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Underwriting for Economic Development Projects Roger M. Nacker, Ph.D.
President, Wisconsin Economic Development Institute
Thomas P. Mihajlov, MBA
Executive in Residence, UW-Eau Claire, College of Business
Revolving loan funds (RLF) were established as an economic development tool for state, local, and
regional government entities. The purpose of such funds was to provide the “sweetener” which would
help conclude a business loan transaction (usually at terms lower than market). Research of the use of
RLFs has tended to focus on economic development results, i.e. jobs, economic stimulation, improvement
in the community and the like. This paper studies RLFs by surveying the users as to how they employed
standard financial institution underwriting practices. This study finds that the use of underwriting by RLF
administrators follows no consistent process as is used by financial institutions. That is to say that while
different RLF entities use an extensive array of qualifying measures, the use of financial criteria in
qualifying an applicant, and its monitoring after the loan is closed is quite variant. Further, the study
found enforcement of eligibility criteria—social, economic and financial—is far from a consistently
uniform process.
INTRODUCTION
Revolving loan funds (RLF) have long been used as an economic development tool by local, regional, and
state governmental entities. The majority of RLFs are publicly funded although a few are funded
privately. Regardless of the funding source, RLFs have historically been charged with providing a wide
variety of public benefits. This study has been conducted for the purpose of determining not only the most
common types of public benefits used by state and local government for the funding of projects in
Wisconsin, but what criteria is used by the RLF entity to evaluate the credit-worthiness of the applicant as
commonly used in the commercial finance industry. This information will be incorporated with a
synopsis of federal, state and local requirements in order to provide a tool for the evaluation and
understanding of underwriting standards used for public/private projects by economic developers and
policymakers in Wisconsin.
The term “underwriting,” as broadly used, means “the process that a financial provider (bank, insurer, and
investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance,
mortgage, or credit.)” (Wikipedia, 2012). The name is derived from the Lloyd’s of London insurance market.
Financial institutions who would accept some the risk on a given venture (historically a sea voyage with associated
risks of shipwreck) in exchange for a premium, would literally write their names under the risk information written
on a Lloyd’s slip created for this purpose.
For the purpose of this study, however, the term “underwriting” as used in the field of economic development has
many of the same features (and thus challenges) as financial institution underwriting. Financial institution loan
underwriting is the detailed credit analysis process preceding loan approval. The analysis is written and based upon
credit information furnished by the borrower, such as employment history, salary, personal and business financial
statements; publicly available information, such as the borrower’s credit history (a detailed credit report); together
with the lender’s evaluation of the borrower’s credit needs and ability to repay. Terms, conditions and relevant
covenants are then detailed to “underwrite” the repayment ability.
STATEMENT OF THE PROBLEM
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The challenge of this study is that although the underwriting of economic development projects has many of the
same criteria used in financial institution underwriting, the number, requirements and myriad of the federal, state,
local, and private programs available for economic development purposes present a uniquely different array of
issues when evaluating economic development projects. Further, because of government fiscal pressures,
accountability, and transparency, the benchmarking of results are, of late, becoming increasingly rigorous in an
evolving “green” environment. Therefore, our challenge was to analyze the underwriting methods used by the
various RLF entities while understanding the significant differences such entities may have in responding to
requirements and pressures placed upon them by their ultimate funding sources.
CREDIT UNDERWRITING BACKGROUND
The definitive source for almost all financial institutions engaged in RLF activity is the Office of the
Comptroller of the Currency (OCC), US Department of the Treasury. To paraphrase the old TV
commercial, “When the OCC talks, financial institutions listen!” The OCC participates in interagency
activities in order to maintain the sanctity of the national banking system. By monitoring capital, asset
quality, management, earnings, liquidity, sensitivity to market risk, information technology, consumer
compliance, and community reinvestment, the OCC is able to determine whether or not the bank is
operating safely and soundly, and meeting all regulatory requirements. The OCC was created by Abraham
Lincoln to fund the American Civil War but was later transformed into a regulatory agency to instill
confidence in the national banking system and protect consumers from misleading business practices.
The OCC regulates and supervises about 2,000 national banks and 50 federal branches of foreign banks in
the U.S., accounting for over three-quarters of the total assets of all U.S. commercial banks (as of 2011)
Other regulatory agencies like the OCC include: the Federal Deposit Insurance Corporation (of which the
Comptroller serves as a director), the Federal Reserve, the Office of Thrift Supervision, and the National
Credit Union Administration. The OCC routinely interacts and cooperates with other government
agencies, including the Financial Crimes Enforcement Network, the Office of Foreign Asset Control, the
Federal Bureau of Investigation, the Department of Justice, and the Department of Homeland Security.
(Wikipedia, 2012)
Within the charge of the OCC is to monitor and access the underwriting practices of banks, particularly
large national banks. The OCC released their most recent survey February 28, 2011 for the 12-month
period ending December 31, 2010. The survey includes examiner assessments of credit underwriting
standards at 54 of the largest national banks with assets (loans) of $3 billion or more. In summary, this
survey covers loans totaling $4.2 trillion as of December 31, 2010, representing approximately 94 percent
of total loans in the national banking system at that time. The OCC noted that the survey covered 13
categories of loans ranging from agricultural loans to residential, commercial small business and even
hedge funds. (“Survey of Credit Underwriting Practices,” Comptroller of the Currency, 2011).
While presenting a fascinating review of risk through a variety of underwriting practices, the OCC survey
does not provide a good definition of bank underwriting. Such is necessary to guide not only the purpose
of this study but its results. Perhaps the best definition is found in the underwriting standards issued by
the federal banking agencies consisting of the Board of Governors of the Federal Reserve System (FRB),
the Federal Deposit Insurance Corporation (FDIC), the OCC, and the Office of Thrift Supervision (OTS)
in response to the Small Business Jobs Act of 2010. This Act created the Small Business Lending Fund
(SBLF) Program and its definitions of credit underwriting are useful in guiding the boundaries as well as
the results of this study. (FDIC, Financial Institution Letter, 2010)
This definition is useful because the several federal banking agencies recognized the necessity for
participating institutions to “have considerable latitude in formulating underwriting standards for this
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program.” Inherent in such a statement is the knowledge that small business lending differs substantially
not only because of the types and nature of small businesses, but that in order to serve the small business
credit requirements, financial institutions must “tailor lending policies and products to the needs of small
businesses in their communities.” (FDIC, 2010)
The directive is deliberately careful in describing “prudent” underwriting practices as those which “(1) are
commensurate with the loan types and terms offered; (2) consider the nature of the markets where loans
are made; (3) consider the borrower’s willingness and ability to repay; (4) establish a credit review
process; (5) take adequate account of concentration risk; and (6) are appropriate for the institution’s size,
nature, and business activity.” (FDIC, 2010) Such language is useful because it corresponds in the
majority of cases with the mission and goals of revolving loan funds.
Within this framework, federal banking agencies have provided succinct directive which can be
appropriately applied to not only financial institutions, but revolving loan funds as well. Prudently
underwritten small business loans should reflect all relevant credit factors including:
Capacity of the income from the business to adequately service the debt.
Value and quality of the collateral.
Overall creditworthiness of the borrower.
Level of equity invested in the business.
Any secondary sources of repayment.
Any additional collateral or credit enhancements (such as guarantees or key-person insurance).
(FDIC, 2010)
It is not necessary or appropriate to define each of these points of sound credit underwriting, but these
criteria provided the base and scope for this study.
LITERATURE REVIEW
A review of the literature provides the current statutory requirements for funding of private projects by
federal, state and local governments as well as the generally accepted credit evaluating procedures
employed by financial institutions. The literature also provides information on evolving trends in
economic development financing throughout the U.S.
Numerous studies have been conducted by various entities and researchers on the subject of “Revolving
Loan Funds (RFL).” This research, however, tends to focus on the results dictated by the overall goals
and objectives of the program rather than how risk has been ameliorated by established loan underwriting
procedures. A review of the respective research has indicated that no research has been conducted which
evaluates how (or if) various RLF entities underwrite loan requests using established methods and
standards to overcome, if only partially, inherent risk.
In the Department of Housing and Urban Development’s (HUD) 2007 manual for economic development,
the Department defines underwriting as “associated with risk.” This manual is a 178 page compendium of
various economic development strategies and while useful for local and regional economic development
implementation, contains but 14 pages concerning underwriting. Of partial interest to the goals of this
study is the defined difference between public and private underwriting. Private underwriting is used to
“maximize returns,” while public underwriting is recognized to have multiple goals including social goals
(job creation, national objectives, etc.). Thus, it is recognized that the public lender can incur more risk
and accept less return on investment than the private lender. (Economic Development Toolkit Manual-
HUD, Section 9 “Underwriting,” 2007)
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The HUD manual is referenced because the Department has been, and continues to be, an important
funding source for RLFs on both the state and local levels. HUD, through the Community Development
Block Grant Program (CDBG) funds activities which have three broad goals: (1) benefit low and
moderate income persons; (2) prevent or eliminate slums or blight; and, (3) address conditions that
present a serious and immediate threat to the health and safety of the community. As might be suspected,
there are numerous regulations and rules to implement these goals. Regulatory measures, however, do not
detract from the usefulness of HUD as a resource in the underwriting literature as much of the research
follows various HUD/CDBG programs.
In the 1980’s Wisconsin was one of the pilot states in setting up revolving loan funds using CDBG Block
Grant dollars. Wisconsin was one of the first states to set up local RLF’s from this financing source. In
this process, Block Grant dollars were granted to units of local government; which were in turn, loaned to
a specific business. Upon repayment of the loan, the local unit of government kept the repayments to
make additional loans to local businesses, thus establishing a local RLF.
Interestingly, coincident with that start, the Wisconsin Economic Development Association (WEDA) was
a pioneer in bringing National Development Council (NDC) Certification training to the hinterland in
early 1989, which continues to this day. Previously, such courses were only offered in very large cities,
usually on the east and west coasts. Consequently, total costs considering travel and lodging made
attending very cost prohibitive for many. As a result of the regional programming, in the 2004 WEDA
member survey, NDC “Economic Development Finance Professional” was listed as the most common
professional certification among members.
The certification “Economic Development Finance Professional” is a rigorous, multiple-week training
program in financial evaluation of economic development projects. The training obtained here is not too
dissimilar from parts of the University of Wisconsin-Madison Graduate School of Banking training given
to bank personnel. Due to this history, the quality of local RLF underwriting might be expected to be of
high quality.
According to the Wisconsin Economic Development Corporation (WEDC), within recent years, CDBG
funded RLF's have grown dramatically in number and use:
Over 190 Wisconsin communities are now involved in the RLF program
These communities have already received over $90 million from CDBG-ED loan repayments and
expect to receive over $130 million.
The local RLF loan portfolio now exceeds $95 million.
There are more than 1,200 local RLF loans.
The average local RLF loan is about $75,000.
Cash reserves available for loans to existing and new business exceed $50 million. (Wisconsin
Economic Development Corporation, 2012)
The research also tends to focus on various local, state, regional or national goals as expanded uses of
revolving loan funds. For example, the US Department of Energy supports the National Renewable
Energy Laboratory operated by the Alliance for Sustainable Energy, LLC. In a presentation entitled
“Innovation for Our Energy Future,” Samuel Booth outlines the “Basics and Best Practices” of revolving
loan funds. The targeted use of RLFs is to “help encourage investment in efficiency and renewable
energy. One of the purposes identified is “to increase small business energy efficiency investment.”
Securing energy independence is a laudable, and some might suggest “necessary,” national economic
development goal. However, there is a tendency when addressing such goals to focus more on the goal
than instituting sound credit guidance practices.
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One older study speaks to some of the significant issues which arise when RLFs are created and passingly
mentions underwriting as being one of the many challenges faced by state and local managers. In his
1996 study “Hollowing the Infrastructure: Revolving Loan Programs and Network Dynamics in the
American States,” Professor Laurence J O’Toole, Jr. of the University of Georgia, concentrates on the
creation of “state revolving loan funds (SRFs)” to meet a variety of intergovernmental challenges brought
on by the primary waste-water treatment infrastructure required by national regulatory standards of the
Environmental Protection Agency (EPA).
Professor O’Toole makes a very telling observation which has really been the focus of this study. He
details the use of SRFs as a method to leverage other sources of funding for community/regional/state
projects. In this way “a relatively small (amount of) federal capitalization can go an especially long way.”
(O’Toole, p. 230, 1996). Of importance for our purposes, however, is his comment that “operating a
leveraged SRF program means that state managers need substantial expertise in banking and finance,
technologies traditionally not available in either state-level environmental agencies (SEAs) or the
organizations in their proximate environments. Even for states that choose simpler loan program
structures, SEAs were often not prepared to manage SRF operations; performing credit checks,
overseeing payments, or marketing loans to municipalities.” (Journal of Public Administration and
Research, p.234, 1996)
(Note: The authors have available a comprehensive list of underwriting considerations.)
METHODOLOGY
A survey of Wisconsin Economic Development Association (WEDA) members, Wisconsin revolving
loan fund managers and community loan fund administrators was conducted to obtain current information
on local government “public” benefit requirements in Wisconsin. WEDA is the statewide organization of
professional economic developers in Wisconsin.
In April of 2012 a survey was sent using the resources of the University of Wisconsin-Eau Claire’s
College of Business. The population of the survey included loan fund managers in order to find out if and
how they underwrite the loans they make from their funds. A list was constructed using Wisconsin
Economic Development Association (WEDA) members representing local economic development
organizations, revolving loan funds (RLF) funded through the states’ Community Development Block
Grant (CDBG) program and the list of RLFs in the Wisconsin Bankers Association (WBA) Economic
Development Manual. A total of 185 contacts were identified.
Included in the contacts were the addresses of 141 CDBG funded RLF’s in the state list from WEDC.
Geographically, that list broke down as follows:
42 counties
62 cities
29 villages
4 towns
4 regions
SURVEY FINDINGS
The total responses were 62 of 185 surveys or a 34 percent response rate.
Most of our survey responses came from smaller communities (Figure 1). Large metro areas did not
respond.
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The survey repondents were about equally divided between communities and counties (Figure 2).
The survey population selection method was appropriate as only one respondent reported not having a
loan program in place.
The vast majority of respondents (97%) have qualifying criteria in order to access their funding (3% do
not). The most frequently required criteria were basic business and loan paperwork (Figure 3).
However, social and economic engineering requirements were also significantly stressed as a requirement
to apply.
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Figure 3: What are the qualifying criteria to apply for an RLF? Response %
1 Documentation (business plan, pro
forma, tax records)
45 87%
2 Location
32 62%
3 Size (employment, finances)
31 60%
4 Wage structure (living wage, etc.)
26 50%
5 Type
22 42%
6 Business structure
15 29%
7 Other (overwhelmingly job creation)
11 21%
8 Ownership characteristics (race,
gender, disability)
3 6%
9 Social responsibility record
3 6%
10 Age
2 4%
Total Responses 52
Surprisingly, thirteen percent of the respondents do not underwrite (evaluate ability to repay) their
funding applications. These respondents were all counties but for one village respondent.
Only one respondent indicated their community did not require basic business loan repayment evaluation
information from its applicants. The others used a variety of criteria from collateral to equity.
Figure 4: Which of the following traditional underwriting criteria do you use? Response %
1 Collateral –Value and quality of assets
securing loan funds
42 93%
2 Capacity - Ability to repay from cash
flow
40 89%
3
Capital - Ability to absorb unexpected
costs, e.g., personal net worth,
guarantees or key-person insurance
36 80%
4 Credit-Credit reports on principals/Dunn
& Bradstreet reports on firm
34 76%
5 Character - Management
capability/history
32 71%
6 Conditions – Level of equity, general
and specific market/economic conditions
31 69%
7 None of the above
1 2%
Total Responses 45
Seven percent of the respondents did not use any social criteria in evaluating loan requests (Figure 5).
Job creation/retention is number one, followed by investment and wages.
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Figure 5: Which of the following social criteria do you use? Response %
1 Full-time job
creation/retention
42 93%
2 Total company
investment in area
26 58%
3 Part-time job
creation/retention
24 53%
4 Employee wage
rates
22 49%
5 Employee benefits
13 29%
6 Impact on
competition
4 9%
7 None of the above
3 7%
Total Responses 45
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Targeted investment criteria are not used by 16% of the respondents; those that do use such criteria most
often use community benefits (needs) as the general criteria (Figure 6).
Figure 6: Which of the following targeted investment criteria do you use? Response %
1
Community benefits (Synergy) Spin
off jobs/businesses, positive impact
upon local businesses
33 73%
2
Targeted hires (Employee
Demographics) - Low and Moderate
Income, minority, women, persons
with disabilities, W-2 recipients,
unemployed, etc.
17 38%
3
Targeted business (Company
Demographics) - minority owned,
women owned, small business, rural
business, agribusiness, green
manufacturers, etc.
12 27%
4
Targeted site (Area characteristics)
Development zone, enterprise
development zone, brownfields,
redevelopment, downtown
revitalization, etc.
15 33%
5
Targeted location (Area
Demographics) - high unemployment,
high % of W-2 recipients, declining
population, declining property values,
low median household income,
significant layoffs, etc.
14 31%
6 None of the above
7 16%
Total Responses 45
The majority of respondents (87%) say their underwriting is done by individuals with a financial
background.
Even though the respondents claim to use financially experienced individuals in loan underwriting, that
interpretation seems to be very loosely defined when the make-up of the loan decision-making body is
examined:
17 responses, 37%, decision made by elected officials or individuals charged with the
responsibility (city/common council, county board, etc.)
24 responses, 52%, decision made by ad hoc loan committees
5 responses, 11%, some combination of the two above (i.e., separate recommendation and
decision)
Two-thirds of the respondents (69%) state that “but for” the loan being requested, the project would be
deemed not to occur. The rest do not use that test.
(The “but for” test is a requirement common to tax increment financing as well as
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“gap financing” programs that call for a discretionary determination by government
officials. Typically, the company must certify-- or the government agency must find—that the
project would not occur in the foreseeable future “but for” the subsidy.)
Slightly over half of the respondents (53%) do not use public benefits in applying their underwriting
criteria. For those that do, taxes, jobs, and investment top an extensive list (Figure 7).
Figure 7: Which of the following public benefits do you include? Response %
1 Increased tax revenues
21 91%
2 Jobs maintained and/or created (wages/skills)
20 87%
3 Tax base enhancement
19 83%
4 Loans leveraged
16 70%
5 Revitalized properties
15 65%
6 Increase economic diversity/performance
14 61%
7 Plant investment (size and function)
13 57%
8 New business opportunities in untapped markets
12 52%
9 Financial return on under-utilized or used property
12 52%
10 Improved quality of life
11 48%
11 Prevention or elimination of blight
10 43%
12 Expansion of infrastructure capacity
9 39%
13 Community and environmental stewardship
7 30%
14 Investment in brownfields
6 26%
15 Improved corporate performance
6 26%
16 Land assembly and use
6 26%
18 Access to land with well-served infrastructure and
available for redevelopment
5 22%
19 Nontraditional jobs gained
3 13%
20 Inventions and licenses generation (innovation)
3 13%
21 Other:
0 0%
Total Responses 23
Almost none of the communities (90%) use “community benefits” agreements which would provide
‘project specific’ advantageous conditions.
(Community Benefits Agreement - a project-specific contract between a
developer and one or more community groups and/or labor unions, in which
the developer agrees to provide various benefits as part of a redevelopment
project. Benefits may include first-source hiring, living wages, relocation
assistance, access to affordable housing, parks or other public-space
improvements, and traffic or parking improvements.)
A few such specific agreements were described (Table 1).
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Table 1: Please describe your community benefits agreements:
All residential development projects are required to dedicate either space for park land to be
developed or funding for existing park land. We also require pedestrian access through
installation of sidewalk and bike trails in most development.
Usually the agreement is to maintain or create a specific amount of jobs at a specific wage
We refer to them as Development Agreements
Requires certain number of job created within 3-5 years. Can be extended for valid reasons.
Total Responses 4
The majority of loans made have compliance (performance) requirements. But, 13% do not.
Virtually all of the respondents (93%) monitor their loans through reporting requirements (Table 2). A
third of them have “clawback” or cash surrender penalties for noncompliance. Enforcement techniques
vary a great deal among the community respondents.
Table 2: How are these compliance requirements enforced? What penalties might you impose?
City Clerk/Treasurer requires semi-annual reporting for those businesses that access the
City's Revolving Loan Program.
Regular contact & relationship maintenance with the borrower usually obviates the need for
enforcement. Loan agreements/promissory notes include a $1,000/$2,000 per job penalty
that may be imposed if job creation/retention goals are not met; this has not been applied in
the past 15 years.
We monitor borrowers progress toward established business plan and offer additional
assistance in areas that they do not seem to have expertise to keep them on-track
Tighter oversight
It has been such a long time since anyone has taken advantage of our programs, I am not sure
of this.
Collateral to help support the debt. We take a lien on the property.
The loan may become due in full.
Loan agreements. Financial penalties and the ability to call the loan due.
Repayment of otherwise forgiven loan payments or penalties attached to the payments
Tracked via spreadsheet document penalties are described in Development Agreements
Interest rate increase
Call the loan
None specified in the loan manual
Loan agreement enforced by foreclosure or increase in interest rate for the loan.
Default criteria, mortgage, UCC on chattel, increase interest rate, personal guarantees
Staff and RLF Committee review loans. No penalties.
Annually and through financial penalty.
Information requested on an annual basis. Nonperformance penalties may be imposed or loan
may be classified as "in default" and collections could begin.
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Established monitoring agreements and penalties are written into the Loan Agreement, which
can be customized on a case by case basis.
Not very well.
Call the Note
Penalties on a per job basis.
Interest penalties
Per the note and loan agreement executed by the borrowers, they are required to provide
information to us regarding the business upon request as a condition of the loan. Assessing a
fine, increasing the interest rate and/or calling the loan due in full are potential penalties for
noncompliance.
Interest rate penalties, per job financial assessment, customized to the project and program
Defined on a case by case basis by development agreement.
I don't administer the loan fund.
Lien and Rate increases,
Financial Penalties for Non-Compliance
Lightly/rarely enforced. financial penalties (higher interest or loan immediately payable)
Requests are made for financial reports
persistent written letters - rarely any penalties
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Some respondents additionally require restrictive covenants as well as conformity to “Smart Growth”
plans or other special situations (Figure 8). Over half have no extra requirements.
Figure 8: Of the following, select any additional requirements you may have? Response %
1 No additional requirements
23 55%
2 Restrictive covenants
12 29%
3 Smart growth – comprehensive
planning for land use.
10 24%
4 Site adaptive use requirements
3 7%
5 Community benefits agreements
3 7%
6 Public input into decision-making
2 5%
7 Special environmental regulations
2 5%
8 Green jobs
1 2%
Total Responses 42
Approximately two-thirds of the respondents (63%) use revenue from loan servicing and administration
to support their organizations.
Given this dependence, it is surprising that more than half the respondents (56%) favor being part of a
regional or multi-community finance program.
Yes votes were roughly consistent between cities and counties (Figure 9).
In follow-up questioning of local officials, the main reason given for joining a larger group is to have
access to a larger pool of funds.
The counterpoint to joining a larger group is a felt loss of control with limited direct community benefits
(Figure 10).
Figure 10: Select the reasons you would not support consolidation of Response %
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local/community RLFs into a regional or multi-community structure?
1 Loss of direct control
18 95%
2 Limited benefits to community/area
15 79%
3 Funding, financial issues
9 47%
4 Difficulty of measuring results for
community
9 47%
5 Staffing issues
7 37%
6 Other
7 37%
7 Politics including anti-regional
government sentiment
6 32%
8 Strong political rivalry between
communities
5 26%
Total Responses 19
There were some other unanticipated answers given to the noninterest in a larger organization: ness
We are an entitlement program that reports directly to HUD.
Existing long standing program.
Solution in want for a problem in the M7 region.
Do not trust state government.
Funds are from the city, not a state or fed CDBG.
ED is a local issue and should be treated as such.
Fairness and benefit to community
There had long been a general rumor that RLFs were a source of financial support for cash-strapped local
organizations. So, a general interest follow-up question was asked of respondents (Table 3). RLFs are,
indeed, also sometimes important for administrative financial support.
Table 3: How are administrative expenses supported?
Through interest collected on loans and interest earnings from investment of existing funds.
Municipal budget.
Fundraising and programming
Absorbed in the operations budget.
General Fund
General fund and interest on the loans.
Contracts
Admin. expenses are for CWED admin. of the RLF
Percentage of paybacks
Community Taxes
By the city's general budget
City funded
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CONCLUSIONS
As a result of this study, the following conclusions can be made:
The respondents were from abroad cross section of smaller Wisconsin communities. The vast
majority of respondents have both social requirements and application information criteria in
order to apply for RLF loan proceed.
Thirteen percent of the respondents do not underwrite (evaluate ability to repay) their funding
applications. Significantly, these respondents were all counties but for one village respondent.
With one exception, the other respondents all evaluate basic business loan repayment information
from their applicants.
Most of the respondents also do not use any social criteria in evaluating loan requests. Job
creation/retention is number one, followed by investment and wages.
The majority of respondents indicated underwriting is done by individuals with a financial
background. This response is seems to be very loosely interpreted, particularly at the local level.
Above and beyond standard loan repayment evaluation, two thirds of the respondents use the “but
for” test and over one half also require the project to meet public benefits.
The majority of RLF programs perform loan compliance and monitoring activities.
Besides the benefits of local capital investment, the RLFs are important to roughly two thirds of
the organizations which dependent on revenues from loans service to administer their
organizations.
Slightly more than half were also interested in forming/joining multi-county (regional) RLF
coalitions in order to have access to larger pools of funds.
REFERENCES
Blankenship, Charles J., (1998). The Loan Guarantee program: Reducing Direct Loan Administration.
Economic Development Review, 16, (1), pp. 59-61.
Booth, Samuel, (2009) Revolving Loan Funds “Basics and Best Practices,” National Renewable Energy
Laboratory, TAB Webinar.
Buelow, Darin M. & Hess, Robert, Timberlake, Josh, (2010). Be Bold Wisconsin. The Wisconsin
Competitiveness Study, Deloitte & New Knight Frank, pp.1-47.
O’Toole, Jr., Laurence J., (1996). Hollowing the Infrastructure: Revolving Loan Programs and Network
Dynamics in the American States. Journal of Public Administration Research and Theory, J-Part 6 (2),
pp. 225-242.
Comptroller of the Currency, (2011) “Survey of Credit Underwriting Practices,” Annual survey of large
bank underwriting practices, US Department of the Treasury.
Federal Deposit Insurance Corporation, Financial Institution Letter, (2010).
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the
Controller of the Currency, (December, 2010) “Underwriting Standards for Small Business Loans
Originated Under the Small Business Lending Fund Program,”
16
Department of Housing and Urban Development (HUD), (2008) Economic Development Toolkit
Manual, Section 9 “Underwriting.”
Wisconsin Economic Development Corporation, (2012). Revolving Loan Funds: Regional Pools Help
State Leverage Federal Grants, 1 (1) pp.1-2.
MAILING INFORMATION
Roger M. Nacker, President
Wisconsin Economic Development Institute, Inc.
10 East Doty Street, Suite 500
Madison, WI 53703-3397
608/274-1576
www.wi-edi.org
Thomas P. Mihajlov
Executive in Residence
University of Wisconsin-Eau Claire
College of Business
Department of Accounting & Finance
454 Schneider Social Science Hall
Eau Claire, WI 54702
715/836-2422
