Community Developments Investments (November 2018)
Falcon National Bank: Financing Wireless First, Then Broadband in Rural Minnesota
Falcon BankFalcon Bank, as a community bank, supports local parades and financed a company that provided first wireless, then fiber-optic internet service in its economically stressed community.
Janet Fix, Community Affairs Analyst, and Timothy Herwig, District Community Affairs Officer, OCC
When Falcon National Bank was asked in 2009 to lend to a small, locally owned wireless phone company, the community bank in Foley, Minn., had been in business just six years and had not previously loaned to a startup telecommunications company.
Unbeknownst to either party at the time, that first $50,000 loan request would lead to a long and beneficial banking partnership with Palmer Wireless, a new Clear Lake, Minn.-based telecommunications company. Falcon Bank’s experience with the borrower—and federal small business loan guarantees—gave the bank the confidence to help finance the development of a broadband network that would bring high-speed, reliable internet to the bank, residents, schools, and businesses in the underserved, rural area located in central Minnesota 50 minutes north of Minneapolis.
Over the years, Falcon Bank made seven loans to Palmer Wireless totaling $1.2 million. The U.S. Small Business Administration (SBA) guaranteed each loan through its 7(a) Program1 for a total of $806,000.2 In May 2018, this mutually beneficial partnership paid off unexpectedly when Palmer Wireless was sold to a larger telecommunications company.
Before the sale, Falcon Bank financed a number of innovative initiatives undertaken by Palmer Wireless that first improved wireless capabilities. In 2015, the bank’s loans financed the company’s shift into fiber optics and the installation of a broadband network benefitting the rural communities in Benton and Stearns counties, including Duelm, Palmer, Becker, and Big Lake.
Falcon National Bank financed the following projects:
Looking back, Falcon Bank could have just as easily have rejected Palmer Wireless’ first $50,000 loan request.
Large national banks with branches in St. Cloud, Minn., had previously declined to lend to Palmer Wireless. “They looked at us like we were crazy,” said Laura Kangas, who, with her husband, Albert, founded Palmer Wireless. “When we started our business, nobody understood what we were trying to do.”
Falcon Bank, however, took the time to understand the company’s business plan and evaluate the owners’ commitment to the needs of the rural community. The couple had long lived in Palmer Township, and Albert had decades of experience in the cellular phone business with a national company and as chief operating officer at a rural technology carrier. Most importantly, the bank recognized that Palmer Wireless would be able to address a key community economic development need.
“As a community bank, we really focus on trying to help the communities that are surrounding us,” said Jessica Bitz, Falcon Bank’s market president, who worked closely with Palmer Wireless from 2009 through 2018 in making seven loans.
“One of the big struggles in rural areas is broadband access,” Ms. Bitz said. “So, we looked at these loan requests from a different perspective and thought, ‘How can we make this work?’ ”
The first step was to minimize Falcon Bank’s risk by securing SBA 7(a) loan guarantees. In addition, on the first loan, Falcon Bank took out a lien on the equipment owned by Palmer Wireless and a second mortgage on the couple’s home.
The SBA 7(a) guarantee is designed to help creditworthy small businesses obtain financing when they cannot otherwise obtain credit at reasonable terms. The guarantee helps banks lend to small businesses that have sufficient cash flow to repay loans but may not have the necessary collateral or credit history typically required by the banks’ lending policies. SBA 7(a) guaranteed loans can be used to purchase machinery, fixtures, and supplies; make improvements to land and buildings; finance receivables and augment working capital; acquire and start businesses; and refinance certain existing debt.
Falcon Bank and Palmer Wireless agreed: Without the SBA guarantees, the partnership would not have gotten off the ground. “It was a little riskier project, so we definitely wanted to have that SBA 7(a) guarantee behind us,” Ms. Bitz said. “The biggest struggle for banks is getting your arms around projects without collateral.”
Given its success in financing Palmer Wireless, Falcon Bank encourages other community banks to carefully evaluate loan requests from local telecommunications companies in the hope that they, too, can bring quality, high-speed internet access to their rural communities.
“Understand the needs of your communities … and take full use of the federal and state programs available to you,” Ms. Bitz said. “Thanks to the SBA 7(a) loans and Minnesota’s Broadband Initiative, our project with Palmer Wireless succeeded.”
1 The SBA’s 7(a) Loan Program is authorized by section 7(a) of the Small Business Act and is governed by the regulations outlined in 13 CFR 103, 105, 120, and 121. For more information about the 7(a) Program, see the related Community Developments Fact Sheet.