1. (a) Borrowers. Individuals, proprietorships, partnerships, corporations, tax exempt organizations, not-for-profit corporations (as defined by the tax code, e.g., 501(c)(3)), limited liability companies, and municipalities.

2. (b) Amounts.

   1. (1) Arkansas Development Finance Authority through the bond guaranty program and through any direct lending activity has no statutorily imposed loan limit.
   2. (2) Six million dollars ($6,000,000) is adopted as the authority’s in-house loan limit per borrower.

3. (c) Loan to value/cost. Loan to value/cost shall be:

   1. (1) Ninety percent (90%) of cost or ninety percent (90%) of appraised market value, whichever is less, for existing businesses; and
   2. (2) Seventy percent (70%) for start-up businesses.

4. (d) Cash flow coverage.

   1. (1) For all projected and outstanding debt, the cash flow coverage should be at least a one-to-one coverage.
   2. (2) Evaluation and analysis should be performed on the existing financial statements and projections using comparable industry ratio analysis.

5. (e) Appraisals.

   1. (1) An appraisal must be obtained for an application where the authority is financing the acquisition of existing real estate or used equipment, and appraisals must be obtained when existing real estate or used equipment is being pledged as additional security.
   2. (2) MAI or comparable appraisals are required for real estate.
   3. (3) Appraisals of used equipment must be performed by an independent, outside source who has proven knowledge of equipment values.
   4. (4) Loan officers should obtain a cover letter from the appraiser addressed to the authority if the report has been prepared for the borrower.
   5. (5) Exceptions to the appraisal policy will be evaluated on a case-by-case basis using common sense.

6. (f) Insurance.

   1. (1) Borrowers are required to maintain insurance coverage on collateral securing loans.
   2. (2) Upon receipt of a notice of cancellation or nonrenewal of the existing insurance coverage and in the absence of a replacement binder, collateral insurance protection will be put into effect.
   3. (3) The borrower will then be billed for the cost of the insurance protection.
   4. (4) Once the authority receives proof of insurance coverage indicating no lapse in coverage, the cost of the collateral insurance protection will be credited back to the borrower.

7. (g) Collateral.

   1. (1) On tax exempt bond issues, the authority must be granted a pari passu first mortgage on real estate and a pari passu first security interest on equipment financed with bond proceeds.
   2. (2) Otherwise, the authority will obtain collateral that is sufficient to secure any other loans.
   3. (3) Additional collateral may be pledged pursuant to prudent lending practices.

8. (h) Personal guaranties.

   1. (1) Joint and several or pro rata personal guaranties of owners/shareholders of ten percent (10%) or more of the company are required.
   2. (2) A level of recommended guaranty is determined when applications are underwritten.
   3. (3) Annual updates of personal financial statements may not be required unless specifically requested by the staff.
9. (i) Corporate guaranties. As needed pursuant to prudent lending practice, the authority will obtain the corporate guaranties of related parent or sister companies.

10. (j) Term (maturity).

    1. (1) The term (maturity) should not exceed the economic useful life of the assets being financed.
    2. (2) The final maturity of any transaction should be determined after consultation with the applicant and review of projected cash flow.
11. (k) Key person life insurance. Life insurance may be required pursuant to prudent lending practices.

12. (l) Phase One environmental assessment.

    1. (1) Phase One environmental assessments on real estate should be conducted and addressed to the authority.
    2. (2) If any indication of problems exists, the report and its recommendations should be discussed with legal counsel.
    3. (3) Loans that do not have real estate as collateral will not be required to have a Phase One environmental assessment.

13. (m) Job creation and job retention.

    1. (1) The authority will evaluate the impact on current and projected:

       1. (A) Employment levels;
       2. (B) Wage rates;
       3. (C) Skill levels; and
       4. (D) Local economic conditions.
    2. (2) Preference may be given to applications that create or retain large numbers of high-wage, high-skill jobs in areas of high unemployment.
14. (n) Concentration. Loan concentration in any one (1) industry should be limited to twenty percent (20%) of the loan portfolio.

15. (o) Company financial statements.

    1. (1) Borrowers who are indebted to the authority for amounts exceeding one million dollars ($1,000,000) shall be required to submit annual audited financial statements.
    2. (2) Borrowers who owe the authority less than one million dollars ($1,000,000) shall be required to submit independent CPA-reviewed financial statements.
    3. (3) At a minimum, borrowers will be required to submit semi-annual financial statements, which can be internally prepared, within forty-five (45) days of the end of the second quarter of the fiscal year.
    4. (4) The staff may require more frequent reporting on a case-by-case basis.
    5. (5) Authority staff will obtain Dun & Bradstreet reports on all applications.
    6. (6) The staff will also obtain Dun & Bradstreet credit reports on all participating companies on an annual basis.

16. (p) Personal financial statements.

    1. (1) Personal financial statements are required at the time of application and may be required at the request of the authority during the term of any outstanding debt that is personally guaranteed to the authority.
    2. (2) Authority staff will obtain credit reports for personal guarantors on an annual basis.

17. (q) Borrower’s financial institution.

    1. (1) Credit checks will be made by the authority loan officer or officers with the borrower’s financial institution to:

       1. (A) Determine project feasibility; and
       2. (B) Discuss possible financial participation.
    2. (2) A report on this contact will be noted in the credit write-up for any credit presented by the authority’s staff to the Board of Directors of the Arkansas Development Finance Authority or loan committee, as the case may be.

Codification Notes: "501(c)(3)" refers to 26 U.S.C. § 501(c)(3). "MAI" means Member, Appraisal Institute. "CPA" means certified public accountant.