Finding funding for future growth
Sept. 1, 2012
by Dan Malovany
Back in 2008 and 2009, when the rest of the nation found itself in the throes of a recession, New Horizons Baking Co. experienced some of its best years since Tim Brown, along with partners John Paterakis and Peter Grimm, acquired the bakery in 1995. With the family-owned business going so well, the company needed to boost capacity to keep up with demand and improve production efficiencies to lower overhead and stay competitive in the market.
To accomplish this, the Norwalk, OH-based supplier of buns and English muffins to 1,130 quick-service restaurants in five states began developing plans to remodel the bakery, add a rail spur to better control volatile flour costs and replace aging equipment. For instance, its conveyorized proofer-and-oven system was more than 40 years old.
Additionally, the company started searching for a site to build a bakery in nearby Cleveland to handle new business through its newly formed Genesis Baking Co. subsidiary. Even though it owned 25 acres in Norwalk, expanding at that location didn’t seem feasible at the time because a second English muffin line would trigger costly air emissions abatement requirements.
To get the projects rolling, Mr. Porter called Ellen Heinz, director, Norwalk Economic Development Corp., to check on available government funding and other incentives. Ms. Heinz, whose organization spends 85% of its resources on business retention, jumped at the opportunity to help. That’s because in January 2009, Huron County had 18.3% unemployment, the highest in the state, and with around 160 employees, New Horizons was one of the city’s biggest employers. “When Mike called, that was a game changer to see how we can step up and help them out,” Ms. Heinz recalled.
The perfect match
During the next two years, she and Mr. Porter worked with local and state officials to secure $1.2 million in grants to help cover costs for the rail spur project and replacing the proofer and oven. In the end, the bakery also received millions of dollars in low-interest financing and other tax incentives that made it feasible to invest about $15 million to expand in Norwalk, keep its Genesis Baking business there and add 32 jobs to the local economy.
“For New Horizons to leap forward and say, ‘We’re going to reinvest here,’ that brought a lot of confidence and stability in the community and the area,” Ms. Heinz said. “It really got people excited and more focused on the positive.”
Initially, Mr. Porter inquired about potential funding for the $450,000 rail spur project. New Horizons wanted to install the spur to slash the cost of sending trucks to a Cleveland flour mill — the only one in the area — 12 to 14 times a week. In addition to saving on fuel and labor, adding a rail spur eliminated any potential driver safety issues and allowed the bakery to seek competitive bids from other millers throughout the region.
After a few calls, Ms. Heinz found $220,000 in state funds for the rail spur initiative, but Mr. Porter had to work quickly to meet the application’s deadline, and New Horizons needed to commit matching funds to get the financial assistance from the state’s Industrial Site Improvement Fund. “All state programs in Ohio required matching money by New Horizons,” she noted. “With most grants, the higher you rank depends on the amount of matching money you are willing to provide.”
With this project, the company provided 62% of the project cost. In return, the bakery received $170,000 grant from the Ohio Department of Development (ODOD) and a $50,000 low-interest loan from the Ohio Rail Development Commission.
Next, the company applied for a Targeting Industry Efficiency Grant that used federal funds from the American Recovery and Reinvestment Act of 2009 to assist with energy-saving projects. The grant would offset the costs of installing a new BakeTech proofer and oven system as well as an Air Management Technologies (AMT) waste heat recovery system. Specifically, the AMT system captures waste heat exhausted from the oven stack and uses this waste heat to heat the proofer. In addition to saving energy, the heat recovery system reduced the plant’s ethanol emissions from the elimination of a boiler system which was previously used to heat the proofer.
The ODOD’s Energy Resources Division awarded New Horizons a $1 million grant, the maximum amount under the program. In return, the company agreed to fund 71% of the project cost, which was completed in 2010. “The matching wasn’t a requirement for the grant, but because of the matching funds, it helped us get it,” Mr. Porter said. “It had a significant impact where the more you matched, the more points you were awarded.”
Ms. Heinz compared the $1 million grant to winning the lottery, but, she added, the process of calling state agencies to check on financial assistance alerted her to a number of other opportunities for New Horizons. “We were there to assist or ask questions of the state,” she said. “Mike just did a tremendous job of taking the reins and saying, ‘We’re going to do this.’ ”
Through ODOD, Genesis Baking received $6 million in low-interest Recovery Zone Economic Development Bonds for additional expansion. In return, the company agreed to create 25 jobs over three years, and Genesis Baking met its commitment within six months of completing the $8 million addition in 2011.
New Horizons also received an Enterprise Zone Agreement that provides tax abatement on new improvements to the facility. The agreement didn’t modify the bakery’s existing tax base but provided property tax exemptions for the expansion. “They finished that application and got it back to us in one day, which is an all-time record,” Ms. Heinz said. “In fact, we have somebody who administers our enterprise zone program for our multi-county area, and he’s never had one returned that quickly.”
In all, the company received $9 million in financial aid for the projects that more than doubled the size of the bakery from 52,000 sq ft to 125,000 sq ft. “We knew we needed to expand, but we probably wouldn’t have expanded in the time frame that we did without the funding,” Mr. Porter said. “It would have probably taken us a lot longer without the funding.”
Committing to community
In the past, New Horizons paid for capital expenditures out of existing cash flow. Taking on debt involved a different mindset for the company, according to Mr. Porter.
“We were in the middle of a recession, and we could have been stagnant and sat and blamed the economy for not growing, but that’s not how we do business,” he said “We didn’t want that excuse. We got aggressive and got innovative.”
Many companies don’t want to borrow to invest. “But in reality,” Ms. Heinz said, “to leverage your existing investments and to be a strategic thinker are what you sometimes need to do.”
When seeking government funding, she recommended businesses take a layered approach by making multiple calls to different agencies to check on available grant programs and potential low-interest loans. In doing so, New Horizons tapped into additional training dollars for starting up its expansion.
Ms. Heinz also suggested checking with energy-efficient equipment companies and other suppliers to identify government assistance. “They will know if there are program dollars attached because that helps them sell their products,” she said.
The company also needs commitment from its leadership. According to Mr. Porter, Mr. Brown has consistently challenged his management team over the years by asking them, “How big do you want to be?”
“What’s really important is that New Horizons came to the table,” Ms. Heinz said. “They were always shaking the bushes and looking for what’s out there. Sometimes, the disconnect that I see is that many companies are looking for grants and loans, but they don’t have the commitment and time to invest to really move things forward. That’s what New Horizons did.”
By expanding in Norwalk, the company not only added jobs, but it also avoided the cost of adding another layer of management to oversee a bakery in a different location. Likewise, the city has benefited. Through its aggressive focus on job retention and economic development, the community’s unemployment is now just under 10%, or 16th in the state, according to Ms. Heinz.
For New Horizons, Norwalk proved its mettle. “As Tim put it recently, ‘Norwalk is home,’ ” Mr. Porter said. “They supported us in ways we didn’t know were available. We made the right decision to expand here.”