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Palm Coast Would Underwrite Small Business Loans With Tax Dollars as New Incentive

| December 13, 2011

The Business Assistance Center is Palm Coast's new calling card to emerging businesses. (Palm Coast)

The federal government does it with student loans. It did it with Freddie Mac and Fannie Mae’s mortgages. It does it through the Small Business Administration. Now Palm Coast’s government is interested in going into the loan-guarantee business, backing loans of up to $10,000 for existing small businesses looking to expand or relocate.

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The proposal by the city’s administration was part of a broad-ranging end-of-year report to the city council on the state of the city’s economic development efforts. Council members heard a report card on its seven-month-old Business Assistance Center, which took credit for the creation or retention of  19 jobs. It heard an update on a partnership program between the city and local landowners interested in marketing their land for commercial development, at a cost of $25,000 to the city. And it heard a presentation on the loan-guarantee program, never talked about before, and entailing, in its first year, $55,000 in city funds.

The money was returned from Enterprise Flagler, the now-defunct economic development public-private partnership that the city and the county were mostly paying for until this summer, when both governments decided to stop supporting the agency. Palm Coast was putting its energy into its own Business Assistance Center. The county was shifting its attention to its own newly created economic development council. The county and the city had provided about $200,000 a year to Enterprise Flagler from their general funds. The agency returned money to both governments when it dissolved. That’s the money Palm Coast is proposing to use to underwrite small-business loans.

A loan guarantee is not a loan. The business would still take out its own loan for the full amount. But by guaranteeing the loan, the city is essentially the co-signer: it would be on the hook for paying back the loan should the business default. The guaranteed amount would not be very large. But they might make the difference between a business surviving or failing. “If we can keep that business occupying that storefront, we’re successful,” Landon said. “This isn’t going to solve the unemployment issue, but one job at a time, one case at a time” would help economic matters locally, he said.

There would be conditions. (The full guidelines are posted below.) The applicant must own at least 50 percent of the business in question and be actively involved in management. The business must be for-profit. It must be located in Flagler or planning a move into Flagler. It must be in operation for at least a year: no start-ups need apply. It must be a client of the city’s Business Assistance Center, and remain a client during the life of the loan, which means a maximum of two years. The minimum loan would be $5,000, the maximum loan would be $10,000, but either way, the city would guarantee a maximum of 50 percent of the loan. In other words, taxpayers would be on the hook for a maximum of $5,000 per loan guarantee, should the business default. A business could not use the loan to pay for construction or renovation.

jon netts palm coast mayor city council

Jon Netts. (© FlaglerLive)

Council members raised few issues and no objections. Mayor Jon Netts saw two worst-case scenarios: either businesses apply for plenty of loans and all default, costing the city $55,000. Or no one applies, and the money sits in an account. In the end, Netts said, the worst that could happen is losing $55,000. “If you think about it, this $55,000 is coming back into our local economy.” He said it would be a whole lot easier to try to keep local businesses in business than to try to create new businesses from scratch.

Although the council did not vote on the matter this afternoon—it was in workshop mode, where it doesn’t take votes—the loan-guarantee program appeared to have won the council’s support.

That program is distantly related to one of the city’s other economic-development initiatives—its partnership with land-owners in hopes of attracting larger businesses to the area.

To that end, the city could develop its own industrial park. That’s expensive and risky, because it leaves the city (and taxpayers) entirely responsible for the success or failure of the park. The city could also build a “spec building” or more, and hope the building will be filled. That’s risky, too. A third option that City Manager Jim Landon proposed earlier this year was to enter into partnerships with private landowners. The city would provide incentives—discounting taxes and fees, providing some marketing, including signage and video marketing, and possibly changing city policy to make it easier to clear a potential building site without the usual permits. All this for $25,000 in the first year, $15,000 of it to help defray costs of pre-permitting, and $10,000 for marketing and signage.

“I will not sign up for the build it and they will come concept,” council member Bill McGuire immediately said, reflecting his long-standing opposition to building structures on foundations of hope.

“Good. Agreed,” Jim Landon, the city manager, said. But it’s a matter of showing prospective businesses what’s available. Netts was nervous for another reason: “What you do for one you must do for the other.” He doesn’t want to see the city playing up one land-owner’s potential commercial site without doing it for others. The city solicited landowners interested in the partnership program. It got six responses. It’s still not very clear how the partnership would work or how much it would cost ion the long term, in immediate dollars and dollars defrayed through incentives. But the city’s intention is to keep exploring the idea and even experimenting with it rather than sitting still.

That’s also an underlying concept behind the city’s Business Assistance Center, essentially a free counseling and consulting business development service for new or fledgling businesses. Earlier in the same council meeting, Joe Roy, the center’s manager, gave the council a progress report that he summed up this way:  in seven months, the center held 12 training events with 276 participants. It held 286 individual consulting sessions. And it created or retained 19 jobs.

“These are real jobs that we’ve added,” Roy said, all 19 but one falling in the job-creation category rather than the job-retention category. An example: NatureFood, a health-food-type  chocolate maker on Hargrove Grade that, for now, consists of a husband-and-wife team.

“That’s one company that’s only added right now two jobs,” Roy said, “they’ll add 10 more job probably as soon as they go into manufacturing. The interesting thing about this is that when we say economic impact, there is a group of people working with us who use a local general contractor who built their machines in Bunnell, who had the products designed here in Palm Coast. So you start to begin to look at the breadth that we have, and none of those numbers are calculated into what we have here.”

The Business Assistance Center lined up NatureFood with consultants who helped it organize swiftly, “including,” as a feature of the business in Palm Coast’s latest newsletter notes, “guidance from retired corporate executive Tom Hellman who assisted them through the FDA regulatory and ingredient validation requirements. Sales support from specialist Bill Neubauer introduced their healthy chocolate to national retailers. Local businesses such as Curley Tail Design, Sizemore Welding and Glenn General Contracting packaged the graphic design and constructed the plant build-out.”

“What this doesn’t tell us is the story behind all of these small businesses and what they’ve gone through,” Roy said, “and yet they still come out with a tremendous amount of enthusiasm and hope. That’s the part that catches on.”

He added: “My vision of the Business Assistance Center is that it will become a destination location for all businesses within the county. We’re not qualifying it by saying you’re on life support or something else. If you need help or you want to talk, come and see us. That’s why we’re here.”

The center’s success could easily be exaggerated. The city is still in depression mode. And for all the 19 jobs the center took credit for, those gains took place over the last seven months, they don’t reflect the jobs lost in the city along the way—or the jobs that the center did not succeed in helping survive—and the entire gain of 19 jobs was erased, and then some, by the closure of a single business last week—Strathmore Deli, which eliminated 22 jobs in town. The deli was the anchor of a strip mall at Parkway Plaza, along Palm Coast Parkway. It was located next to the Sweets Boutique, one of the new businesses whose two jobs the Business Assistance Center also took credit for. But that boutique located at Parkway Plaza in large part because of Strathmore, and now may have a bigger struggle on its hands than new businesses usually do because of the lost traffic.

On the other hand, the point of the assistance center is primarily to assist, not to create, and its presence, as Roy pointed out, provides a service that is often difficult to measure.

Business Assistance Center and Guaranteed Loan Program, Palm Coast

Palm Coast Small Business Loan Guarantees Guidelines

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16 Responses for “Palm Coast Would Underwrite Small Business Loans With Tax Dollars as New Incentive”

  1. Gia says:

    Very bad idea from this city. Any yo yo can take the loan without collateral for supposedly business & vanish somewhere without repaying. You need money go the bank. Until now incentives from the city of Palm Coast has been a joke at the taxpayers expenses.

  2. Oneofthe10%whovoted says:

    Let me get this straight…using taxpayer dollars? Netts: If we lose, we only lose $55K. That is NOT what this council was elected to do.

    Why should taxpayers fund what banks won’t? Unbelievable. Yes, we are in a depression and this won’t help.

    Behind every story of a failed business are reports that rents are too high in this city. How will this help that?

  3. says:

    they are idiots, put the 55,000 towards sidewalks. i can’ t believe what i had just read about these politicicans, why do we have banks? or is the city replacing the banks?

  4. Charles Ericksen, Jr says:

    I would suggest that someone interview Alan @ Strathmore/Best Bagel, to see the “real” reason he moved. He and his wife had made many requests of the City to provide assistance, especially through calling the Code Enforcement people off, and they got to the point of seeing the City administration was “not a friendly group” and although the business was real busy, they moved. They were active participants in The Chamber and contributed much to the city. They will be missed. There are more good employers and businesses , who are considering getting out, and moving. The business atmospheres are better in Volusia and St. Johns..

  5. PJ says:

    What is the prime reason for business failure? Underfunding!!

    55k is not enough for a small business when the majority of many small business owners make around 30k if their business rubs perfectly.

    Great concept but your not funding businesses properly your just “throwing good money after bad” I do think you should lend the money but grant money at a lessor amount with a promise to pay back interest only for 3 years then re-wright the loan with a pay back schedule.

  6. palmcoaster says:

    What does it mean becoming a client of BAC? Does it include a fee? I figure that automaticly whoever gets a loan backed by BAC, becomes a client…?

  7. kenpc says:

    Laws that make sense and cost tax payers nothing would be more effective. Some of the sign regulations that we enforce against local businesses make no sense. ABC Liquor’s entrance is next to the Wells Fargo Bank. ABC is not allowed to have a sign at the entrance. The sign would help ABC’s business and help people looking for the store finding it.
    Businesses on Route 100 are mandated to have signs set back so far from the road that some businesses put their company name on a trailer and move it close to 100 each morning.
    These regulations hinder business.

    • Oneofthe10%whovoted says:

      ABC has a sign right out on Palm Harbor Parkway, plain as day. May need to cut back some of the vegetation to see it better, but it’s there right on the corner.

      Some of these laws were waived for ABC?

  8. Ralph Belcher says:

    @ Charlie Erickson, I’ll back you up on that. I don’t have expressed permission from the business folks involved, but they opened up a sort of business and there were clearly more hoops than in an ordinary community in a situation that was ‘nuked out to the nines’. They did not come to town expecting any favoritism, shortcuts or good deals. The one person they had to deal with proved to be rather tempermental instead of diplomatic, in a situation where the folks who came to town were generally timid as church mouses. However, this is not in any way an indictment of City Personnell as a ‘lot’. It was only one employee thrust into the public eye who might be rough around the edges in dealing with others, but was otherwise very bright in his area of specialty. Overall I see boatloads of high degrees of professionalism. I was just sorry that these folks came to town with this one impression (investing private $ in our city). It’s not the end of the world. Let’s be sure to put on our friendliest smiles to investors coming to down, that’s all. We can’t afford to create any bad impressions as we try to grow ourselves out of this economic downturn and fill up those retail spaces.

  9. Oneofthe10%whovoted says:

    I have heard stories over the years of companies trying to come to Palm Coast and it taking years to negotiate those contracts. Is this true?

    Somebody told me Carraba’s wanted in but wouldn’t meet the sign regs. Somebody told me it took years for Outback to gain approval. And I know it took years for Home Depot because I know the guy who was in charge of negotiating that.

    How many businesses has the city driven away? Fair question. Does anybody know?

  10. Johnny Taxpayer says:

    This is typical of economic development boards and agencies being led by people who know absolutely nothing about developing and operating businesses. Even if their plan had merit, (which it doesn’t) what bank out there lends $5k to $10k to a small business? It doesn’t happen, because it’s not profitable to the bank. And even if banks did make micro loans to small businesses, does the city really need to co-sign for someone who can’t qualify for a $5k loan? Isn’t there a reason they can’t qualify on their own???
    And is there a really a viable business out there that if they only had an extra $5k in funding, they would be a resounding success? NO! If a business owner needs $5k and can’t fund that themselves or with a credit card or a loan from a friend or through natural business growth, then the business isn’t sound to begin with and all we’re going to do is waste more tax payer dollars.

    And yet, the city will go ahead with this plan and then the council and the Business Assistance Center will pat themselves on the back and tell us what a great job they’re doing, and the newly formed county economic development council will hire another career economic develop bureaucrat who has zero experience actually building or leading private businesses and we’ll wonder why the cycle continues on and on and on.

  11. palmcoaster says:

    Here City of Palm Coast proceeds with funding with our hard earned taxes the rich developers of Town Center and the Airport other than promoting our many vacant stores in our central locations around Palm Coast Parkway.
    Of course newly elected pro builder councilman Jason DeLorenzo giving his vote of approval to this shameful use of our hard earned taxes. This ridiculous idea, of us forced to pay for advertising to these rich developers other than advertising our hurting commercial areas around Palm Coast Parkway with existing businesses that would benefit from it, helping to preserve those current workers jobs. Incorrectly now city still wants to promote more construction in and around Town Center to bring more businesses that wilt openly compete with the existing ones in our real and original center of Palm Coast. We resident tax payers should all be opposed to this proposal.

  12. palmcoaster says:

    I will note to Mr. DeLorenzo that while he is talking about signs for around Town Center instead he and council should be voting to allow businesses signs in around the business located here in the core of Palm Coast, given this pathetic economy and also allowing the realtors signs, advertising the open houses for sale while the event takes place, providing the responsibility of the realtor of gathering promptly the signs as soon as event is over. All businesses need help now, not only Town Center and Landmark, and other developers as these are wealthy corporations that you only try to favor here..obvious reasons to be left to the eye of the beholder.

  13. NortonSmitty says:

    It’s actually not a bad idea as long as it’s administered fairly and not just used to hand money to their crony…Nevermind!

  14. Oneofthe10%whovoted says:

    “The federal government does it with student loans. It did it with Freddie Mac and Fannie Mae’s mortgages. It does it through the Small Business Administration. Now Palm Coast’s government is interested in going into the loan-guarantee business…”

    I would suggest you take a good strong look at the collection rate on all of these. It is a formula for bankruptcy.

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