FOR-PROFIT ECONOMIC DEVELOPMENT

Montana Growth Capital Means New Opportunities for Business

By Nancy Mahoney, 11-02-05

Sometimes an idea comes along that seems to make perfect sense, and you can’t figure out why it isn’t being done everywhere. That was my reaction after talking with Jeff Batton, President and Managing Director of , about their decision to bring a highly successful economic development strategy from Alaska to Montana. They have found a way to make affordable loans to growing businesses that need $100,000 to $10 million, but that can not access traditional bank financing. And they do it as a for-profit corporation, instead of a non-profit, which makes them smart, stable and attractive to investors.

Montana Growth Capital, a branch of Alaska Growth Capital, has just opened an office in Billings, but plans to serve the entire state. Based in Anchorage, the parent company had generated enough loan capital for it to expand and serve a new market. Batton, formerly of Printing for Less in Livingston, believes that Montana businesses experience a similar “funding gap� as those in Alaska: nontraditional borrowers that have trouble accessing bank financing (due to lack of collateral, etc), and need more cash than can be offered by local alternative lenders. Montana Growth Capital affords them an opportunity to access stand-alone financing, rather than selling shares in their company to venture capital investors.

My personal interest in Montana Growth Capital stems from my previous job as a development director for an economic development corporation in New Mexico (as opposed to needing $10 mill myself). We were the small guys: a private non-profit organization that offered training programs, consulting and microloans to low-income women and minority entrepreneurs. Each year, the organization struggled to secure funding and generate meager revenues from its very small revolving loan fund. Despite that, I was passionate about our mission to assist the entrepreneurs (or those with potential…) that could not afford or access traditional financing, technical assistance, training or networking opportunities. After 15 years, and a solid track record, we were finally able to get the city and state to help us finance the construction of a “business incubator�—an investment that we’d “pay back� in jobs. But anyone who knows incubators knows that they are anything but money makers. Before we could attract any funding, we had to demonstrate that the organization could keep the facility cash/flow positive (which we did, in large part, by changing our business plan to include long-term commercial leases for established businesses or chains). The bottom line is, for us to succeed, we had to think entrepreneurially, like a for-profit company…like we taught our clients.

And that is just what Montana and Alaska Growth Capital have done. In Alaska, they have succeeded in demonstrating they can promote healthy economic development that supports local businesses throughout the state, especially rural and minority-owned companies, without ongoing grants (or pork) from state or federal government. Montana Growth Capital will work with the federal agencies, such as the Small Business Administration, and so most of the loans they make are eligible for federal loan guarantees. Those guarantees are attractive to investors, whose cash provides the company with new loan capital. The trick is to start with a large enough pool of capital, and to make the majority of loans north of $1 million.

Montana Growth Capital will be able to access the large pool of loan capital amassed by the parent Alaska corporation, which received several million dollars from the Arctic Slope Regional Corporation—the largest native-owned for-profit company in the nation—to get up and running. They will have the capacity to offer loans up to $10 million with terms ranging from 3 to 20 years. Interest rates will vary according to risk, but many loans are made at prime plus two percent. They will be targeting Montana-based manufacturing, resource development, retail, wholesale and service providers that can capture business from out-of-state companies.

I look forward to seeing what Jeff Batton can do here, back on his home turf.

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