Guest post by Linda Salmonson, Economic Development Manager of East River Electric Cooperative Inc., Rural Electric Economic Development, Inc.
Photo: Tulare Country Meats sellers with buyers
South Dakota’s rural CDFIs collaborate often to help businesses in small towns to grow. One example is Tulare Country Meats, a locker and custom meat processor in the small town of Tulare, SD.
The owners started talking about selling their meat processing business years ago. The locker provides custom processing of domestic livestock such as beef, pigs and sheep as well as wild game. It operates out of a leased facility in Tulare, which has a retail space in the front. Tulare Country Meats also has a shop in Huron (a town of over 10,000) to enable more direct-to-consumer sales.
In November of 2017, Nathan, a long-term employee, decided to purchase the business. He contacted Beadle and Spink Enterprise Community (BASEC), a nonprofit that serves seven small communities in the area with financing and technical assistance. This was his first time owning and financing a business and a local bank was reluctant to take the risk.
Nathan got an early start in his career. As a child, he would visit Tulare Country Meats, the butcher shop where his dad worked, after school. When he was about eight-years old, he was told that if he was going to be there, they were going to put him to work. “I’ve been here ever since,” he says. He had a solid financial track record, and owned his home and vehicle.
BASEC reached out to the REED Fund because they knew they didn’t have the resources to finance the full $760,000 purchase price. REED suggested that BASEC also bring in Grow SD and Northeast Council of Governments (NECOG) loan funds to share in the deal and also spread the risk. The groups worked together, sharing application documents and financial statements, with BASEC in the lead. This streamlined the process for the borrower.
The transaction looked like this:
|BASEC||$60,000 mortgage on Genzler’s home to provide cash equity|
|Unsecured debt from sellers||$200,000|
(all at 5%/10 year term with shared collateral on business equipment, 2nd on inventory, personal guarantee and subordinate mortgage on home)
|Bank LOC (lien on inventory)||$20,000|
Tulare Country Meats hasn’t changed much since the Nathan purchased the business. It employs 13 people, including the owner. Most of the employees stayed on with the transition of ownership. Customers can expect to find the same high level of quality meats and processing services at the locker as in the past. “It’s done the way it always has been. They taught me how to do it. Anything I know how to do, they taught me,” he says.
The business is known for its jerky and wide variety of meat sticks but it has a range of offerings such as chicken, steaks and brats. “When people come here they buy a little of everything. Most of them are return customers,” says Nathan.
The retail portion of the Tulare Country Meats business is unique. He points out that there are other meat locker plants in the area, in Redfield and Mellette, but they only do processing, not retail sales.
This niche helps make Tulare Country Meats a success. Nathan points out that if his business wasn’t in Tulare, a town of about 200 people, customers would have to travel elsewhere to buy and process meat, taking money out of the community — to the town’s detriment. “If you don’t have businesses like this in a small town there won’t be a small town anymore,” he says.
It was the collaboration of four loans that, when combined, enabled Genzler to buy the business. The 28-year-old says this financing was crucial. “I’ve lived in Tulare all my life but I don’t have a lot of money saved up,” he explains. “Without the lenders offering help with the loans, I would never been able to afford it.”
PS. He repaid his line of credit with the bank in the first few months and now has adequate operating capital generated from business sales. Life is good in Tulare and the jerky is pretty tasty, too.