Lending to manufacturers on the rise

Article by: SUSAN FEYDER , Star Tribune
Updated: March 2, 2012 - 8:53 PM

Area banks say that they are financing more new equipment and factory expansions for manufacturers.

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General Manager Pat Pastoors in new space at Dynamic Sealing Technologies Inc. in Andover

Photo: Joel Koyama, Star Tribune

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It was only three years ago that JBT Machining saw its business fall more than 50 percent as the recession made it tough for some longtime customers to pay for the parts it supplies.

These days, the Ramsey-based company's sales are up 70 percent and it's considering bank financing to add up to 12,000 square feet to its factory, doubling its space. Owner Jeff Traun already has gotten loans from U.S. Bank to buy $850,000 in new equipment.

"I can see that we have some really good opportunities to grow," said Traun, whose business makes many of the parts that manufacturers use to build their products.

Rebounds like JBT's are keeping lenders busier. The Federal Deposit Insurance Corp. reported this week that commercial and industrial borrowers caused loan balances in the fourth quarter of 2011 to jump 1.8 percent from the third quarter, the biggest increase in four years. Lending to small businesses like JBT increased for the first time since 2010, when the FDIC began tracking data on those smaller customers.

"The manufacturing industry has gotten healthy again," said Craig Veurink, regional small business sales manager at U.S. Bank.

Loan balances for the bank's machine tool equipment group jumped 78 percent last year, he said. Outstanding balances on lines of credit by manufacturers more than doubled. The boom in lending activity suggests expansion, not just periodic investment, Veurink said.

In addition to buying equipment, manufacturers also are borrowing to renovate existing buildings, purchase new ones, or buy land to build their own, said Darin Zielsdorf, a vice president in the Twin Cities office of Wells Fargo. A recent report by Cushman & Wakefield/NorthMarq found occupancy of Twin Cities-area industrial space edging up and some new space being added with build-to-suit projects.

"It's coming from a broad array of industries," said Zielsdorf of the demand from manufacturers seeking financing for expansion. He added that Wells Fargo's business loan activity is ahead of its goals so far this year.

Dynamic Sealing Technologies Inc. used its own cash to finance a recent $3 million expansion of its plant in Andover, said Pat Pastoors, Dynamic Sealing's general manager and controller. But the company, which makes mechanical devices used to keep production lines moving, has increased its credit line at U.S. Bank. The company will use it to buy new equipment for the addition, which more than doubled its space to 80,000 square feet.

Dynamic Sealing's sales rose about 10 percent to $20 million last year, and requests for bids on new jobs this year are up sharply, Pastoors said.

The expanded credit line can also be used to invest in raw materials or tooling, Pastoors said. "If we get a huge new customer, we want to be able to do what it takes to get ramped up and ready quickly," he said.

Absolute Quality expansion

Minneapolis-based Absolute Quality Manufacturing also financed a recent expansion of its production space on its own, but has received bank financing for larger investments in new equipment and for operating capital. Absolute's factory sits in the shadow of Target Field and makes products that include electronic components for the ballpark's scoreboard.

The new production space in Absolute's building previously was leased to the Downtown Council, which used it for storing floats used in the Holidazzle parade.

"They were a great tenant and it was difficult to walk away from that [rental] income, but we are planning for growth," said Jeff Zoubek, Absolute's executive vice president. Sales rose 15 percent last year, and the company has set a goal of 12 percent annual sales growth for the next three years.

The expansion is allowing Absolute to reconfigure its production operations to increase operating efficiency. Meanwhile, at JBT, the added space gives the company flexibility to work on more large jobs simultaneously, Traun said.

Flexibility -- and the expectation of growth -- also is a key advantage of the new addition at Dynamic Sealing, Pastoors said. "We designed it with one wall that can be easily taken down if we choose to expand again," he said.

Susan Feyder • 612-673-1723

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Pat Pastoors, general manager of Dynamic Sealing Technologies Inc. of Andover, at the plant. DTSI recently doubled its space to about 80,000 square feet. It makes components that are used on factory production lines.

Joel Koyama, Star Tribune
Dynamic Sealing’s addition. Sales rose about 10 percent to $20 million last year, and requests for bids are up sharply, Pastoors said.

Joel Koyama, Star Tribune