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HomeMy WebLinkAboutBus Loan Request - PaladinTo: Deschutes County Board of Commissioners From: Judith Ure, Department of Administrative Services Date: August 7, 2013 Subject: Economic Development Loan Request Attached is a briefing paper describing an economic development loan request scheduled for discussion during the Board's August 14,2013 work session. The request has been reviewed by Economic Development for Central Oregon (EDCO) and evaluated by EDCO's Due Diligence Committee. The resulting recommendation is as follows: • Paladin Data Corporation, Inc.: $32,000/16 new employees Representatives from EDCO will be attending the August 14 meeting to provide additional information and to answer any questions about the loan request that Board members may have. The Deschutes County Economic Development Fund currently has $91,667 available in the fiscal year 2013-14 budget appropriation to fund loan requests. The recently approved request by LMH Industries for an economic development loan in the amount of $40,000 has been declined by the company due to changes in business practices that may reduce the projected new hire counts. There are no other loan payments outstanding at this time. Please contact me if you have any questions concerning the Economic Development Fund or Economic Development Loan Program in advance of the August 14 meeting. BRIEFING PAPER FOR Paladin Data Corporation, Inc. Request for Deschutes County Forgivable Loan August 7, 2013 Company Request: $32,000 EDCO Recommendation: $32,000 Proposed Job Creation within 24 months of April 16, 2013: 16 new employees Average Pay for New Employees: $43,940 Industry: Point-of-Sale Software Website: www.PaladinPOS.com Company Background: Paladin Data Corporation was founded in Bend in 1985 by Dan Nesmith and his wife to provide point-of-sale (POS) software and hardware. A majority of their customers have been in retail hardware and pharmacy, but their POS systems are functional in other environments. Mike Williamson was brought on in 2007 as general manager with extensive experience in retail and operations management. Dan and Mike confirmed that they have a succession plan in place with experience management at all levels that can provide ongoing direction for the company. The company has business plans in place for the next five years that are based on industry growth projections and actual company performance. They shared data showing a sustainable 14% annual growth rate with an actual annual growth rate of 30% in 2012. They attribute growth to: • Company’s ability to respond to customer needs and changes in regulations. They produce software upgrades about every six weeks and are sensitive to changes in tax laws at the state and federal levels. They have banking relationships that provide notice of changes in banking laws and trends; • Recent changes in market focus of their major competitors; • Recent emphasis on a customer relationship marketing strategy; • Their “subscription” revenue model allows for low accounts receivable and allows their cost of POS system maintenance to exceed industry standards. In terms of financials, the company has a respectable position. The balance sheet shows a good asset to liability ratio. Their just-in-time inventory model allows for minimum current and obsolete inventory. They have long term debt that is attributed to the cost of development but with recent growth, they have been able to make significant payments in excess of requirements to retire that debt. The owner’s equity balance is evidence of long-term profitability. The income statement shows a strong net income. It has been a management decision to operate with a lower working capital balance in favor of paying off long term debt. EDCO Recommendation: The Bend DCFL Due Diligence Committee completed its vetting process on Thursday, June 27, 2013 when Eric Strobel, HR Specialist; Bruce Barrett, Business Consultant; and Nate LiaBraaten, EDCO Business Development Manager met with Dan Nesmith, Paladin Founder; and Mike Williamson, General Manager. Bill Kuhn, Commercial Banker, was unable to make the meeting, but provided his input prior. The committee supports Paladin Data Corporation’s request for funds in the amount of $32,000. The Due Diligence Committee believes their projections meet the DCFL requirements. They are an established Bend company that plans to continue to grow their business in Central Oregon. Their long-term employment record indicates a favorable work environment and they have plans to add additional facilities and skilled, family wages jobs. In the event that they are not able to execute their growth plans, they have the current cash flow to quickly pay back the fund. EDCO is recommending Deschutes County award $32,000, or $2000 per job created, over 24 months and retained for an additional 12 months following the application date. Conditions include: • Company hires 16 full-time positions by April 16, 2015 and maintains total employment of 43 local employees until April 16, 2016 • Providing quarterly employment updates and the ability to inspect complete financial statements from award date through termination of the yet-to-be executed agreement with Deschutes County. Failure to meet the above provisions would result in partial or full repayment of the loan, with interest.