4.6. SR 02-18-2003Item # 4.6.
I IEI IORAN DUI I
TO:
CC:
FROM:
DATE:
Mayor & City Council
Economic Development Authority
Catherine Mehelich, Director of Economic Development~: .
February 18, 2003
SUBJECT: Consider MN Investment Fund Grant Application for
Sportech, Inc. Expansion
Attachments · MN Investment Fund, Fact Sheet
· Article: "Sportech Inc., Rank 14", The Business Journal Growth 50. Oct. 18, 2002.
Background
Local manufacturer, Sportech, Inc., designs, produces and markets snowmobile and ATV
accessories. The company's operation is located in the southeast corner of Elk River on
Jarvis Street. The attached recent article provides additional information about Sportech,
Inc.'s history and success. The company was founded in 1993. Sportech, Inc. has made
several expansions over a series of recent years in Elk River. The first expansion was from
the founder's garage to a 10,000-square foot industrial building in 1998. The second
expansion took place in the year 2000 with the addition of another 10,000-square feet.
Currently, Sportech, Inc. wishes to expand with an additional 20,000-square foot
freestanding building to be located adjacent to its present facility.
Issue
Sportech's expansion project includes the construction of a 20,000-square foot light
industrial facility to house a screen-printing operation, and the purchase of equipment
necessary for the screen-printing operation. The project includes the following elements for
financing:
Building Construction $ 750,000
Equipment + 250,000
TOTAL PROJECT $ 1,000,000
Sportech, Inc. currently employs 27 full-time, in addition to approximately 16 temporary
employees. The company anticipates hiring, within 2-years of the project, up to 15 new full-
time employees at a wage of not less than $12.00/hour plus benefits.
Consider bin Investment Fund Application
Sportech, Inc. Expansion
February 18, 2003
Page 2 of 2
The expansion project would involve finance participation from the company's lender, The
Bank of Elk River. However, due to the bank's lending limits, additional sources of
financing are necessary to allow the project to proceed. Staff and the company have
explored utilizing the Minnesota Department of Trade & Economic Development MN
Investment Fund as a financing source.
The MN Investment Fund is a grant that is awarded to cities in order to provide loans to
assist expanding businesses. The attached MN Investment Fund fact sheet provides
additional details about the program. Staff's discussions with DTED regarding the Sportech,
Inc. expansion indicates that the city could apply for up to $ 200,000 in federal grant dollars,
~vhich the city would then provide a loan in the same amount to the company toward
equipment financing. As the loan is paid back to the city over a period of 7 to 10 years, the
city is able to retain the full $200,000 to be used as a revolving loan fund for economic
development purposes.
The city was awarded a $250,000 MN Investment Fund grant for the Tescom project in
1994. The city utilizes a portion of the grant funds, as the loan is paid back from Tescom, to
fund the city's Business Incubator program.
Staff will be present at the City Council meeting to discuss details of the proposed MN
Investment Fund grant application. In addition, Chris Carlson, CEO of Sportech, Inc., may
be present at the Council meeting to answer any questions about the project.
Recommendation
Staff recommends that the City Council consider authorizing staff to proceed with an
application to the DTED MN Investment Fund grant in the amount of $200,000 to assist
with a loan for the Sportech, Inc. business expansion project.
--Trade
Econonnc
Devdopment
Purpose
How It Works
Eligible
Applicants
Minimum
Requirements
Eligible Projects
Ineligible
Projects
Maximum
Available
Other Funds
Required
Interest Rate
Terms
Collateral
Requirements
Applications
Accepted
Approving
Authority
www. dted.state.mn.us
Minnesota Investment Fund
To create new and retain the highest quality jobs possible on a state wide basis with a focus on
industrial, manufacturing and technology related industries; to increase the local and state tax base
and improve the economic vitality for all Minnesota citizens.
Grants are awarded to local units of government who provide loans to assist expanding businesses.
Cities, counties, townships and recognized Indian tribal governments.
All projects must meet minimum criteria for private investment, number of jobs created or retained
and wage thresholds.
Loans for land, buildings, equipment and training are eligible. Funds may also be used for
infrastructure improvements necessary to support businesses located or intending to locate in
Minnesota.
Working capital, retail business and industrial park development.
$500,000. Only one grant per state fiscal year can be awarded to a government unit.
At least 50% of total project costs must be privately financed through owner equity and other
lending sources. Most applications selected for funding have at least 70% private financing.
Negotiated.
Real estate a maximum of 20 years; machinery and equipment a maximum of 10 years.
Negotiated. Personal guarantees may be required.
On a year-round basis using the Business and Community Development application.
Minnesota Department of Trade and Economic Development
-o~veF-
500 Metro Square · 1217th Place
651-297-1291 . 800-657-3858
ti, Minnesota 55101-2146 - USA
3-4772 - TTY/TDD 800-627-3529
Disbursement
of Funds
As costs are incurred but prorated with other sources of funding.
Contact
Your regional representative at the Minnesota Department of Trade and Economic Development at
1-800-657-3858, or the office of Business Finance at 651/297-1391.
01/03 mif
RANK 14 THE BUSINESS JOURNAL Growlh 50 lwinciliesbizjournals,com
COUPAttY ~ESCRIPTIOlt
M~.uractu~e~ or moto~sports accessories, specializingin thermorormin~ plastics rot snowmobiles, ATVs,
motorcycles and personal watercraft products sold through original equipment manufacturers and distributors
BY JOHN HOOGESTEGER
SIAFF REPORTER
Often it's the people who actually use a
product who koow how to make it betten
But it's not often that COllStlnlers call tul'n
their knowledge rote a successftfl hush,ess the
way Chris Carlson has.
The CEO of E~ River-based Sportech h~c.
latmcbed his motorsports accessories business
h~ 1993 hi the basement of his home by workh~g
with his dad on a sh~gle product. They invent-
ed a soperior headlight cover for snox~qnobiles
that wotfld prevent the light from packhlg with
snow when a machh~e went flwough a ~h'ifl.
Now Carlson is bufldh~g a second 20,000-
squm'e-foot mantffactm-ing bu~diug next to
the one he bu~t in 1998. The company grew
fi-om $1.9 mffiion fl~ revenue in 1999 to $4.9
CEO Chris Carlson
EMPLOYEES 25
.t-YEAR REVEHUE fiI10WTtl
155o, o
9001 REVENUE
$4,905}535
~000 REVEHUE
$3,521,336
1999 RE~/EHUE
$1,923,172
lion in 2001, a 155 percent increase that netted
it the 14th spot on The Business Journal's
Growth 50. And the business is expected to
make about $6 milliou this year mantffactur-
h~g parts for sno~qnobiles, all-terrain vehi-
cles, personal watercraft and motor bikes.
"I surely dithft have any idea it would grow
hke this," Carlson said. "1 took it one day and
one step at a tram, hdending to keep the
growth rate conffortable, but the last few years
have just been crazy"
John Prusak, associate publisher of Maple
Grove-based Powersports Bttsitless magazhm,
said Carlson is a unique combination of sports
vehicle endmsiast and savw businessman.
"Every year we see the super enthusiasts at
the sbows with a product, but they bare no
idea how to market it, and they're gone Ibc
next yeat;" Prusak said. "But Chris is a really
smart guy First, ISportecbl came up wJlh a
good product that was better than anything
you cotfld get fi'om the mantffacturer or any
other aflernlat'ket producer; and they success-
hilly marketed it. Then they folh)wed it up
with other superior products."
The breakthrough product, Prusak said,
actoaRy was a windshield that provides better
wind resistmme. "They Ln~;e products that
make you slap yom' head and go, 'Why didn't 1
think of that?~'"
A key hlgredient to growth has been coutin-
ued hmovation, and part of that creativity
comes from baying employees who Inustly are
sporl vehicle enthusiasts just like Carlson is.
"When a designer goes on a site visit, tbey'H
diSCLLSS issues, but they'll take their bike and
when they're done tbey'H go out biking," he
said. "We bare like-thinking people who have
tim being around amid using these machines."
Sportech now bas more than 500 products in
its inventorg In addition Io capturing a nice
cbuuk of the aaermm'ket sMes, Sportech
sells directly to origmM equipment mantffac-
turers like Pol~-is and Arctic Cat.
The economy hasn't slowed Sportech,
either: ff anythhlg, fewer vehicle sMes spur
more purchases of add-on products.
"The industry is driven by a passionate,
affluent group of people who can aflbrd to
spend money on it. They want their vehicles
to look cliff, feet, just like lfarley ~tys do, so
they accessorize and customize their vehicles,
Carlson said. "No one waots to show up at a
gathering of snowmobilers with one that