St. Louis County Hopes New Loan Program Will Aid Small Firms
St. Louis Post-Dispatch
February 27, 2011
By Jim Gallagher
Don Davidson left Rosary High School in 1975 and became a truck driver.
Today, he works at a desk surrounded by the stuffed heads of large animals he's shot around the world. The walls are also lined with Cardinals memorabilia -- including a personally signed painting of Albert Pujols.
Davidson runs a $7 million business, with 52 trucks and a gigantic warehouse that stores the wings of fighter jets and the big machines and moulds used to build aircraft.
Still, he finds it tough to get a loan.
So when it was time to expand recently, he turned to an unusual program in which a quasi-government agency acts like a bank. He got a $500,000 loan directly from the St. Louis County Economic Council. The county has more than $4 million to lend, and it's looking for more customers.
A 10-foot brown bear, shot in Russia's Kamchatka region, looms over the front door of Davidson Surface/Air, his trucking and warehouse company in Hazelwood. The beast looks down on what may be the most unusual lobby in St. Louis; filled with antique European furniture, a Dutch tile painting, German beer steins several feet tall, along with models of fighter jets and tractor-trailers, rustic wooden couches carved by an artist in Indonesia -- along with more Cardinals mementos.
Davidson is an up-by-the-bootstraps guy who looks and sounds more like the truck driver he was than the entrepreneur he is.
"It's a miracle how it worked out. I live the American dream," says Davidson, an outgoing man with combed-back hair and an open-necked shirt. "I'm not the sharpest knife around, but I have sharp people around me."
Davidson was driving a truck in the late 1970s when he met a cab driver who was delivering papers. The cabbie said he got $25 for each courier run, and Davidson decided he could make a business out of that.
He borrowed from his grandmother, bought two pickup trucks, recruited his brothers, and started a courier service. "I had one brother in my basement working the phones and the other brother in the truck," he said.
Davidson himself switched to the night shift at the trucking company so he could drive for himself during the day.
"After three years, we had five trucks and I bought a little garage in Baden," he says. He quit his night job, added bigger trucks for bigger deliveries and by 1989 he was making "decent money."
"I rolled the dice and put $80,000 on a tin building," a warehouse in West Port.
His big break came when he heard that GKN Aerospace was looking for a place to store big tools used for making aircraft. He got the job, and built a 107,000 square-foot warehouse in 2005. "I was beginning to fill it up when Boeing knocked on the door," he said. Boeing brought more business.
The business went through some rough times during the Great Recession. He ran it partly on credit cards for a while in 2008, after his bank asked him to give up his line of credit. That wasn't unusual as banks retreated from risk and piled up capital in the face of losses.
By last year, however, Davidson was ready to expand. He had his eye on a building near West Port that had the outdoor storage areas he needed.
But he had a problem: Where could he find $1.9 million?
Banks weren't willing to lend it on their own. So, he applied under the Small Business Administration's "504" lending program. Under the program, a bank lends 50 percent of the money and gets a first lien on the property. A local development agency sponsors another 40 percent, backed by an SBA guarantee, and that part of the loan is sold to investors. The business owner adds the final 10 percent.
Banks are willing to lend because they get the first claim on the collateral while putting up only half the loan. Investors like the deal because of the government guarantee.
But SBA approval takes time. Another buyer, offering more money, was waiting in the wings for the building Davidson wanted.
So he turned to Rich Palank, senior vice president at the St. Louis County Economic Council. Davidson became the first borrower under the county's "Boost" loan program.
"Boost is our own money, and we got it done in two weeks," says Palank.
The county lent $500,000, taking a second lien on the building. That let Great Southern Bank take the first lien, providing the rest of the loan.
The council plans to fund the loans through a $5 million line of credit with PNC bank. The council put $2 million on deposit at PNC to secure the line.
The Economic Council is charged with expanding business and jobs. It gets half its budget from St. Louis County. County Executive Charlie Dooley appoints most directors, most of whom are businesspeople and bankers. But the council is technically not part of county government.
The Economic Council, along with government agencies elsewhere, have long made smaller loans to businesses for "gap" financing of working capital -- filling in the piece of a loan that a bank wouldn't make.
In Louisville, Ken., for instance, the Metro Business Development Corp. makes loans to owners of bars, retail stores, art studios and the like. Essentially, the agencies are lending money that banks won't. Ellie Shipley, administrator of default rate has averaged 5 to 6 percent over the past eight years, a rate about a percentage point higher than the default rate at commercial banks.
The St. Louis County Economic Council has about $1.5 million in such loans, which are usually limited to $100,000. Gap loans amortize over five years, and they're often secured by inventory and equipment.
The Boost program is different in that it offers businesses a deal similar to the SBA's 504 program, with bigger dollar amounts. The loans are secured by fixed assets, such as buildings. They amortize over 20 years, although it must be renegotiated in five. That slower payoff schedule is easier on the borrower.
Palank thinks Boost is "the only one like it in the country."
It's designed for people who don't fit the SBA criteria. Those limit loans to companies worth less than $15 million, with less than $5 million in annual profits and where owners lack the liquid assets to fund the company's need themselves.
The county has done three loans so far and has more than $4 million left to lend.
