It takes team of lenders for small firm to grow

  • Article by: NEAL ST. ANTHONY , Star Tribune
  • Updated: October 14, 2012 - 4:02 PM

A hydraulics manufacturer hoping to expand hit a tight credit market. But the CEO's record of doing the right thing paid off.

Paul Johnson is a soft-spoken entrepreneur and manufacturer who shares profits with his workers, competes with cheaper imported products and doesn't have time to congratulate himself.

Still, he deserves a pat on the back.

Aggressive Hydraulics broke ground last week on a $5 million plant in Anoka County after a two-year search for expansion capital in a still-tight credit market.

Johnson, 50, started Aggressive Hydraulics with several partners after he was laid off by a larger manufacturer during the 2001-02 recession. The new, 63,000-square-foot manufacturing complex in East Bethel (about half the size of a Target store) will allow Aggressive Hydraulics to increase production to meet a growing order book, operate more efficiently and add five or more workers in 2013 to its 48-employee payroll. Annual sales are about $13 million, Johnson said.

Aggressive will vacate two smaller buildings in Blaine it has sold in order to open the new plant next spring.

"The lion's share of our employees live in this area," Johnson said. "We're near three high schools ... and there's a good technical school nearby. There are a lot of kids who can't afford to go to college. We train our workers and we're working on apprenticeship programs."

Aggressive makes and services heavy-duty hydraulic cylinders for new and used equipment made by manufacturers of bailers for garbage and recycling outfits, agricultural and forestry harvesters and oil-field equipment. Some of its larger U.S. competitors import lower-cost product from China. Aggressive, which has added five workers this year, says it makes up the price difference with quality, good service and rush-order repairs that can't be done from overseas.

Johnson pays an average of $20.50 an hour to shop workers, plus medical benefits and vacation. He and the other owner-managers pay themselves a modest $75,000 a year. They are in the same profit-sharing plan as the other employees.

"We're trying to build a quality business," said Johnson, a farm kid who has worked in manufacturing since he graduated from the University of Wisconsin-Stout in 1980. "We passed out $130,000 in incentive payments for 2011, a good year. Nobody got less than $1,000. We have steak lunches, a Christmas party at a nice hotel [and] meet with the employees every month to tell them what's going on. We also let them know when there's an angry customer."

Aggressive's recent attempt to raise expansion capital may explain why this economy is adding jobs too slowly. While huge banks and corporations hoard cash and head for a third year of record profits, they employ fewer employees than five years ago, thanks to improved technology and more productive workers. Even for good small businesses, there's still a credit crunch, thanks to tougher regulators and cautious lenders. That has restrained expansion -- and employment of more working-class folks.

At Aggressive, it took a community bank, the small town of East Bethel and a Minneapolis nonprofit lender to assemble the company's long-sought financial package.

Roger Hamilton, senior vice president at St. Paul-based BankCherokee, the lead lender and Aggressive's banker for several years, calls Aggressive a good company with "a strong track record and quality management team and we have been eager to help them find space ... and provide for continued growth."

Aggressive selected the East Bethel site because of its location and expansion opportunity. But the real estate appraisal came in at $3.65 million -- too low to justify a hoped-for loan.

Johnson and the other owners scaled back the project and put down $800,000, about 20 percent. That money comes essentially from proceeds from the sale of properties in Blaine where the company started out.

BankCherokee, tapping a U.S. Small Business Administration and Minnesota entrepreneurs fund, helped fashion a debt package of about $3.6 million. The Minneapolis-based Metropolitan Consortium of Community Developers (MCCD), which typically helps finance hard-to-do inner-city deals, loaned $300,000 and the City of East Bethel essentially lent $225,000, which will be paid off over several years though higher property taxes on the plant.

Iric Nathanson, a veteran project manager with MCCD, said: "Before the economic crash, appraisals ... were always on the high side. The pendulum has swung. Appraisals always seem on the low side. We can, at times fill the 'appraisal gap,' as long as the cash flow will be strong enough."

Johnson said he's turned down seven-figure offers to sell his business to private equity firms he said would move manufacturing offshore.

Best wishes to a Minnesota entrepreneur, his financiers and a growing workforce that plans to deliver great product and performance for years to come.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

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