Members of the Grand Forks Growth Fund, meeting for the first time as the Accelerate Loan Review Committee, decided further diligence is needed before granting a loan to tech startup business.
Committee members, at a special meeting on May 26, agreed to run background checks on First-i, a drone company with office space in the city’s nascent tech accelerator, inside the downtown Herald building. City staff will also check for any litigation pending against the company, and committee members intend to ask company officials further questions about their capital plans, before granting them a loan.
The heightened scrutiny stems from the nature of the Accelerate Loan program itself, the aim of which is to provide working capital to newly-minted tech companies. The program carries more risk for the city, because it is the sole entity granting the loan. Business loans normally OK’d by the Growth Fund, and then again by the Jobs Development Authority, are frequently made in conjunction with a commercial lender, which has already done due diligence on a business. Other business loans, including Startup Grand Forks loans, are of a sufficiently low amount and not likely to pose much of a financial threat to the city, should the company face difficulty.
“If you are acting like a bank …” said City Attorney Dan Gaustad, “Act like a bank,” finished Meredeth Richards, director of community development.
At Wednesday’s meeting, committee members first met with First-i officials before going into an hour-long session, closed to the public, to discuss the company’s financial and proprietary information. When the background checks have been completed, those officials will appear again before the loan review committee to answer questions about the company’s future plans, including cash flow, and ability to repay debt.
First-i is a company with plans to sell drones that are tethered to specific buildings. These drones act as surveillance units in an emergency situation, and then relay that information to first-responders, a proverbial eye in the sky for law enforcement, fire and emergency response workers. The company decided to get underway in North Dakota for a variety of reasons, including the friendly regulatory climate for unmanned aerial systems and UND’s well-established reputation in aviation and engineering.
“You guys have, to your credit, focused, on ‘how do we build a cluster of expertise in smaller businesses that will grow into bigger businesses that will then become self-fulfilling, in terms of becoming a center of excellence?’” said Jon Gaster, managing member of First-i. “I think you're already halfway there on the UAS side, and certainly now on the aviation side, so that attracted us.”
The city signed off on the Accelerate Loan program earlier in May. The program is capitalized by 10% of the JDA’s economic development portfolio, with a soft cap of $2 million. The maximum amount that can be loaned to a startup business is $250,000, and the note carries a term of five years at 2% interest. No payments are required for the first three years, and a balloon payment is necessary in the fifth year for the remaining balance of the loan.