December " �� T� o B1� 3 �3 St4 �6NN! �DIV/0! ev Avaa S 4 97.S 3�18�i 275, �_...__..a,..._,_�..._.,....�__, C eC1I: i; ,.._��Li;(_�� i i E i � 2i DEPO&TS � DEBITS BALANGE � NSFIOD FEES T_��—^�T� 8usin4ss Ohkn I � u'�M1ww� N n��• ♦. ,.. .,..».� . u w M��y � t � �,w• Mir eastee T p � f W.b:lxt �� •n»�l. uat tl.:w�+s. � �• p i�• a.eat.» �`w.ao. hil� ��. ...., - -- �er.w»nwk. ...., �ma,n t..0. �June as.�,u:eu� _ � s�;c,,;- •," 5.•.• waaa .o,., arr:mts . . ... ,. r�i,w..,�nr,r- r,�,�, e..s � .«,_ MIiC-i41J .r.. ... �x, tn.K� � ISYJm(Yll�) „ Jr 5j 4��•y 'NJ4 r,1.. bctober 'ur�*w*° ,.,_ .:.r y:��si <R�,�,,,.,. r�..,, �m ,�.... .r�. Novomber 'M"�'++� - Dacamber e wu�� .__.._. ,,,�;:`K:„",:,,..,,,: .F> x�ivroi fiWl4l�dil ._,r...N.. tK�-.r .�,.. .��, A ....T a�J, vFlN7P1t __, yy��r��.,,n ` „Y•�• . lMx:nw1 . ar�mw.�, '�am aufe.wts ._._.. w�asurr:�:�r:,,�,(a,.�..� qurit s.v.:_ . rYaar �.i,,�n' .y�y r�,�Ws. d DEPOSITS DE81T3 � BALANCE NSFlOD FEES ,� � . ._._,.�..�.w t�..__`__.._...�..__.i" Mlaeh ------�_... __ ��_._,.�...___v p ril Ma � ' June � Jul a � t Se mbar � _______.___�.___.__ ._.�.�._____ Novembar 3 '� -�� __ __�_�_.m..,._._.� December � � ti s � 'C aa�!. S" � R 4 DEP081T9 DEBITS BALANCE i NSFIOD FEES � Ja�ua � Februa '��"'t�� _.__..._l._.-.._ � .....�....,.�._ m_ ._.�.___. — A .__ �."'___�_ ______._ ��,_�.__._�____. 6 - dWli �`._�....__._ _ � -�— .�..__.__....� .._�.._..�__.. �_. Au ust -- , ..^ 3e mber "•�' � October Dacember -' To41 A --`—�}'a -- .___.�.�....._ I I Grand Totel S 455 ' $ 275 $ �� MCardwall Cash Flow na) sis- Based on $$,000 Custo�r�er. � Notes• -._._._ . Personal Cash Plow Month ' � �'�� Projected ner's Draw J� Draw in ban rrot � Em lo e Income: fat�# Services $1,110.05 <-ver�fiedw;thYTDNet 5J31 �_� Emplc Income:AI Li4ing Services 794.6425<-Avg peychedc in last 3 monfhs�MerNTed with p�9y sfubs) _�___ �Total __ IncomelCash flow �� y1, ._.�. � _�� _ _ �____� '.� ��. _� _� t P s 400 <-Stated AkN�eQ6✓Rent roomate's _�_...—.__ �__ ��_._-_._.._ �� i ___ __._._.__ _�_ Installment� � � S�� _�-^_ _ Other Debts - . _--- SO - � -- � � Total Perso Debts �`'- _.� __ ___.� � Total Perso '�� a 500.00 �--Stated Personal � �� Incomeafte debtand ____,� ��,.� __ �__ � r____.__ Adual RaGo 2196 __� . Personal Caestdsfidt cash flow _ -�. ._ �E1��08 _ _ .__.�_._ �.__.. �_--- � ^ ' Business Cash Flow ,._ _ _.__._ �...._.��_ _.,.�...�._.._.. _ - +De recia . . _ .� � y._, +IMerest _ . __- -_ -- -_____ .. � . �� +Ex ense --_ � _.._._ _ _��v +Other In e(AddiGonal income needed for_125 Ratio__ SO � � _ _�____�__ ��_ Gross Busi Cash Flow SO ._. ___�__a____a._.... ___ _� _._....��.�...._._____. .�� _...._...._... Personal defiat cash flow $1 OQ5 �� (:�h Flow vsitable to service Business Debts � 1 005 � . .�vm �� __-- - __ __ M el t Payment a200 <-Lease Me 20f 8 month�srtu,�o�tiaae��,�� ..� -_... �._.-- ----- . .a _�.�. _...�.._. _ Re�counts��_. __ �� __._�. Installment yments ______ ______ � T �� Pro ecbed of Federal Way Loan Payment _ _ � � �w v` � V��. -�-_...____ Other ---- - - SU - �� Total Busi s Debt P ment �"�� j4q5 ""` - -____.__ _.____ � Global Cas Flow Cap�ity Ratio 32.26:i'� � �- -° -- .�� EMer Term in MoMhs > 36 � �� "� Enter Interest Rate-> 6.50� � m�� Loen -> 5245 <-Loan Ra �^ ��mm Total Loan Amount �8 000 8000<--Loan With Fess and Insurance Cash PoRion of Loan $8,000 � 8,000 e----Etiter Loan Amourd Bank Statement Cash Flow 1.00 Fee&Ins: X ' Debt vera e ratio from ave e bank statemerrt CF -7.02 � 9.50 Uebt X Cash Flow alysis- Based on $98,500 Gustamer. Notes• Personal Cash Flow Mo�Mh Pro ected pwners Draw c–Monrh Drew as per pro� � a�loan a ' ' not cvnside Em lo me Income:In rated Livi Services $1 110.05 <–Ve�ifiedxdlhYTDNetPa 6r31 Employm Income:AI ha Su orted Living Services 794.6425<--Avg peycncdcb�last 3 months(verified wrtlr pa stubs Total Hou Id Income/Cash flow $1,9Q5 Fe s 400 <–Stated Rer�t Expense r roomate's I�Ge Revolvi ccouMs S Installmern bts ; - Other Deb a0 Total Pers a!Debts ;400 Total Pers al Ex enses 50D.Q0 <.�tatedpe�sueai nses Income a debt and enses 31,005 Actuai De Income Rafio 21% Personal cces/detictt cash Now �i1,005 Buslness Cash Flaiv 3 +DC fECI OII $0 +Interest ense y0 + nse bei re laaed SO +Other In e Additional income n�ded for 1.25 Ratio 50 Gross Busi ess Cash Fiow �Q Personal deficit cash flow 1 Q05 Cash Flow vailable to service Business Debts S1 005 Mo Pa M j200 <–Leese an Ma 201 6 month startu a� Revolvi ►�ts SO InstaRmeM a eMs Pro of Federal W Losn merit s587 Oiher g0 Total Busi Debt P �767 Giohai Fbw Capacky Rallo :1.81 :1 EMer Tertn in Months > 36 Enber Interest Rate--> 6.50% Loan Pa ment—> 567 56 <--Loan Pa merd Total Loen Amourn 98,6pp 18500 S–Loan With Fees and Insurance Cesh Pwtion of Loan �18,500 $ 18,500 <—Erder Loan Amount Bank Statement Cash Flow 455 1.00 Fee 8 Ins.Overtiead X Debt ra e ratio fran avera e Dank statement CF -0.59 1.50 Debt Covera e X CDBG Loan Review Advisory Committee (LRAC) Commercial Loan Review Process Adopted - November 4, 2012 Discussion DRAFT July 17, 2013 (To be incorporated within the CDBG Loan Review Manual) 1. CDBG Loan Review Team a) The Chair of the CDBG LRAC shall form its members into loa�application"lead"review teams. The sole purpose of this review team is to meet with City staff ant�t�ne (1) xepresentative from the City's . contracted small business technical assistance program for pre�iminary discussion of a CDBG Loan Application. Ib) Community Services Manager assigns applications for CDBG loan�'uirtding to the xeview teams in rotation to be the lead reviewer on each application. c) The review team shall consider whether to invest CDBG resoix�ces incurred by.forwaxding the application to the City's contractual Loan Servicing Agent. One LRAC member shall report on the discussion and decision at the next rneeting of the LRAC Ctirnmittee. 'I'he full LRAC Committee can (by formal motion and vote) reverse the review team's decision. d) The review team meeting will only be helc�upon determination by City staff that an application is complete and eligible £t�x Ci7BG funding. ` � g}e�Complete and eligible applications for review shall be forwarded to the review team five working days before the rneetizi�g. 2. LRAC Consideration Discussion and consideration of ae€i�n of CDB�Loan applicarions shall (generally) adhere to the following protocols at a full LRAC meeting. a) City staff presents technical analpsis how the application conforms to criteria (5 minutes): i. Compliance vvith CDBG and local requirements u. Low wage job creatian/maintenance iu. Current amount of CDBG Commercial Loan funds available for disbursement b) LRAC review team member pYesents analysis and team xecommendation (5 minutes) i. Strengths of the application (e.g., sound financial projections) u. Risks in the application (e.g.,large number of established competitors in Federal Way) ui. Clarification on information source or request for additional information. c) Presentation fxom the applicant (5 minutes if desired). Applicant is encouraged NOT to repeat verbatim the content of theix application. d) City sta,ff summarizes the comments on a board in the meeting room LRAC REVIEW Process - Draft Apri12013 Page 1 - 3. Full LRAC Committee discussion (10 minutes) Committee members add and give alternative views as appropria.te -but do not need to repeat where in agreement with review team. City staff summarizes on board as appropriate. , I 4. Clarification (5 minutes) i Based on the summary and particularly`uncertainties' and differences of view from committee members, applicant may be provided further time to address the committee (OR- committee members ask questions each in turn to the applicant- for up to 10 minutes discussion). 5. Motion for Recommendation to forwaxd A��lication to U�ile�ovriting Analysis E�� Chair asks the lead reviewer to put the morion to forward the CD�C'r Loan A��lication to Undexwritin�and for a second, and then puts the motion to a vote. Should the vote be against the A��lication being forwarded to underwritin�.�reasons_will be summarized�xsse�to the licant ' . (If vote is opposite to view of the review team, one of the `Nays' summarizes the reasons)._ 6.Motion for Recommendation to forward A��lication (only after Underwriting Anal��;s to the Citv C„ ouncil Chair asks the lead reviewer to�ut the motion and for a second,and:then�uts the moti,ran to a vote. Reasons will be�assed to the City Council alon�wi�h�he funding recommendations. (If vote is o��osite to view of the review team, one of the `Nays' summarizes the re�,�is , � H:7. Outputs LRAC outputs from the meering t�a the City Council are: a. Recommendations £or CDB�Commercial�pplications to be funded (or not) with conditions of funding and LRAC reasoning. LRAC REVIEW Process - Draft Apri12013 Page 2