Loan Fund, Stevensville, MT firm perfect fit – Poly Warehouse Inc. receives $250,000 to grow pipe-fitting business from the Montana Fund

After a year of operations, the Montana Fund has made its first deal – a $250,000 loan to Poly Warehouse Inc., http://www.polywarehouse.com/ a fast-growing Stevensville company with 15 employees that makes specialized fittings for high-density plastic pipe.

The $1.5 million Montana fund is a “near-equity” loan fund administered by the nonprofit Montana Community Development Corp http://www.mtcdc.org .

Three-year-old Poly Warehouse was a fast-growing company six months ago when CEO Neil Sheldon first talked to Steve Grover at MCDC.

The company’s strength? It exploits a gap in the pipe and fittings industry.

“We don’t have a six-week turnaround,” said manager Kevin Hawkins.

But the firm, which ships its products across the United States to methane fields and municipal water systems and others in need of pipes and fittings, ran into a classic growth dilemma.

To meet demand, the company needed cash for relatively low-cost pipe, which is then fabricated in the company’s facility into high-value customized fittings. Poly Warehouse needed cash for machines and inventory. It was as simple as that, Hawkins said.

Sheldon turned to the Montana Fund for financing when the company found that its growth plans were unlikely to be funded by conventional bank financing.

Poly’s assets are its product knowledge, distribution contacts and its unique method of fabricating joints. The assets generate sales, but banks cannot use them as collateral. And for traditional equity investors, Poly Warehouse was simply too small.

The Montana Fund has aspects of a conventional loan and other features that are similar to equity financing. Put simply, loan and equity investments differ in their return. Loans earn the lender interest and require collateral. Equity investors buy a share of the company and don’t require collateral.

The investment for the fund came for a number of banks, including Citibank, Wells Fargo, First Interstate Montana and First Security Missoula. U.S. Sen. Max Baucus, D-Mont., secured some federal dollars for the fund, too, and the Northwest Area Foundation of St. Paul, Minn., gave $400,000, which became MCDC’s investment share in the fund.

The Montana Fund lends up to $250,000 without collateral. The deal is part of Poly’s plan to grow sales to the $8 million mark by 2009.

Recipients of Montana Fund loans repay principal plus interest – set at market rate, about 6 percent to 8 percent. In place of collateral, fund managers look at growth potential. That growth is how the Montana Fund is able to offer such low interest rates.

The fund earns a share of gross revenues through the life of the loan, somewhat similar to the way an equity investor would.

The fund also puts to use the nonprofit’s considerable business resources, offering marketing and other assistance to companies it works with.

In the case of Poly Warehouse, Grover corralled financial specialist Steve Schmidt and a few other former executives to help shape up the books and expansion plans for the business.

The company’s growth has been so strong that Grover and Sheldon repeatedly renegotiated the revenue-sharing component of the deal as the projected revenue increased almost by the week.

It’s a subject Hawkins loves to talk about.

“Our forte is fittings,” he said. “You can make great money with fittings. Anybody can do pipe, and everyone will quote the same price. If you’re going to tie up your cash, tie it up in fittings.”

What’s so great about Poly’s fittings?

“The come in right and fast,” Hawkins said.

“I don’t care if I’m in here doing it myself, it doesn’t matter,” he said.

For example, last week a call came in at 11 a.m. from a company in New York City. The order was for a set of fittings that shipped out that afternoon at 3 p.m. The freight cost was $280, in inconsequential sum to a company caught in a pinch without the right fittings.

“We bail people out,” Hawkins said.

Poly Warehouse will use the Montana Fund money to buy machinery and inventory, hire more sales people and build an additional 10,000 square feet of warehouse space.

The company recently opened a sales office in Casper, Wyo., to market products to methane fields there. Its goal is to start a new location every year for the next few years. The company also intends to hire as many as 10 new employees in the next year.

“That’s a low guess. We’re talking about starting a night shift,” he said.

Grover, at MCDC is pleased. The deal seems tailored-made for the Montana Fund, he said.

“It feels good to be getting some money out the door,” he said. He has 10 formal proposals seeking funds and is working on five of them. Two of the five are on the same track as Poly Warehouse, he said. The companies are located around the state, from Victor to Billings.

“Some of them certainly have potential,” Grover said.

Poly seems like it was a good bet so far, he added.

“The just made their first loan payment,” he said.

Reporter Robert Struckman can be reached at 523-5262 or [email protected]

Steve Grover can be reached at 406-728-9234 Ext 206 [email protected]

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If you are considering a business start-up or expansion, call MCDC first. We work with you to find the financial and management solutions your business needs now.

MCDC staff members are professionals with advanced training in business management and finance. They have experience with hundreds of businesses, both large and small, within the region.
• We can lend you $1000 to $150,000, based upon the fund for which you qualify.
• You may be eligible for a loan from government funds that we administer.
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