The Covington Small Business Loan Program is designed to assist small businesses who are able to obtain some financing from private sources or lenders, but not enough to achieve their business objectives. Applicants must show that their business will create new or retain existing jobs.

Both start up and existing businesses may qualify for the program, provided they demonstrate strong managerial skills, have a viable business plan and a demonstrated ability to repay the loan.

Click here to download the application.

Eligible Businesses

An eligible small business enterprise is a for-profit corporation, Limited Liability Company, partnership, proprietorship or other business entity having 100 or fewer total full-time employees.

Eligible Costs

The following costs directly associated with the start-up, location, or expansion of an eligible small business, are eligible uses of program funds.

• Land Costs may include, but are not limited to, site preparation and testing, utilities, site mapping, legal, and other related costs directly associated with the expansion, renovation, or new construction of a building to house an eligible small business enterprise. The program is not designed to finance acquisition costs.
• Building Costs may include, but are not limited to, construction, rehabilitation, engineering, architectural, legal and other related costs. Please note that all construction work is subject to prevailing wage rates.
• Machinery and Equipment Costs may include, but are not limited to, acquisition, delivery and installation of machines and/or equipment. This includes computers, peripherals and software that are used exclusively in business activities.
• Working Capital used by a small business for the purchase of raw materials, inventory, rent, utilities and other costs needed for business operations.

Restrictions

• No Delinquencies. The business and its principals may not be delinquent in or in default of any existing private or public loan relating to the business, unless the business and/or its principals have entered into a workout agreement satisfactory to the respective creditor(s) and are fully in compliance with the terms of that agreement. A principal of a business is any record or beneficial owner of 20% or more of an ownership interest in the business.
• Taxes must be current. The business and its principals must be current in payment of all applicable federal, state and local taxes, unless they have entered into a workout agreement satisfactory to the respective taxing authority and are fully in compliance with the terms of the agreement.
• No conflicts of interest. The business, its principals and managerial officers must disclose any real or potential conflicts of interest between themselves and any officials or employees of the City of Covington.
• Matching Funds Identified. All sources of matching funds for the project must be identified when the application is submitted to the City and in place at the time of the loan closing.
• Escrow of Loan Proceeds. At the discretion of the City of Covington, loan proceeds may be fully disbursed to the business at closing or fully or partially deposited into an escrow account with a commercial lending institution. 
• Space Requirements. The business may lease up to 49% of the space of a building it occupies to other users.
• Environmental Review. In certain cases, an Environmental Review assessment may be required by HUD guidelines.
• Hazard Insurance must be obtained on all construction/rehabilitation loans with building improvements.

Ineligible Use of Funds

• Debt service on existing or new loans.
• Providing funds, directly or indirectly, for payment, whether as loan repayment, dividend distribution, return of capital, loans, or otherwise, to owners, partners or shareholders of the small business enterprise, except as ordinary compensation for services rendered.
• Refinancing of existing debt.
• Pre-loan activities including the (1) transfer title or occupy the land or buildings to be financed with the loan; (2) install or use the machinery and equipment except pursuant to a short-term lease or similar arrangement subject to cancellation by the business without substantial penalties; or (3) finance any working capital needs and remain eligible for City loan consideration.

General Program Requirements

• Loan Amount. The maximum loan amount is $35,000 per job created and/or retained.
• Private Investment Requirement. Loans must be made in conjunction with another source or sources of financing for the eligible costs incurred, such as another lender or equity from the owners or investors. Funds from other sources must equal at least 10% of eligible project costs and must have either equivalent or longer terms than the City loan. Land and building and machinery and equipment purchases made within a 12 month period prior to the filing of an application may be eligible as private match towards the City loan.
• Jobs Creation and/or Retention Requirements. This program is funded by federal CDBG funds. As a result, projects must result in the retention and/or creation of jobs in Covington.
  a) One full-time job must be created or retained within three years from completion of the project; however, priority will be given to applicants who maximize the number of jobs retained and/or created;
  b) At least 51% of the jobs created or retained must be held by, or made available to, low and moderate income persons.
  c) The requirement may also be met by assisting a microenterprise (a business having five or fewer employees, one or more of whom owns the business) where the owner has low/moderate income.
• Loan Security
  a) All loans must be secured at the highest lien position available on one or more of the following assets: land, buildings, machinery, and equipment.
  b) All owners of 20% or more of the company will be required to personally guarantee the loan.
  c) Loan-to-Value ratio must be a minimum of 90%. Total value must be based on an appraisal of collateral, tax assessment value or realtor opinion. Machinery and equipment is discounted at fifty percent of value.
• Repayment Term
  a)  At the sole discretion and best judgment of the City, loan repayment terms are tailored to meet the needs of the business. Generally, the repayment term is tied to the useful life of the pledged asset (collateral) as follows:
  – Machinery and equipment – 5 years.
  – Leasehold improvements – 3 to 5 years.
  –Working capital – 2 to 5 years.
  b)  In projects where two or more uses of loan funds are planned, loan terms may be blended.
  c)  Loans may be prepaid at anytime without financial penalty.
• Interest Rates. Loans rates are set to meet the needs of the business but generally fall in the range of 3 to 6%.
• Fees. There is a non-refundable application fee of $150.00 due at application submission.
• Additional Requirements
  a) Start-up businesses will be required to attend training provided by the NKU’s Small Business Development Center.
  b) All loans through this program involving construction work are subject to Federal prevailing wages.
  c) All applicants must agree to all applicable federal guidelines.

Application Process

• Applications. Applicants must complete a Business Loan Application and provide all the additional documents detailed on the application form. Click here to download the application. Copies of the Application may also be obtained by contacting the Economic Development Department at (859) 292-2163.
• Review Process. Once an application package is received, an analysis will be completed by City staff and the loan package will be reviewed by the City of Covington Loan Committee. The Loan Committee will then make a recommendation regarding funding. The Loan Committee generally meets once a week to consider loan applications. The deadline for submitting a completed application package is the end of the day on Friday for consideration at the following week’s Committee meeting.  The Loan Committee’s recommendation is forwarded to the Covington City Commission for review and approval.
• Application Evaluation Criteria. The City will evaluate the credit worthiness of a small business to assess its ability to repay the loan. In addition, the application will be evaluated on the following criteria: 
  • Number of jobs created or retained.
  • The type of product or service and the need for that product or service in the community.
  • The likelihood of success of the venture.
  • The impact on unused or underutilized property.
  • The amount of matching investment.
  • The age and size of the small business enterprise.

Loan Procedures

• Commitment Letter. Upon approval of the loan application, the City will mail a commitment letter to the business notifying them of the Small Business Loan Program commitment and the terms and conditions of that approval. The business must sign and return the commitment letter to the City if the company agrees to the terms and conditions of the approval. If the commitment letter is not executed within 60 days of the letter’s issue date, the City, upon written notification, may withdraw the offer of financial assistance that is stated in the commitment letter.
• Loan Agreement
  An executed loan agreement between the applicant and the City is required in order for the applicant to receive loan disbursements. Following is a summary of the general provisions included in the loan agreement.
  • Conditions of Funding Commitments – The terms and conditions contained in the commitment letter signed by the applicant and the City are included in the grant agreement. These will include any additional conditions the applicant must meet before the disbursement of any funds. The applicant is responsible for seeking competitive bids for all construction-related activities that are to be paid the Small Business Loan Program.
  • Certification of Expenses – The loan recipient must sign an affidavit certifying that the expenses were incurred and were in accordance with the scope of work approved by the City. Prior to final closeout of the loan agreement, the company is required to submit copies of all canceled checks verifying the expenditure of the loan proceeds.
  •  Nondiscrimination – No assistance is awarded to an applicant under this Act unless the applicant certifies to the City that they shall not discriminate against any employee or against any person seeking employment because of race, religion, color, handicap, national origin, age or sex.
  • Project Records – The applicant must maintain full and accurate records with respect to the project and must ensure adequate control over the records of related parties in the project. The City requires access to such records, as well as the ability to inspect all project work, invoices, materials and other relevant records at reasonable times and places. The loan agreement requires the applicant to furnish, upon request of the City, all data, reports, contracts, documents and other information relevant to the project. The loan agreement specifies a periodic reporting requirement for the applicant.

Loan Closing

Any material changes in the project application, collateral, or terms must be reviewed and approved by the City for approval. Prior to the loan closing the business must confirm the following:

• That all other sources of funding will be in place at the time of closing.
• That the use of all funds remains as presented in the project application.
• That there are no material changes to collateral or other terms and conditions of the loan as previously approved by the City.
• Whether the loan will close into an escrow account.
• That all conditions of the City’s commitment letter have been satisfied.
• The FEIN and Social Security numbers of the business, and all guarantors.

Disbursement of Funds

• Disbursement Process – Requests for payment must be submitted to the City by using a payment request form that is accompanied by invoices or other approved documentation verifying costs incurred by the applicant.
• Escrow accounts may be required when the project includes working capital. No escrow account may extend beyond 12 months without the prior written consent of the City.

Loan Repayment

Unless otherwise agreed to by the City, the first payment of principal and interest will be due the first day of the second calendar month following the calendar month in which the closing occurs. Thereafter, payments of principal and interest will be due the first day of the month.

Click here to download the application.