* The definition of personal net worth (PNW) in the ACDBE regulation is the following:
Personal net worth means the net value of the assets of an individual remaining after total liabilities are deducted. An individual's personal net worth does not include the following: The individual's ownership interest in an ACDBE firm or a firm that is applying for ACDBE certification; the individual's equity in his or her primary place of residence; and other assets that the individual can document are necessary to obtain financing or a franchise agreement for the initiation or expansion of his or her ACDBE firm (or have in fact been encumbered to support existing financing for the individual's ACDBE business), to a maximum of $3 million [emphasis added]. An individual's personal net worth includes only his or her own share of assets held jointly or as community property with the individual's spouse.
* Only assets supporting obligations for which the individual is currently liable, which are properly documented, and for which his or her personal assets are encumbered, should be counted toward this exclusion.
EXAMPLE 1: Smith has $3 million line of credit from a bank to initiate an airport concession project for Firm X. His personal assets are pledged as security for the entire $3 million line of credit. At the time the Firm X applies for certification as an ACDBE,
Smith has drawn $600,000 from the line of credit. Because his only obligation at the time of application is to repay the $600,000 draw from the line of credit, the proper amount to be excluded from the PMW calculation for Smith is $600,000.
EXAMPLE 2: Two years ago, Jones got a $2 million loan to expand his airport concession business. His personal assets were pledged as security for the loan. Firm Y applied for ACDBE certification at the same time as Jones received his loan, and the $2 million was properly excluded from his PNW certification. By today, however, Jones has paid off $1.2 million of the loan. Only $800,000 is now properly excluded from today’s PNW calculation, if proper documentation is provided. (Annual affidavits should reflect the current balance remaining to be paid on the loan, not the original amount of the loan.)
EXAMPLE 3: Brown received a loan from a bank for $1.5 million in connection with starting a concession. At the time her firm applies for certification, however, the assets securing the loan appear to be those of a concession corporation, as distinct from her own personal assets. The $1.5 million is not properly excluded from Brown’s PNW calculation.
* The initiation or expansion of a concession concerning which an owner seeks this exclusion should be real and present rather than a possibility that is speculative or well into the future. For example, assets supporting a loan or line of credit obtained today for a projected expansion of a concession three years from now would not be a reasonable basis for excluding the assets from today’s PNW calculation.
* Assets eligible for this exclusion from the PNW calculation are properly excluded from an owner’s PNW calculation regardless of the location of concession for which the financing in question was arranged.
EXAMPLE 1: Williams got a loan of $1 million from Bank X to start a concession business at Airport 1. Her personal assets were pledged as security for the loan. Airport 1 properly excluded $1 million when it calculated Williams’ PNW. Now Williams is starting Firm B at Airport 2. When Firm B applies to Airport 2 for ACDBE certification, $500,000 remains to be paid off on the loan to Bank X. Airport 2 should exclude $500,000 in calculating Williams’ PNW, assuming proper documentation is provided.
EXAMPLE 2: Williams also got a $1.3 million loan from Bank Y to help finance the concession at Airport 2. Her personal assets, above and beyond those pledged as security for the $1 million loan from Bank X, are pledged as security for the loan from Bank Y. Airport 2 would properly exclude $1.3 million in calculating Williams’ PNW, in addition to the $500,000 excluded in Example 1, for a total of $1.8 million. The total assets excluded under this provision of the rule could never exceed $3 million.
* Since an ACDBE applicant bears the burden of demonstrating its eligibility, it is reasonable for recipients to request all supporting documentation for each financial obligation claimed by the applicant, including loan agreements, supporting lien and/or letter of credit documents, and specification of the assets used to secure a loan or line of credit. Recipients should pay particular attention to the terms of a financial obligation, determine the extent to which the individual owner, as distinct from a corporation or other party, is obligated to repay, or is repaying, the obligation. The recipient should make appropriate inquiries into whether there are any additional borrowers or other factors that may affect the size or duration of the individual owner’s debt.
* The guidance in this Q &A applies only to 49 CFR Part 23. It does not apply to 49 CFR Part 26.