Fergus Falls, Minn., a rural community hoping to expand its economy, has enlisted five banks to support its ambitions.
The banks, and other institutions, have set up a fund for commercial and industrial borrowers, mostly small manufacturers, which would not otherwise qualify for a small-business loan - or even a federal guarantee.
The $1.1 million fund is intended to add 2,000 jobs to Fergus Falls (pop. 12,600) by the year 2000 - quadrupling the results of an earlier initiative. It also demonstrates the key role banks will play in small-town survival efforts. "I think it's the essence of being a community bank," said participant Paul Lindholm, president and CEO of $52 million-asset Security State Bank of Fergus Falls, the only bank based in the town.
That's the attitude of many rural Americans, said Gene Donley, vice president of Thom Consultants Inc. and fulltime consultant for the project.
Fergus Falls, a county seat and the hub community for its area, has a mixed economy that includes factories, tourism, the regional medical center, and the regional power company as well as farming.
Project 2000 was funded by five banks and others entities, including the city and a utility, which have put in commitments of $125,000 each.
The city launched a similar program in 1984 to add 500 jobs in 500 days, said Mr. Donley. It produced 487. Losses were no worse than those from regular bank loans, he said, so lenders were willing to try again.
"When you think of 487 jobs over this period of time and the successful firms, the net result is very rewarding," Mr. Lindholm said.
Lenders will participate in loans they wouldn't normally finance, at only a "fraction" of the risk, Mr. Lindholm said.
Less Structured Credit Standards
By the same token, borrowers might have a hard time getting a loan elsewhere. "The credit standards are slightly less fixed and structured than what is required by the Small Business Administration," Mr. Lindholm said.
The loan pool will target local business expansion, but the city will consider newcomers that don't compete with existing firms, said Mr. Donley, former president of Home Owners Savings Bank, Fergus Falls (now part of Metropolitan Federal Bank).
Potential borrowers will meet with him and, if appropriate, with their local bankers. If a loan-pool credit is approved, the borrower's bank acts as lead lender. Approved loans are divided among participating lenders, spreading the risk.
"Each lender can decide whether to participate in a particular loan," Mr. Lindholm said. "No participant is forced to advance money on a loan it doesn't feel comfortable about."
Ideally, most lenders will approve each loan, with no less than six participating, Mr. Donley said.
The loan pool, which has made one loan, may help banks' CRA examinations, Mr. Lindholm said. "It helps that they are putting these dollars not only back into the community, but also into economic development," he said.
