Minnesota bank honored for development program

Northwestern Financial Review, May 1-May 14, 2002 by Dullum, Justin

Duke was a tow truck driver in Duluth, Minn., with no business experience. But he knew there was space in Duluth for a better towing company. He knew the job in and out; he just needed money to buy his own truck.

Enter Park State Bank and its Designated Investment Fund. The program, developed by Park State and Duluth's economic development council, utilizes money from "depositors who are concerned about the future of their community," said Dale Lewis, president of Park State Bank.

Park State's customers can request their deposits be placed in the Designated Investment Fund, or DIF. The bank then commits to lending that money for projects within Duluth. Since the program's inception in 1996, the pot has grown to $4.2 million, with $3.7 million of that amount loaned out.

Duke got his truck. Since then he's bought four more and has several employees. "He couldn't find anyone to give him a listen, much less a loan, until he landed in Dale's office one day," said Larry Fortner, DIF committee chairman. "Next thing you know, he's got a growing business. This wouldn't have happened without the fund and the ear of Dale Lewis."

The impact the DIF has made on start-up businesses like Duke's Towing was recognized by the American Bankers Association in March. Park State received the ABA's Main Street Award, which is annually given to one bank that demonstrates outstanding community development initiatives.

In six years, around 50 Duluth businesses have received loans from the fund. The loans are granted for a variety of things from small business expansion, start-up and renovation to housing and sustainable agriculture. But Lewis said the fund's growth has stagnated. "When we started, we had significant initial growth. More recently, growth has been very slow. Part of that has been the recession," said Lewis.

The fund's committee has decided to jump start growth by creating an education program. Keeping in line with the fiend's mission, the new initiative will not only promote the fund, but financial literacy as well.

"The committee has decided we need to spend some time on this and leverage what resources we have to focus on identity theft and financial literacy," Lewis said.

Former, who, in addition to chairing the DIF committee, edits and publishes the Senior Reporter, said the lack of growth might be attributed to a broader public lack of knowledge. "The community as a whole is woefully ill prepared to deal with the complexities of today's financial demands. We would like to use the program to both help raise the financial literacy of the community and therefore raise awareness of the value of the DEF as it functions through a community bank," Fortner said.

The committee has yet to solidify the details of the educational campaign, but Fortner, who also currently publishes the fund's newsletter, said the effort would be sustained. "We don't want to take one large shot at publicity and then let it die down again. We'll find ways to get things like the newsletter in the hands of the people of Duluth."

In 1995, a Duluth community advisory group began shopping the DIF idea around to several banks. After a series of interviews, Park State Bank was selected to operate the find. Lewis said the logistics of the fund are not complicated and do not create any additional regulatory burden. "The bank does make an extra effort with the loans, but it's not a complicated one," Lewis said. The loan amount is capped only by the bank's legal lending limit.

The bank, which currently has $27 million in assets, works with potential DIF borrowers to help build a solid business plan and credit rating. It often works with other economic development agencies. The borrower's plan is then presented to the committee, which makes the final decision on whether to use DIF money.

Lewis said the loans differ little from regular small business loans. "We'd probably work with you anyways. But with DIF applicants, we work extra hard to find ways to strengthen credit that would otherwise not qualify. We look to the small business administration and other economic development lenders that can come in behind us," said Lewis. "For the bank, it's more of a commitment to the depositors that their money will stay here in Duluth."