NOTE: this case came to the EDA/ Council for the first time in January.  At the time, the EDA/ Council, provided the following direction to American Print & Digital: (1) an exception to the City's minimum owner equity would be allowed for American Print & Digital, from 10% to 5%, and (2) authorization to formally apply for the use of the EDA Revolving Loan Fund. 

APPLICANT/ BUSINESS
The business considering the EDA RLF is American Print & Digital.  They are located of Radium Street in eastern Ramsey, just south of Bunker Lake Boulevard.  They currently lease about 5,000 sf in a multi-tenant spec building.  They are a "broker" style printing firm.  Meaning, they don't work with end-user customers directly--they only work with brokers.  Brokers sign contracts with American Print & Digital for work.  They have 7 full-time employees.  The business started in 2009 and has steadily grown year-after-year.

American Print & Digital needs room to grow, at least 10,000 sf total.  They recently placed an order for a very expensive piece of equipment, which they already have enough orders to run for a minimum 6-hours per week, and expect at least 20-hours per week immediately when it's installed.  The new piece of equipment allows them to expand their production capacity to larger runs, on physically larger pieces of material, and to produce product quicker/ cheaper.

Please see attached cover letter from American Print & Digital for details.


THE PROJECT
American Print & Digital has a purchase agreement in place for the former "All-Brite Printing" building located between Do-All Printing and Lano Equipment on US Highway 10 (6320 Highway 10).  This building is just less than 15,000 sf, and is set up ideally for their operations.  Some renovations are needed.  This purchase will allow for expansion of their business, placement of their new machine, and room for small future expansion.  Additionally, in the short term, American Print & Digital plans to sub-lease a small portion of the property until they need it (about 3,000 sf).

The project is about $1.4M total--in which American Print & Digital is seeking financing, with about $600,000 of the total project costs are the new machine.  The Bank of Elk River has tentatively indicated they would fund 50%, the SBA (via the development corporation) has tentatively indicated they would fund 40%, and the owner has indicated they would like the EDA RLF to cover 5%, and for owner equity to be 5% (20 year term, Bank lien 1, SBA lien 2, City lien 3).

The owner is requesting 5% EDA RLF financing to allow equity dollars to be dedicated to ongoing business working capital needs.  The printing industry requires a significant level of working capital to upgrade machines, repair machines, and purchase ever-changing software.  It is not uncommon for these unexpected costs related to machines to cost several hundred thousand dollars.  American Print & Digital can physically make the deal happen without without the EDA RLF.  However, they want to be prudent/ smart about how they are growing their business planning--and they want to make sure they can digest their growth. 
 

NOTE: a common pit-fall for quickly growing small businesses is to not have enough money available in working capital, and outstrip their ability to digest their growth (i.e. they don't have enough working capital to pay for short term expenses incurred as a result of their quick growth).  This can happen by putting too much equity into the upfront project, and not leaving dollars for working capital.  American Print & Digital is attempting to avoid this potential problem via this request to the City.

 

 

Credit analysis/ underwriting was completed by Mike Mulrooney of the Central Minnesota Development Corporation (CMDC).  Mr. Mulrooney has supplied the City with a MEMO/ report.  Staff will be sending that report to the EDA via email, before the EDA meeting.  Mr. Mulrooney will be at the EDA meeting to review his findings and present his recommendations. 

If EDA members have specific questions/ concerns regarding the credit analysis, please email staff before the meeting (we would like to avoid discussing personal financial information in an open meeting as much as possible).  Also, if you would like to personally review American Print & Digital's detailed financials, please contact staff--we will arrange for you to meet with CMDC before the EDA meeting.  NOTE: staff does not possess detailed financial statements in-house (intentionally).

In summary, Mr. Mulrooney was satisfied with the credit-worthiness of American Print & Digital.  Mr. Mulrooney will be recommending the EDA attempt to collateralize the loan with equipment (10 year term), and take a second lien on personal assets of the business owner.

Approve the attached draft loan agreement with American Print & Digital and approve an EDA RLF loan in an amount up to $72,500 (not to exceed 5% of the project cost); subject to:

• the borrower providing a first lien to the City on the attached "Equipment List"
• the borrower receiving approval of the project loan by the Bank of Elk River and the SBA
• final review and approval of the loan agreement by the City Attorney and the CMDC