CDBG UNDERWRITING
GUIDELINES
 Found in the
Regulations at
§ 24 CFR 570.209
and Appendix
A to Part 570
SIX CRITERIA
 Are the Costs Reasonable?
 Is all project financing committed?
 CDBG Funds should not be used in
place of non- federal funds.
 Is the project financially feasible?
 Owners return on equity should not be
unreasonably high.
 CDBG funds should be disbursed on a prorata basis with other funding.
COST REASONABLENESS
 Common Sense is
the first rule.
 For some costs, a
reasonable
reviewer can make
a rational
determination
 For others a thirdparty fair-market
cost estimate is
necessary
COST REASONABLENESS-CONT.
 Approach this as you
would in your personal
life.
 Evaluate – review –
confirm.
 Information is
available everywhere
today – use these
resources.
Commitment of all Sources of
Financing
 Review the sources
and uses of funds
to ensure that all
funding has been
identified and is
available.
AVOID SUBSITUTATION OF CDBG
FUNDS FOR OTHER FINANCING
 Normally an analysis of financial
statements is conducted to review
expected revenue, expenses, debt
service, and return on equity.
 For many small business, this
becomes more difficult since
accurate, up to date, financial
statements may not be available.
FINANCIAL FEASIBILITY
 Determine the likely
financial success of the
project.
 Consider the business
plan, market share,
sales, growth revenue
projections debt service.
 Business should be
capable of a positive
cash flow.
OWNERS EQUITY RETURN
 CDBG Investment
should provide a
reasonable return
on equity.
 There is no
definition of
reasonable – it
varies depending
on the business.
PAYOUT OF FUNDS
 This aspect of
underwriting
assumes other
financing in the
project, which is
not relevant here.
 However, the BRGL
funds should be
disbursed based on
demonstrated
business need.
REFINANCING DEBT
 An eligible use of funds is to refinance
more expensive business related debt
that was incurred due to the
hurricanes.
 Obligation must have been incurred
after September 1, 2005.
 Must be business related, not
personal debt.
Refinancing Debt - Continued
 Refinancing should
increase the
businesses
viability.
 The loan should be
current before
payoff.
 Make payment to
the debt holder not
the applicant.
Refinancing Debt
 Evaluate the terms and conditions of
the loan to insure the applicant will
be better off given refinancing. Loans
incurred two plus years ago may be
close to satisfaction – and refinancing
could result in a longer obligation and
more interest paid over the long fun.