Throughout the MCCF concept development stage, interested individuals raised a number of questions concerning the workings of the Fund. While answers to many of these questions were not available at that time, the project development team has subsequently addressed most, if not all of these issues, including the following FAQ’s:
How large must our organization or community be in order to become a MCCF member?
There is no minimum size eligibility requirement for organizations or communities to become members of the MCCF. In fact, the Fund is designed for and encourages the participation of communities of all sizes, as well as multi-community and regional economic development organizations that want to increase their development financing capacity.
The funds that I have available locally to invest in the MCCF were originally received from the Minnesota Department of Trade and Economic Development (DTED) under the Minnesota Investment Fund grant program. These funds were loaned to a local business and the repayments are being used to capitalize my local revolving loan fund (RLF). Can I use this money to join MCCF?
Yes. The State Legislature enacted an amendment to Minn. Statute 116J.8731, subd.2 this year that specifically authorizes local government units to do so.
How about using city general fund dollars for this purpose?
Yes, again. Minn. Statutes 469.191 authorizes cities and towns to appropriate not more than $50,000 annually out of their general revenue fund for organizations like the Minnesota Community Capital Fund.
Once we’re a member of the MCCF, can we increase our initial contribution level in order to be able to originate larger loans from the Fund?
Absolutely. MCCF members will be able to increase their stake in the Fund at any time in order to meet their changing needs and to make the most of this new financing resource.
If we are a member of the MCCF and later decide to terminate our membership, how and when will the funds that we contributed be returned to us?
Membership in the fund will be subject to a participation agreement, which will require members to make a minimum three-year commitment to the MCCF. At the end of the three-year period, all funds contributed will be returned, without interest, upon written request of the member.
As a member of the MCCF, do we have the right to appoint a representative to the Board of Directors?
No, but a representative of your organization will be eligible for election to the nine-member Board that will govern the MCCF. Six of the nine board members will be elected by the membership at the organization’s annual meeting. Since the corporation has three classes of membership (based upon the member’s contribution level) each class of members will elect two directors. The six elected directors will be responsible for filling the three at-large director seats.
Who will manage the Fund?
The Northland Institute, a Minnesota nonprofit corporation, will provide management services to the MCCF for at least the first three years of operation. After this initial period, the Board of Directors may either continue to contract for fund management services or hire staff to manage the Fund.
Who will pay for the cost of fund management?
The primary revenue sources that will be available to pay for fund management services are the interest earnings on the pooled funds contributed by MCCF members and loan origination fees charged to borrowers. Members will not be required to pay directly for services provided by the fund manager that pertain to the structuring of MCCF loans. However, any technical assistance provided to members that is not directly related to a MCCF loan transaction will be subject to a reasonable service fee to be paid by the benefiting member.
How will the Fund be recapitalized?
The MCCF will be a self-sustaining development resource, with recapitalization of the Fund through the sale of pre-approved loans to the secondary market. The sale proceeds from MCCF loans will go back into the Fund. Members originating MCCF loans that are sold at a discount will be required to make-up the difference between the loan’s par value and it’s sale price. Through this ongoing approach, the MCCF loan pool will be continually recapitalized and funds will be readily available to make new loans.
What drives the price paid for a loan?
Institutional investors who purchase economic development and affordable housing loans seek a market rate of return. Accordingly, loans that are priced at market rates receive par value. Those priced above the market earn a premium, while those priced below the prevailing market are bought at a discount.
How flexible are the Fund’s lending policies?
The MCCF is designed to provide a great deal of flexibility in terms of borrower eligibility, interest rates, loan terms and conditions, equity requirements, etc. The Fund’s lending focus will be on business and community economic development financing activities that support livable wage jobs and affordable housing. MCCF members will be encouraged to work closely with the fund manager in structuring loan packages that are responsive to their needs.
Is there a limit on the number of loans that a MCCF member can originate?
No. The only limit is on the size of each loan that may be originated by a member from the Fund. Members will be able to originate loans of up to ten times the amount they contributed to the Fund.