Loading...
HomeMy WebLinkAbout05- Development Department DE - LOPMENT DEPARTMENi'% OF THE CITY OF SAN BERNARDINO REQUEST FOR COMMISSION/COUNCIL ACTION FROM: KENNETH J. HENDERSON SUBJECT: VINCE CARLONE Executive Director SMALL BUSINESS LOAN DATE: July 28, 1993 ---------------------------------------------------------------------------------------------------------------------------•----------------- Synopsis of Previous Commission/Council/Committee Action (s): On July 22, 1993, the Redevelopment Committee recommended that the Community Development Commission approve a $85,000 small business loan for Mr. Vince Carlone, subject to proof of creditworthiness from the borrower. -------------------------------------------------------------------------------------------------------------------------------------------- Recommended Motion (s): (Community Development Commission) MOTION: That the Community Development Commission approve a $85,000 small business loan for Mr. Vince Carlone, the Executive Director be authorized to execute all documentation necessary for the implementation of said loan and that the Development Department budget be increased by $85,000. U Administrator ICENNifH J. HE ERSON Executive Director Contact Person(s): Kenneth J_Henderson/John Wood Phone: 5081 Project Area(s): Northwest (NW) Ward(s): Six &I— Supporting Data Attached: Staff Report; Excerpt from Proposal FUNDING REQUIREMENTS: Amount: $85,000 Source: Tax Increment Budget Authority: Requested --------------------------------------------------------------------------------------------------------------------------------------------- Commission/Council Notes: -------------------------------------------------------------------------------------------------------------------------- KJH:JMW:lag:carlone.cdc COMMISSION MEETING AGENDA MEETING DATE: 08/02/1993 Agenda Item Number: DEVF OPMENT DEPARTME T STAFF REPORT ---------------------------------------------------------------------------------------------------------------------- Vince Carlone Small Business Loan Vince Carlone has a long history in the food business locally, having successfully operated several "Vince's Peasant Palace" restaurants for a number of years. In 1984, he began the subject operation, which is a wholesale foods company. The products include sandwiches and salads which are delivered for resale to organizations such as school districts, convenience markets, jails, military bases and a host of other such facilities. In 1991, Mr. Carlone sold the business, but was forced to foreclose on a note from the buyers after about a year, due to the buyer's lack of experience in operating a business of this type. Mr. Carlone has apparently done a good job of reestablishing lost business and projects substantial growth over the next three (3) years. For instance, he recently successfully competed for sizable contracts with Rim of the World High School, Monarch Vending and Fort Bliss Texas. These contracts alone should result in $227,000 in additional annual sales revenues for the company. Because of Mr. Carlone's success with the business prior to its sale and his ability to restore the business to profitability within a relatively short time period, staff is inclined to discount the time period during which the business was under the control of the buyers and view it as a continuously operating concern. As nearly as can be determined, the financial statements which have been presented were prepared by management. Staff identified several minor concerns in its review of same, but generally the information is supportive of the requested $85,000 loan. In this type of setting, financial statements prepared by company management should be viewed very cautiously, if not disregarded entirely. In such cases, it is recommended that a lender heavily collateralize the loan, since the repaymentability question cannot be adequately answered. It should be noted that Mr. Carlone's proposal is not unusual in this respect, as it has been staffs experience that few small business owners are able to furnish financial statements which have been audited by a qualified, independent third party. Mr. Carlone owns a home and the business property and holds a note and trust deed on some vacant land in the Wrightwood area. He has stated that he would be willing to secure the subject loan with real estate and/or by pledging the note and trust deed as collateral. Research suggests that there should be sufficient equity to secure the loan. If there is sufficient equity in real estate and real property securities, staff would be inclined to recommend the granting of a loan to Mr. Carlone. As a final point in the matter of security, Mr. Carlone has also indicated that he would personally guarantee the loan and provide a life insurance policy. The latter is recommended since Mr. Carlone is nearly sixty (60) years of age and is the sole proprietor and chief manager of the company. KJH:JMW:lag:carlone.cdc COMMISSION MEETING AGENDA MEETING DATE: 08/02/1993 Agenda Item Number: DEVELOPMENT DEPARTM_r7NT STAFF REPORT Vince Carlone Small Busine�,. —oan July 27, 1993 Page Number -2- ------------------------------------ The request was for an $85,000 loan for ten (10) years at six percent (6%) interest. The uses of the proceeds would include inventory, labor, warehouse materials and supplies, administrative overhead, outside labor, marketing and a contingency reserve. The attached page from the proposal breaks down the use of funds. Typically it is prudent to properly match the term of the loan to the useful life of the assets to be purchased. Thus, a building might have a loan term of thirty (30) years, a truck a loan term of six (6) years and working capital a loan term of one (1) to three (3) years. In preliminary discussions, staff asked Mr. Carlone whether he could accept a term of, say, five (5) years, to which he responded affirmatively. Mr. Carlone projects that his business expansion will support the creation of fifteen (15) new jobs. In conversations with Mr. Carlone, staff had indicated that it would ordinarily like to see an interest rate of nine percent (9%) on a loan of this type, but that if he would commit to twelve (12) new jobs, staff would recommend an interest rate of six percent (6%). In addition, Mr. Carlone stated that a loan origination fee of one and one-half percent (1-1/2%) would be acceptable to him. On July 22, 1993, the Redevelopment Committee heard this item and recommended that the Community Development Commission approve a $85,000 small business loan to Mr. Carlone, authorize the Executive Director to execute all documentation necessary for the implementation thereof and approve an increase in the Development Department budget to cover the cost of said loan. The loan would be at an interest rate of six percent (6%) with a term of five (5) years. The applicant would pay a loan origination fee of one and one-half percent (1-1/2%) and would also bear all other expenses of the transaction, such as title, escrow and recording fees. Finally, consummation of the loan would be contingent on Mr. Carlone submitting satisfactory proof of both creditworthiness and that there is sufficient equity in the collateral which has been offered. In summary, Mr. Carlone's would seem to be just the type of business the Agency would like to assist, i.e., a successful one with good growth prospects and the potential to create fifteen (15) new jobs. The expansion should also result in an increase in the City's utility tax base. Staff recommends adoption of the form motion. �klhAol_ KENNETH J. HE DERSON, Executive Director Development Department ------------------------------------------------------------------------------------------------------------------------- KJH:JMW:1ag:carlone.cdc COMMISSION MEETING AGENDA MEETING DATE: 08/02/1993 Agenda Item Number: VINCE' S LOAN REQUEST SUMMARY 1 J PURPOSE: To facilitate the addition of new customers with whom Vince' s has either concluded negotiations or at the stage of concluding negotiations . Loan proceeds will be used to purchase the necessary goods and services for the aforementioned addition of the referenced new accounts .The two new accounts is expected to realise an immediate 60% growth in the company. As a result it will become necessary to add fifteen (15) new staff to 7 the current operations . BORROWER: Vince' s LOAN AMOUNT: $85 ,000 .00 1 J PROPOSED TERMS : 6% for a period of 10 years . COLLATERAL: Perfected security interest in property located in Wrightwood Ca. (Vince' s currently holds a trust deed to the referenced property valued at $100 ,000 .00 ) _ SOURCE: city of San Bernardino, Economic Development Agency . I USE: Inventory $30 ,000 . 00 Labor 14 , 500 . 00 Warehouse materials & supplies : 7 , 500 .00 I Administrative overhead 8 , 000 .00 Outside labor 12 ,000 .00 Marketing 3 ,000 .00 IContingency reserve 10 ,000 .00 J (Will also secure line of credit) ITOTAL $85 ,000 .00