The city of Cottage Grove is still looking for a way to fund its business incubator.

The city elected not to apply for state bonding money for its plan to convert its existing City Hall building into a small business accelerator when the city moves to a new facility this fall. The city's top administration official said the state funds came with too many restrictions.

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The city had planned to request $50,000 to help cover an estimated $200,000 in improvements needed to transform the building on 80th Street from city administrative and police use into a facility officials hope will help small businesses grow by giving them an inexpensive place to set up offices.

State officials announced last week that 90 applicants from around the state requested $288 million for public works projects, but just $47.5 million is available for the economic development grants.

Instead, City Administrator Ryan Schroeder said, the city will seek funding through third-party, business-oriented foundations after determining there were too many strings attached to the state money.

Schroeder said, city officials were concerned about a requirement that it pay back the state-borrowed funds in full if the building is eventually sold. The city wants to retain that option.

"One of the exit strategies should the project not work is to sell the building," Schroeder said. "Given that there are other potential funding sources that don't have that repayment obligation, it seemed appropriate to go down that path instead."