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Home My WebLink AboutR4- Economic Development ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO REQUEST FOR COMMISSION/COUNCII.ACTION FROM: BARBARA J.LINDSETH SUBJECT: MT.VERNON HARDWARE Acting Director LOAN REQUEST DATE: March 1, 1995 ------------------------------------------------------------------------------------------------------------------------------------------- Synopsis of Previous Commission/Council/Committee Action(s): On January 12, 1995,the Small Business Loan Committee denied the Mt. Vernon Hardware loan request for$35,000, fully amortized over ten(10)years at nine(9)percent interest. On February 23, 1995,the Redevelopment Committee recommended this item be forwarded to the Community Development Commission. ------------------------------------------------------------------------------------------------------------------------------------------- Recommended Motion(s): (Community Development Commission) MOTION: That the Community Development Commission approve a loan to Mt. Vernon Hardware in the amount of$46,000,fully amortized over fifteen(15)years at eight(8)percent interest. Administrator BARBARA J.LINDSETH ' Acting Director ------------------------------------------------------------------------------------------------------------------------------------------- Contact Person(s): Barbara J.Lindseth/Laura J.Muna-Landa Phone: 5081 Project Area(s): Northwest Project Area Ward(s): Six (6) Supporting Data Attached: Staff Report: FUNDING REQUIREMENTS: Amount: $ 46.000 Source: Small Business Loan Funds Budget Authority: Requested ------------------------------------------------------------------------------------------------------------------------------------------- Commission/Council Notes: ------------------------------------------------------------------------------------------------------------------ BJL:LML:lag:03-06.02.cdc COMMISSION MEETING AGENDA MEETING DATE: 03/06/1995 Agenda Item Number: ECONOMIC DEVELOPMENT AGENCY STAFF REPORT ------------------------------------------------------------------------------------------------------------------ Mt. Vernon Hardware Background Mr. Willard Blakely of Mt. Vernon Hardware submitted a loan application for Agency assistance through the Small Business Loan Program. Mr. Blakely's application was presented to the Small Business Loan Committee for consideration at the January 12, 1995 meeting. Although Mr. Blakely's submitted application was subsequently denied after a thorough discussion, the Small Business Loan Committee was willing to consider a modified loan request subject to several conditions (original loan request was for $35,000). Subsequently, Councilwoman Pope-Ludlam requested that the Mt. Vernon Hardware loan application be brought before the Redevelopment Committee for discussion and possible action. PROJECT DESCRIPTION Mt. Vernon Hardware is a sole proprietorship owned by Mr. Willard Blakely and has been in business for twenty-four(24)years. The business is located in the Northwest Project Area at 1286 North Mt. Vernon Avenue. Mt. Vernon Hardware specializes in providing hardware and other minor home improvement needs for the neighboring community. In discussions with an Agency consultant and staff, Mr. Blakely indicated that his wife passed away in March, 1994, and he decided to place his business on the market and retire. Mr. Blakely's real estate agent suggested he let his business inventory "run-down" so that the sale would be for the property only, and not the business or inventory. During site visits, it was determined that Mr. Blakely had depleted his inventory, but was still attempting to continue the Mt. Vernon Hardware business. Mr. Blakely has decided to retain, rather than sell the business at this point. Mr. Blakely has an existing loan with the Agency(under the previous Agency loan program), which originated in February 1993. The terms of the agreement were $15,000 for a working capital loan for a period of five(5)years at seven(7) percent interest. The monthly payments on this loan are $297.02, with a remaining balance of$9,858.82, as of January 6, 1995. The existing loan was made to Mr. Blakely for the purchase of inventory and to pay off another existing Agency loan that was made in 1986. The 1986 loan was for$35,000 at an interest rate of seven (7) percent for a period of fifteen(15)years. The proceeds of the 1986 loan were used to acquire the business property. It should be noted that Mr. Blakely has been very prompt with all monthly payments on all prior Agency loans. ------------------------------------------------------------------------------------------------------------------ BJL:LML:1ag:03-06.02.cdc COMMISSION MEETING AGENDA MEETING DATE: 03/061199 Agenda Item Number: ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Mt. Vernon Hardware March 1, 1995 Page Number-3- ------------------------------------------------------------------------------------------------------------------ TERMS OF LOAN REQUEST Mr. Blakely requested a loan in the amount of$46,000, at 8% interest rate for fifteen(15)years. Loan proceeds will be used to pay off the existing Agency loan balance of$9,858.82, pay off an additional loan with C. W. Kelly Mortgage Company for approximately $12,500, plus an approximate prepayment penalty of$936 and to purchase inventory with the remaining proceeds of approximately $22,700. Mr. Blakely feels that with the purchase of inventory he will be able to rebuild his business and recapture former customers. Mr. Blakely has indicated that he provides f unique hardware supplies that may not be available at other businesses such as Home Depot. The monthly debt service on a $46,000 loan at 8% interest for fifteen(15) years is estimated to be $439.00. Mr. Blakely is currently paying debt services on both loans (the Agency and C.W. Kelly Mortgage) of$453 per month, with a balloon payment due to C.W. Kelly Mortgage in 1998. FINANCIAL ANALYSIS There appear to be discrepancies between Mt. Vernon Hardware's profit and loss statements and income tax returns. Since the financial statements do not appear to be certified, reviewed, compiled or audited, staff has utilized the income tax returns for the financial analysis. A review of Mt. Vernon Hardware's income tax returns- schedule C indicates net losses for the last four(4) years. Also included are the net profit figures from Mt. Vernon Hardware's financial statements for comparison. 1990 1991 1992 1993 Profit (Loss) ($2,875.) ($1,779.) ($2,525.) ($5,046.) from tax returns Profit (Loss) $1,112. $368. $1,047. $1,172. from unverified financial statements Mt. Vernon Hardware's average monthly loss for 1992 was $210.00, and for 1993 it was $421.000 (based upon tax returns). ------------------------------------------------------------------------------------------------------------------ BJL:LML:1ag:03-06.02.cdc COMMISSION MEETING AGENDA MEETING DATE: 03/06/1995 Agenda Item Number: ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Mt. Vernon Hardware March 1, 1995 Page Number-4- ------------------------------------------------------------------------------------------------------------------ The income tax returns for Mt. Vernon Hardware also reveal that sales have been unstable, declining considerably from 1992 to 1993. This information is presented from both the income tax returns, as well as financial statements for comparison. 1990 1991 1992 1993 Sales $28,340 $22,696 $23,600 $9,479 from tax returns Sales $28,340 $22,696 $17,551* $22,800 from unverified financial statements s Figure is for the period up to November 1992 Mr. Blakely has indicated in his application that he does not have any outstanding business accounts other than the existing Agency loan and a loan with C.W. Kelly Mortgage Company. The loan with C.W. Kelly Mortgage Company has a balance of$12,500 and is secured by a second trust deed against the business property(first trust deed position on the business property is held by the Agency for collateral on the 1993 loan). Mr. Blakely makes interest only payments of$156.00 with the total note due and payable on February 1, 1998. An Agency consultant has verified that Mr. Blakely has never been late with payments for the C.W. Kelly loan. A review of Mr. Blakely's personal credit report indicates a relatively responsible credit history with only two (2) accounts placed for collections. As previously noted, Mr. Blakely has remained current on his existing and prior loans with the Agency. COLLATERAL POSITION Mr. Blakely has indicated that he would like to use his business property as collateral to secure the Agency's loan. A "drive-by" appraisal by an Agency consultant places the property at approximately $70,000. An appraisal on the property in 1986 indicated the value of the real estate to be $50,000. The property, which realistically has not declined in value, has two (2) deeds against the property. As previously indicated, the Agency has a first trust deed on the property for the 1993 loan, and C.W. Kelly Mortgage Company has a second trust deed on the property for its loan. Assuming the loan is approved, and the Agency pays off Mr. Blakely's 1993 loan and the C.W. Kelly Mortgage Company loan, the Agency can take a first trust deed position on the business property. ------------------------------------------------------------------------------------------------------------------ BJL:LN4L:1ag:03-06.02.cdc COMMISSION MEETING AGENDA MEETING DATE: 03/06/1995 Agenda Item Number: ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Mt. Vernon Hardware March 1, 1995 Page Number-5- ------------------------------------------------------------------------------------------------------------------ Using a conservative property value of$50,000, there appears to be sufficient collateral to secure the Agency's loan of$46,000. Small Business Loan Committee Decision The Small Business Loan Committee noted that Mr. Blakely has been a long standing member of San Bernardino's business community. Additionally, Mr. Blakely has been consistently prompt with his loan payments. However, certain concerns were raised regarding the proposed loan: 1. As previously noted, the February 1993 working capital loan was used to restock depleted inventory. The current loan request is to address a similar situation again. 2. Based on Mr. Blakely's four(4) year track record of losses as indicated in his tax returns, there is a concern that repayment of the proposed loan would be difficult given that his business has not been profitable. Historical cash flows do not appear to support the requested loan amount. 3. The Small Business Loan Committee expressed a concern with the Agency taking a second trust deed on the business property subordinated to C.W. Kelly Mortgage Company. As indicated in a January 19, 1995 letter to Mr. Blakely, the Committee was willing to consider a modified request for an Agency loan for a lesser amount subject to the following conditions: 1. The lesser amount should be closely tied with the minimum level of funds which Mr. Blakely will require to purchase an adequate and prudent amount of inventory. 2. If Mr. Blakely chooses to submit a loan request for a lesser amount, approval will be subject to the Agency taking a first trust deed position(for the loan amount requested) on the personal residence located at 1415 Flores Street, San Bernardino. 3. The existing Agency loan(originated in February 1993)will remain in effect, and the proceeds for the new loan request can only be used for the purchase of inventory and not to pay off any existing debt, including the note with C.W. Kelly Mortgage Company. ------------------------------------------------------------------------------------------------------------------ BJL:LML:1ag:03-06 02.cdc COMMISSION MEETING AGENDA MEETING DATE: 03/06/199 Agenda Item Number: ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Mt. Vernon Hardware March 1, 1995 Page Number-6- ------------------------------------------------------------------------------------------------------------------ Based upon the action of the Redevelopment Committee, the Mt. Vernon Hardware loan request is being forwarded to the Community Development Commission for review and consideration. BARBARA J. LINDSETH, Acting Director Economic Development Agency ------------------------------------------------------------------------------------------------------------------ BJL:LML:1ag:03-06.02.cdc COMMISSION MEETING AGENDA MEETING DATE: 03/06/1995 Agenda Item Number: