Lexington to set aside $2.5 million to help small businesses. Here are the details.

A $2.5 million forgivable loan program for Fayette County small businesses hobbled by the pandemic will likely be available in coming weeks.

The Lexington-Fayette Urban County Council voted unanimously during a Tuesday council work session to approve the small business economic recovery program that could grant up to $25,000 to qualifying businesses.

The council is expected to take a final vote on the program at its May 6 meeting. If it is approved as expected, Commerce Lexington, which will oversee the application and screening process, will likely start taking applications sometime in June, city officials said.

Businesses that retain or grow the number of employees or increase overall payroll as part of the loan program will not have to repay the loan after a year.

Businesses that do not comply and cannot retain employees or increase salaries as laid out in the loan agreement will have to repay the loan.

For example, if a business received a $25,000 loan with the goal of retaining 10 employees but only retained eight after a year, the company would have to repay 20 percent of the loan or $5,000 plus two percent interest.

The program will start with $2.5 million in the initial round but can be funded with an additional $2.5 million if there is demand. The money will come a city savings account but could be reimbursed with $61 million in federal dollars the city is expected to receive from the American Rescue Plan in the next few months.

The goal of the program is for 50 percent of all funds to go to women, minority-owned businesses or businesses in poorer neighborhoods.

Commerce Lexington, which administered the city’s first business stimulus program last year, will administer the program. It will receive up to 7.5 percent of the $2.5 million or a maximum of $187,500. If a second round of $2.5 million is allocated it would receive $357,000.

During a March Budget, Finance and Economic Development Committee meeting, several council members raised questions about Commerce Lexington’s administrative fee. During the previous grant program, Commerce Lexington received an administrative fee of 5 percent to oversee a similar program.

But Commerce Lexington staff said the previous small business program was labor intensive. Staff sometimes spent between 12 to 14 hours a day screening applications and answering questions from small businesses.

The first round of city small business stimulus grants of $2.3 million went to 168 businesses. That was a reimbursement program that helped businesses with coronavirus-related expenses, such as adding a patio or buying personal protection equipment. The grants did not have to be repaid.

Lexington Councilman Preston Worley, who has pushed for the creation of both small business stimulus programs, said Tuesday this round of funding is directly tied to increasing and retaining jobs and economic development.

The city is dependent on a payroll tax for the vast majority of its tax revenues. When employment and wages decrease, so do the city’s revenues.

To be eligible, businesses must be:

• Located in Fayette County

• Have no more than 50 employees, except for restaurants, which are allowed up to 100

• Operating in Fayette County since Jan. 1 or earlier

• Up to date and in good standing with the city and state on all taxes

Nonprofits, limited liability corporations and sole proprietor businesses are eligible.

Applicants must disclose if they have received other stimulus money such as the federal Paycheck Protection Program loans for small businesses or previous funding from the city.

It will be an online application process through Commerce Lexington.

Councilwoman Jennifer Reynolds said during the Tuesday work session she received a lot of positive feedback from business owners who benefited from the previous round of grants. But Reynolds said some businesses said they had a tough time getting through to someone who could answer questions about the application process.

Kevin Atkins, the city’s chief development officer, said Commerce Lexington has assured the city it will have enough staff to oversee the program and answer questions. Last year the program was set up quickly to get money to businesses that were struggling. The city took the applications and then forwarded them to Commerce Lexington. That created some confusion on who could answer questions.

Worley had originally proposed allocating $5 million to the program.. Commerce Lexington would receive $2.5 million now and then $2.5 million later if there was demand.

Vice Mayor Steve Kay said he would prefer setting aside $2.5 million first and then wait to see if there is demand for the forgivable loan program.

“The economy has rebounded much more strongly than we anticipated,” Kay said. “Let’s come back to consider $2.5 million at a later date.”

Worley argued there is likely enough demand for the full $5 million. The $2.3 million went very quickly last year, he said. Tyrone Tyra, vice president of Commerce Lexington, said Commerce Lexington has 30 businesses and nonprofits on a list that could not participate in last year’s program.

The council ultimately dead-locked 7 to 7 on Kay’s motion to set aside $2.5 million. Mayor Linda Gorton broke the tie and agreed to allocate $2.5 million immediately and then allocate a second $2.5 million if there was demand.

“It’s an easy process,” Gorton said of adding the additional $2.5 million.