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Receive an update from the Solano Economic Development Corporation on the small business Revolving Loan Fund program funded with Solano County American Rescue Plan Act (ARPA) Coronavirus State and Local Fiscal Recovery Funds (SLFRF); and Consider providing direction on terms of a successor agreement for the Revolving Loan Fund program
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Published Notice Required? Yes_______ No___X___
Public Hearing Required? Yes_______ No ___X___
DEPARTMENTAL RECOMMENDATION:
The County Administrator’s Office (CAO) recommends the Board of Supervisors:
1. Receive an update from the Solano Economic Development Corporation on the small business Revolving Loan Fund program funded with Solano County American Rescue Plan Act (ARPA) Coronavirus State and Local Fiscal Recovery Funds (SLFRF); and
2. Consider providing direction on terms of a successor agreement for the Revolving Loan Fund program.
SUMMARY:
Solano County received a direct federal funding allocation under the ARPA SLFRF program of $86,949,405. These funds are intended to provide support to the County in responding to the economic and public health impacts of COVID-19 and impacts on our communities, residents, and businesses. The Board allocated $4,000,000 of Revenue Recovery funds toward a Revolving Loan Fund (RLF) implemented by the Solano Economic Development Corporation (EDC).
Since the implementation of the program through June 30, 2025, 55 loans have been made totaling $3,598,300, with an average loan of $65,424. Loans have been made in all seven cities and the unincorporated area of Solano County. Participating lenders are First Northern Bank, Travis Credit Union and Valley Strong Credit Union. Overall, the program has seen significant success with $745,329 being paid back in principal and interest through October 31, 2025. In addition, the City of Vallejo piggybacked on the County program and contracted with Solano EDC for an additional $319,000 in loans for Vallejo businesses.
The current agreement with EDC for the use of the ARPA funds expires June 30, 2026. That agreement notes that a successor agreement will need to be executed for the continuation of the program beyond June 30, 2026. Based on the success and lessons learned, staff and the EDC are seeking feedback on the terms of the successor agreement between the County and the EDC to continue the program.
FINANCIAL IMPACT:
Solano County received a direct federal funding allocation of $86,949,405 under the ARPA SLFRF program of which $4,000,000 was allocated under the Treasury Category of Revenue Recovery for the RLF Program. Under the category of Revenue Recovery, any funds paid back in principal and interest are no longer deemed ARPA funds and may be utilized to continue the program under terms identified by the local jurisdiction. Continuing the program will have no further fiscal impact as the funds have already been allocated for this purpose.
DISCUSSION:
In May 2022, the Board of Supervisors allocated $4 million of ARPA SLFRF toward a small business Revolving Loan Fund (RLF) with $3.6 million for direct loans and $400,000 for administration, including administration by both Solano EDC and the lenders. The fund was originally established under the Treasury Category of Negative Economic Impacts, however, after extensive investigation on RLF programs and restrictions imposed by the Treasury with implementing a RLF under the Negative Economic Impact Treasury Category, in October 2022, the Board recategorized the project under Revenue Recovery. This allows all loans to be fully funded by ARPA and funds being paid back to be reloaned, extending the reach of the RLF beyond the initial ARPA expenditure period.
Key terms of the current RLF include:
1. Loan amounts of $25,000 to $125,000 over a 5-year term with no prepayment penalty.
2. Interest at a fixed rate of 6%.
3. Minimum credit score of 630
4. Loan application fee of $250 which is only payable if a business qualifies for a loan. Borrowers who complete an assessment and counseling with the Napa Solano SBDC shall receive a rebate of $250 for the loan application fee.
5. Businesses must demonstrate impact from the COVID-19 pandemic, which can be demonstrated in a variety of way, be located in Solano County, and be in operation before December 31, 2021.
Some changes that have been made since the initiation of the program include the implementation of a pre-approved seasonal deferral process when appropriate (such as loans for agricultural businesses that depend on a growing and harvesting season), limiting loans to one loan per borrower or entity controlled by a borrower, and shifting $141,000 from administration into additional loans.
Per the terms of the original agreement between the County and Solano EDC, once the initial ARPA funds were expended, the parties would enter into a successor agreement which would outline the terms of the future RLF program. The current ARPA agreement expires June 30, 2026 and staff are in communication with Solano EDC on potential terms of a successor agreement.
Based on the success, lessons learned, and participation from the lenders, there are several key proposed changes to the RLF program including:
1. Reduce the maximum loan size from $125,000 to $75,000 to provide loans to more businesses. This also reduces the impact on the loan portfolio from a larger default.
2. Increase the monthly servicing fee paid to the lenders from $55 to $65. This reflects the work required to manage the portfolio by the lenders. This is currently paid as part of the administration costs and is not a cost to the borrower. After the expiration of the current agreement which has funds set aside for administration, funds from interest payments, and if needed recouped principal, would be utilized to pay the servicing fees.
3. Increase the interest rate on the loans from 6% to 7%. Lenders are stating this is required for their continued participation to administer loans and this would assist in covering the increased servicing fee.
4. Businesses must be located in Solano County and be in operation for two years.
5. Continue the following modifications from lessons learned: only one loan per borrower or entities controlled by borrower will approved at a time; and loans may be deferred for seasonal businesses.
Staff is also recommending that administrative costs, including EDC staff time and lender fees do not exceed 10% of the total funds in the loan pool per fiscal year, and that EDC will report to the County quarterly on key metrics, including but not limited to loan applications received, loans approved, payments made by borrowers, and administrative costs.
Once terms of a successor agreement are finalized, the funds that have been paid back will be utilized to provide additional loans, starting with businesses that are currently on the waiting list.
ALTERNATIVES:
The Board could choose not to receive the presentation or provide input into a successor agreement. This is not recommended as a successor agreement is needed to continue the program and the Board has requested periodic updates on the program.
OTHER AGENCY INVOLVEMENT:
None.
CAO RECOMMENDATION:
APPROVE DEPARTMENTAL RECOMMENDATION