Automation Loan Participation Program

Loan Terms

Companion loans from DEED should be matched 5:1 by private financing and must be matched at least 1:1. Both the ALPP loan and the private financing must be used for machinery, equipment or software to increase productivity and automation. Equity contributions from the business or owners do not qualify as private financing.

Regardless of the terms of the other private financing, the ALPP loan will have the following terms:

• Loan amount up to $500,000
• 1% interest rate
• The term will be 5 to 7 years based on the life of the asset
• Payments may be deferred up to 12 months; deferral period determined by DEED
• If requested by lead lender, DEED can take a subordinate position on collateral

Additional considerations:

• The loan may not be for the same purpose as any federally guaranteed private financing, including SBA 7(a) and SBA 504 loans, being used for the project.
• The machinery, equipment or software the business will purchase totals less than $20 million and the combined private financing and ALPP loan total less than $5 million.

The lead lender and DEED will each originate separate loans to the business and repayments will be due to each according to the terms of the loans.

Businesses

Interested businesses should complete this Pre-Application Questionnaire. If the business meets initial qualifying conditions, they will need to complete an application in co-operation with the lead lender. A sample application is available.

Businesses need to meet the following criteria to apply for a loan.

Business type and loan purpose

• The business is in the manufacturing, distribution, technology or warehousing industry.
• The business has fewer than 750 employees with a preference for those with fewer than 500 employees.
• The business will be purchasing machinery, equipment, or software to increase productivity and automation and that meet the program definitions of automation.
• The machinery, equipment, or software has not been purchased.
• The machinery, equipment or software will be used in a facility located in Minnesota.

Additional requirements

• A lead lender (e.g., a bank) has been identified as the primary source of financing.
• There is a gap financing need and the business cannot obtain all required financing through the lead lender.
• The business agrees to provide collateral.
• Business owners agree to guarantee the loan.
• Neither the DEED nor lead lender loan will be used to reimburse the business for purchases.
• The business agrees to comply with U.S. Treasury SSBCI guidelines, including signed certifications regarding use of proceeds, conflict of interest, that no principal of the business is a sex offender, and, if applicable, that the business is owned and controlled by Socially and Economically Disadvantaged Individuals.
• The business agrees to supply required information for SSBCI reporting purposes.

Lead Lender

Interested businesses should complete this Pre-Application Questionnaire. If the business meets initial qualifying conditions, they will need to complete an application in co-operation with the lead lender. A sample application is available.

A downloadable Lender Guide and Checklist is available.

Lead lender requirements

• The lead lender agrees to cooperate with DEED and the business consents to the lead lender sharing information with DEED, including its credit presentation.
• Lead lender financing has not closed and, if approved, is contingent upon SSBCI approval.
• There is a gap financing need identified by the lead lender.
  • The loan may not be for the same purpose as any federally guaranteed private financing, including SBA 7(a) and SBA 504 loans, being used for the project.
• Lead lender's loan is considered part of the SSBCI transaction and must comply with SSBCI transaction requirements outlined in U.S. Treasury's Capital Allocation Policy Guidelines, including the following:
  • Certification regarding the use of proceeds of the loan and that the lead lender does not have a conflict of interest;
  • The interest rate may not exceed the NCUA rate cap;
  • Application, origination, and document preparation fees may not exceed 2% of the loan value;
  • The loan terms may not include any prepayment penalty;
  • The loan terms may not include any confessions of judgment;
  • The lender must have a meaningful amount of capital at risk and bear a minimum of 20% of the risk of loss on the transaction;
  • If the loan includes multiple uses, SSBCI refinance restrictions apply;
  • If the loan includes multiple uses, each must qualify under the definition of an eligible business purpose;
  • The loan may not be used to reimburse the borrower for any purchase.

Additional considerations

• Lender should provide explanations for requests where private financing is less than 5:1 and where no equity contribution is expected from the borrower.
• DEED will work with the lead lender to determine closing and disbursement schedules.
• If the lead lender is requesting DEED take a subordinated position, they are responsible for drafting the subordination agreement. The subordination agreement must be reviewed by counsel prior to DEED's signature and may need to be amended to comply with state policies.

FAQs

How is automation defined?

Automation Technology - Automation technology is a process or procedure performed with minimal human assistance. Automation or automatic control is the use of various control systems for operating equipment such as machinery, processes in factories or other applications with minimal or reduced human intervention. Adoption, implementation and utilization of any one of three types of automation in production are acceptable for consideration of this program, including, (1) fixed automation, (2) programmable automation, and (3) flexible automation. These are further defined as:

• Fixed Automation - also known as "hard automation," refers to an automated production facility in which the sequence of processing operations is fixed by the equipment configuration. In effect, the programmed commands are contained in the machines in the form of cams, gears, wiring, and other hardware that is not easily changed over from one product style to another. This form of automation is characterized by high initial investment and high production rates. It is therefore suitable for products that are made in large volumes.
• Programmable Automation - is a form of automation for producing products in batches. The products are made in batch quantities ranging from several dozen to several thousand units at a time. For each new batch, the production equipment must be reprogrammed and changed over to accommodate the new product style. This reprogramming and changeover take time to accomplish, and there is a period of nonproductive time followed by a production run for each new batch.
• Flexible Automation - is an extension of programmable automation. In flexible automation, the variety of products is sufficiently limited so that the changeover of the equipment can be done very quickly and automatically. The reprogramming of the equipment in flexible automation is done off-line; that is, the programming is accomplished at a computer terminal without using the production equipment itself.

Does owner equity meet the 1:1 private financing requirement?

No. The 1:1 private financing match should be made in the form of a term loan from a qualified financial institution.

Can I use the loan to refinance existing debt?

No. Loan funds may be used solely for the purpose of purchasing machinery, equipment, or software to increase productivity and automation.

Will DEED and the lead lender have separate loans and repayment requirements?

Yes. Certain terms will vary between the two loans. DEED and the lead lender will each provide the borrower with their own set of loan documents and repayment schedules. Repayments are made directly to each lender based on the repayment schedule provided.

How does DEED determine the deferral period?

DEED evaluates criteria including the expected date the equipment will be put into services, the projected debt service and cash flow, and other business considerations when recommending a deferral period.

Can my business receive multiple loans from the program?

If a business is purchasing qualified machinery, equipment or software in multiple phases, it may be eligible to apply for more than one loan from the program. Due to funding limitations, loans must not exceed $500,000 in aggregate. If the business is purchasing multiple pieces of equipment in a reasonably short timeframe, DEED would consider that one project and the business should complete a single application.

Can equipment be purchased by a related holding company and leased to the operating company?

No. The borrower for both the lead lender and DEED loans must be the operating company that will use the equipment in its business operations.