The Crookston Development Policy and Review Committee met on Thursday morning in the City Hall conference room to establish new interest rates and loan amounts.
During the meeting, the committee established a policy within their IRP funds, which stands for Intermediary Relending Program. The policy premise was determining what rate of interest they would possibly charge if they made loans. “We discussed what would be a cap to an individual application to a loan, and what would be the cap or percentage of our total fund balance,” said City Administrator Corky Reynolds, “There were no specifics given about the business; this was more of a hypothetical.”
Currently, the policy states that interest rates will vary according to the project’s risk, typically one to two percent over the prime lending rate. The committee had representatives from three local financial institutions presently serving on the Intermediary Relending Program Committee, who discussed the risk assessment details. “They were very instructive in helping the committee members from the city,” said Reynolds, “Just for giving us some ideas and criteria for risk assessment.”
The committee also discussed the Prime Lending Rate, which means rates of interest that financial institutions charge that are considered prime lending; these rates vary frequently. “Given the present status of interest rates, which can be as high as 8.35%,” said Reynolds, “Is that an appropriate rate for us as a city to encourage businesses to come to town if we charge them 9.5% or 10% for money that the city would loan them.”
The committee concluded that they would put in place a base rate of the amount of the funds in which they hold in the IRP fund. Therefore, the interest rate that is being earned would be the base they would not charge any less than, which would vary on a case-by-case basis. Factors that come into play by case include risk assessment, collateral, ability to repay, type of business, and the need from the community for that business. “If we were to make a loan today to an entity, it would be no lower than 4.35% because that’s what we are earning on our funds today,” said Reynolds, “And that rate fluctuates daily.”
When the committee receives loan applications, they will then be analyzed by the three financial institutions. The analyzing process includes the risk assessment, collateral, and repayment ability. The financial representatives then make a recommendation to the committee. The offer consists of whether the loan should be made, the amount of the loan they are recommending, and the finalization of the appropriate interest rate. If the committee agrees to the terms of the recommendation, they are authorized to bring the proposal to the city council for the final decision.
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