New business finance tool debuts: working capital will help meet changing needs in the region

The Northland Foundation is partnering with community banks in the Duluth area to introduce a new, flexible tool for business finance clients. The working capital program is a true line of credit from which the borrower may draw money from and apply payments to a working capital loan, similar to how home equity loans function. Unlike a term loan, the borrower only pays interest on money currently in use but has ongoing credit available up to the maximum of the credit line.

“We are hopeful this program will be an innovative example of how to fill a specific gap in the capital markets that other lending organizations can replicate.”
~John Elden, Director of Business Finance

The operation of the program is governed by a servicing agreement between the Northland Foundation and the bank. In order to qualify, the applicant business borrower must open up a checking account at the participating bank. The borrower then can electronically draw on its line of credit from an advance account that Northland sets up to fund and accept repayments on loans serviced by the partnering financial institution.

The Northland Foundation initiated the new program in response to a growing number of inquiries from both for-profit and nonprofit businesses wanting the flexibility of a line of credit in place of a term loan. For-profit businesses generally need the credit line in order to pay for inventory and to carry accounts receivable. Nonprofit organizations have indicated that, in addition to unanticipated cash needs, their operations would benefit from a line of credit to help them cover certain incurred expenses which later are reimbursed by grant money.

Although this new tool is still under development, the potential for success is great, especially for businesses that do not qualify for traditional bank line-of-credit financing.

“We are not aware of any other similar program offered by development lenders,” said John Elden, Northland Foundation’s Director of Business Finance, “and we are hopeful this program will be an innovative example of how to fill a specific gap in the capital markets that other lending organizations can replicate.”

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The Northland Foundation approved financing totaling $1,090,000 to the following businesses and nonprofit organizations from April through June 2010. 

Big Sandy Holdings, LLC - McGregor

Duluth Heritage Sports Center - Duluth

Northeast Entrepreneur Fund - Duluth

RochBochs, Inc. - Duluth

SOAR Career Solutions - Duluth

Van Technologies - Duluth

The Northland Foundation's Business Finance Program offers flexible financing to new or existing businesses in the seven-county Arrowhead Region, with the goal of helping retain or create new, high-quality jobs and sustain economic vitality in northeastern Minnesota.