Grow Michigan LLC has hung out its shingle and is ready for small business borrowers.
Grow MI is a unique collaboration of Michigan banks, the Michigan Economic Development Corp. and the Michigan Strategic Fund, created to fill in a gap in capital access in the state. It has just completed its first round of capitalization and commenced investing operations.
According to the MEDC, Grow MI will provide top-tier strategic management advice and “attractively priced” risk capital in the form of subordinated/mezzanine debt to Michigan’s small businesses. It extends the capabilities of senior debt providers by offering a highly efficient, cost-effective and complementary risk capital infusion for growing small businesses in a broad range of industries.
Grow MI mezzanine loans, made in conjunction with senior loans, will be in the $500,000 to $3 million range, in the form of three-to-five-year subordinated debt, and carry a “single digit coupon,” meaning an interest rate of less than 10 percent. Subordinated debt means the bank making the loan will be repaid first in the event the borrowing company fails and is liquidated in bankruptcy.
Commercial and community banks that have invested in Grow MI’s initial fund are Fifth Third Bank, PNC, Huntington, The Private Bank, Crestmark Bank, Seaway Community Bank, The Bank of Holland, The Bank of Northern Michigan and Mercantile Bank.
The MEDC said Grow MI’s mission is to accelerate growth and capital investment in some of Michigan’s most promising small businesses, to spur job creation and improve the state’s business climate.
“Small businesses are job creation engines, and our work to make cost-effective risk capital accessible to Michigan companies means real potential for immediate job growth,” said Michael Finney, MEDC president and CEO.
“Grow Michigan demonstrates the genuine leadership, cooperation, co-investment and policy support that our commercial banking partners have provided throughout truly difficult times. They are stepping up to the plate and making a difference.”
Grow MI’s founding members include Russell Youngdahl Jr., David Treadwell, Henry Brennan III and E. Mark Gregory III. Treadwell, Brennan and Youngdahl serve on the Grow MI board of managers with Treadwell as chairman. Gregory chairs the investment committee; Youngdahl serves as CEO.
“The founding members of Grow Michigan have been involved in working with and addressing the capital needs of small businesses in Michigan for decades,” said Youngdahl, adding that small business is “the single greatest catalyst for sustainable economic and employment growth while being highly underserved by capital providers.”
The board of managers also includes representatives from the Michigan Strategic Fund and others from the banking industry.
“Our bank was the first that committed to the fund,” said Rich Lievense, chairman/CEO of Lake Michigan Financial Corp. in Grand Rapids, which owns The Bank of Holland and The Bank of Northern Michigan. Lievense will be sitting on a five-person investment committee that will vet all the investments the fund makes.
Lievense said the amount committed to the fund by each of the member banks is based generally on their size. “Some of the banks are putting in significantly more than we are. There are some large regional banks” among the members, he said.
The Grow MI fund is intended for established small companies “that need funds to grow — funds over and above what a bank can prudently lend. What it really is, is an alternative” to venture capital sources of financing, according to Lievense.
Mezzanine financing is perceived as being between bank financing and venture capital.
“Generally, it is not as expensive as venture capital, but it allows a company to fund itself over and above what they can traditionally obtain from a bank,” said Lievense.
A Michigan small business interested in borrowing from the Grow MI fund would simply approach one of the member banks to apply. Lievense said each member bank will have a representative on hand who is expert in the details of Grow MI. He said he has not yet seen any applications but has heard that some applications are in the beginning stages of the process.
He expects manufacturing businesses to be a major area of focus of Grow MI.
“I know that’s an area of emphasis for the fund. We are trying to help develop the manufacturing base in Michigan and that’s a natural for this program,” said Lievense.
“If we can be successful with this,” said Lievense, the member banks “hope that this is the first of more funds like it that we will develop. Hopefully, we can put these monies to good use. The banks will see that they are good investments, the companies will find it useful, and we’ll be able to raise another fund. So we hope that this is not just a one-and-done thing.”