Bankruptcy leads to changes

Published 12:00 am Saturday, June 15, 2002

The city of Albert Lea will scrutinize loan applications more closely after a business went bankrupt and left its $92,548 loan balance unpaid.

An independent consultant who specializes in examining businesses will look over the books of any company that applies for a city economic development loan, including those of two who have recently applied, said City Manager Paul Sparks.

&uot;We’re going to try to be a little bit more secure and take another step,&uot; Sparks said.

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The city has hired Les Denamur, a consultant from Albert Lea, to make recommendations on future loans. Before, the city had relied on analysis by its planning department and Sparks, using a computer program to crunch the numbers.

&uot;We’re not really in the banking business and we don’t make enough loans to really get good at it,&uot; Sparks said. He estimated that the city makes two or three loans a year amounting to around $300,000.

In the case of the Carlsen Companies, which went broke four months after being approved for a $125,000 city loan, the city obtained financial records and examined them as they do for any other loan, Sparks said.

&uot;We don’t know if we missed something,&uot; Sparks said. &uot;We don’t think we did.&uot;

He pointed out that Carlsen had also received credit from a bank and equipment suppliers, who did not see a reason to predict financial trouble for the company.

&uot;It happens sometimes. It’s just unfortunate,&uot; Sparks said. &uot;There was no way to see this coming.&uot;

When Carlsen went bankrupt, the bank was first in line to collect on its loan, and got some money from the sale of the company’s equipment. But that wasn’t even enough to pay the bank, and there was nothing left for the city to collect, Sparks said.

Two businesses, KleenTec and Vasco, have asked for loans this year. The city tentatively approved the loans &045; for $125,000 to Vasco, a machine shop, and for $150,000 to KleenTec, a subsidiary of Lou-Rich &045; in May.

In October 2001, Carlsen Companies asked the council for its loan to pay for an expansion at its Crossroads Farms subsidiary, a meatpacking operation located in the Jobs industrial park. Under terms of the loan, the company had two years to fulfill job-creation requirements. The company told the city it expected to create as many as 40 new jobs with wages starting at $11.48 an hour, but Sparks said the expansion did not get far before the bankruptcy in February.

The money for all the loans comes from the city’s economic-development revolving loan fund, which is furnished by the state of Minnesota. When businesses pay back their loans, the money goes back into the fund to be used for other loans.