NEW ULM – The New Ulm Economic Development Authority (EDA) held the first in a series of work sessions to review each of its loan and grant programs on Tuesday.

The first program the board looked into was the Commercial Property Rehab Loan. This loan is one of the oldest in the community, having originated in the early 1980s, before New Ulm had an EDA.

Community Development Director David Schnobrich said the program started as a housing rehabilitation program. The city allocated $115,000 of its own funds for the program over a two-year period. The first loan was issued in 1981. At that time, the project was limited to property owners near the downtown business core. After a few years, the program expanded into a commercial/residential program and eventually expanded to the entire New Ulm community instead of only the downtown core. By 1997, it became the Commercial Property Rehab Loan and has remained in place ever since. A total of 165 loans have been administered to date, with 38 loans still active.

Currently, the Rehab Loan program is used for improvements to commercial properties. The EDA will contribute 50% the cost of an improvement project or up to $75,000 for eligible projects. The interest on the loan is 2%.

One of the first questions the EDA board discussed was whether applicants for this loan should require lender involvement. For the last five years, the EDA has not required applicants for this loan have lender involvement, but staff is considering adding the requirement back into the program.

EDA Director Heather Bregel said with lender involvement, an applicant will go through a bank vetting process ensure the project is a safer investment. This would also change the program into a gap funding program. The EDA loan would fill in the gap in financing when a bank cannot cover an entire project.

EDA Chairwoman Michelle Markgraf said she liked involving the banks for vetting purposes. She said it would be an extra layer of protection on EDA funds.

EDA Coordinator Heather Bregel said the EDA has approved a few rehab loans that did not use a lending organization and were able to self-finance. So far, none of the self-funded applicants have defaulted on a loan, but some applicants who used a bank did default.

“It’s not a 100% catch all that they are going to be creditworthy just because they were approved by a bank,” Bregel said.

EDA Board member Mike Lieb said anyone who is self funding half of the project probably does not need gap funding provided by an EDA loan.

Board member Lindsay Henn said requiring lender involvement could further mitigate EDA risk if they are only filling in the gaps in funding rather than matching a bank loan.

City Manager Chris Dalton said the whole point of the rehab loan is to get people to fix up their old buildings. He said that with rising construction costs and property tax increases, there is a lot of hesitation to fix older buildings. The rehab loan is an incentive to get business owners to make repairs.

“I am always going to err toward getting the money out there for those who want to rehab their buildings,” Dalton said.

Board member David Christian said the purpose of the EDA is for economic development and that meant sometimes taking a gamble in order to further projects.

“In my mind, we are trying to rewrite a program that has worked for the last 25 years,” Christian said. He believed those coming in to rehabilitate their buildings are serious about what they are doing and vetting through a bank might not be necessary if they can self finance.

Henn’s only concern about allowing self-funding is that it took away from the target group they wanted to help. She said if an applicant can cover half the cost of a project without a bank, she questioned if they really needed EDA help. At the same time, an applicant who does need gap funding might not get it if a self-funding applicant gets the loan money first.

Bregel said she would be more comfortable with banks being involved to take the vetting process off her shoulders.

The board tentatively agreed to change the rehab loan to only require a lender for projects of $50,000 or more. Projects under those amounts could be self-funded.

As this was a work session, no official change to the rehab commercial loan was made. It will come back to the EDA for formal approval next month.