BUSINESS EXPANSION GUIDE :: UPSIZE PRIMER
Top secrets
Many resources, some hidden, can help growing companies
by Andrew Tellijohn
ALETA MECHTEL never intended to expand beyond her initial Children of Tomorrow Learning Center. She?d been open for seven years at the Chanhassen location and had built close relationships with parents and children that she didn?t want to put at risk.
But the city of Waconia began expanding, businesses were starting to open and soon she had people asking if she was interested. So she began researching financing options for her $1.4 million project.
She felt the U.S. Small Business Administration process was too restrictive and she realized she might need money from multiple sources. So she met with city staff about different options that might be available.
While there, she learned about the Twin Cities Community Capital Fund (TCCCF), a public-private lending partnership between the nonprofit agency and several economic development agencies and city officials in the metro area. The organization serves as gap financing for small businesses to cover the difference between what companies need and what banks are willing to lend them.
After learning about TCCCF, Mechtel began searching for a bank that was familiar with the program. Her long-term bank was not working with them at the time and she was turned away by several others until a friend of her husband?s put her in touch with Keith Peters, president at Security Bank in Waconia.
?He was open to working with me, piggybacking on those funding options,? Mechtel says. ?The people at the TCCCF were phenomenal.?
Though it took longer than she anticipated, Mechtel received commitments on about half her financing needs from Security Bank and 40 percent from TCCCF with the 10 percent down payment coming from a parent at the initial learning center. The Waconia outlet opened in early June and by mid-July she had filled 25 slots out of a capacity of 125. After being a single-unit operator for a half-dozen years, Mechtel is now considering further expansion opportunities down the line.
?My goal is to provide the best education for these children because they are sponges right now,? she says. ?We are the foundation of tomorrow?s world.?
Funds often underused
The TCCCF is one of two innovative economic development financing sources designed to leverage millions of dollars in revolving loans. The TCCCF, which lends to small businesses in the seven-county metro area, started in July 2005 and has originated seven loans with total value of about $3.5 million.
Its sister organization, the Minnesota Community Capital Fund (MCCF), is two years older and has been more widely utilized, having done 85 loans approaching $27 million. That fund is available to businesses outside the seven-county metro.
The funds were developed by the Northland Institute and are considered charitable nonprofits. The organization originates loans, and then replenishes the pot of money by selling those loans to the secondary market. The funds are used to fill the gap between the needs of the borrower and the amount a bank is willing to provide.
They were created to spur capital investment that otherwise would have gone unspent. The members of both funds include economic development organizations, local government officials and in the rural fund, several public utility companies.
The funds partner with banks. The banks will do their own research, and then contact someone from TCCCF. The funds do their own due diligence and never proceed unless a partner organization backs the borrower.
The Twin Cities fund especially has been somewhat underutilized to this point, something Scott Martin hopes to change in the months ahead. ?Our marketing is to the bank,? says Martin, president of both funds. ?Mostly what I do is try to get in front of commercial loan officers in group settings. ? We?ve been around long enough. We?re hoping the commercial loan officers will remember they can count on us.?
One backer of this public/private lending concept is Jerry Kwapick, community business banking manager at Bremer Bank.
?I?ve been involved in lending for almost 30 years and as a result have been part of various economic development boards,? he says. ?It?s amazing how often those funds go unused. ? It?s one of those best kept secrets.?
City offerings
Minnesota?s largest cities also have departments aimed at helping businesses navigate their red tape, making it easier to find assistance with expansion and relocation issues. The city of Minneapolis offers small-business owners assistance in topics ranging from relocation to doing leasehold improvements. The programs can be large and general or small and specific, such as one recently instituted to provide funding for companies owned by Muslims, says Bob Lind, manager of business finance for Minneapolis Community Planning and Economic Development (CPED).
That program is important because the religion prohibits paying interest, he says. So the city created an option based on a rate of return instead.
?We worked with the African Development Center to make sure our program met the letter of their religious beliefs,? Lind says. ?It has been working out well. We?ve done a number of them already.?
Business owners who contact the city can receive a handbook called ?Starting a Business in Minneapolis,? a 30-page booklet that walks them through various regulations and licensing concerns. There are also a number of different departments that staff can refer businesses to for help in other areas. Minneapolis is a big city and never easy to navigate, Lind says, but officials are doing what they can to help.
?I?m sure from the businesses standpoint it?s still tough,? Lind says. ?There are a lot of regulations and licenses to be obtained. It?s kind of one of the necessary evils of doing that, but we try to make it as easy as we can.?
St. Paul also has a number of programs available for small-business owners, such as the Capital City Business Development Program, through which its Department of Planning and Economic Development (PED) provides gap financing to businesses that can?t secure sufficient conventional private or non-profit financing, and the Strategic Investment Program, where PED provides incentive financing to help businesses relocate to the city.
State resources
Perhaps the best
