Potential new proprietor has a similar successful business in another town, Hoiseth says

    When Cofé coffee bistro owner Dawn Bjorgo announced via social media recently that the business would be closing on Saturday, Sept. 15, she expressed hope in her Facebook post that someone would step in to continue to offer a “very unique, quaint coffee option” in the community.

    Turns out, before Cofé even closed its doors, CHEDA Executive Director Craig Hoiseth was already talking to someone who operates a successful coffee-related business in a community in the region and is looking to expand, preferably into Cofé’s location along University Avenue. Tuesday, Hoiseth updated his board of directors, who are greatly interested in what transpires next, given that Dawn and Harold Bjorgo owe approximately $68,000 of an original $100,000 loan through CHEDA’s revolving loan program for Cofé as well as another business they owned that closed previously, the boutique consignment shop, Cycle of Threads.

    Liking the idea of someone else stepping in to operate a similar business in the Cofé location, board members were open to the idea of basically continuing forward with $68,000 in second-position financing with the new business owner. But if the new proprietor is unable to secure other financing from a primary lender, CHEDA Board members were a bit more hesitant about potentially increasing CHEDA’s financial exposure to the $100,000 to $110,000 level, with CHEDA stepping into the first, primary lending position.

    Asked if such a lending scenario would be precedent-setting for CHEDA, Hoiseth said it would not be, and he mentioned financing with Wonderful Life Foods as a primary example of CHEDA taking a more lead role in a business loan scenario.
    
Opened in 2013, refinanced

    The Bjorgos opened Cofé in 2013 as a coffee bistro, of sorts, with a breakfast and lunch menu. As their finances became strained, the CHEDA Board revisited their loan on multiple occasions, and some time ago granted their request to make interest payments on their loan, but nothing toward the principle balance. At one point, the Bjorgos added craft beers and wine to their menu and some live evening entertainment, but as their budget grew tighter, they eliminated dinner and evening hours.

    “They’ve paid down a lot of debt, and our board has been very proactive in assisting them with no principle (payments) and extending them out,” Hoiseth said.

    CHEDA has been “actively recruiting” someone to step in, he continued, with the idea of trying to avoid the Bjorgos’ primary lender stepping in and selling off the equipment and inventory in the space for “pennies on the dollar.”

    And a willing, worthy “someone” has emerged, Hoiseth said. Without identifying the entrepreneur, he said they currently operate a coffee-related business in another community that’s similar in size to Crookston and possibly a bit smaller, and they have recently expanded into roasting and selling their own beans. Now, they’d like to grow further, into Crookston. Talks so far have progressed nicely, Hoiseth said, but the major issue that will need to be resolved soon is financing, whether it relates to the $68,000 exposure CHEDA currently has, the presence or lack of presence of a primary lender for the new business owners, and how much of personal financing they are willing to include as part of any deal.

    “I’m optimistic we have a good fit to go into Cofé and retire that debt,” Hoiseth explained. “CHEDA would have to take that debt, transfer it, and make at least that much available to this next proprietor.”

    By the time the CHEDA Board sits down again in October, Hoiseth said he figures to “have a lot more ground covered” with the potential new business owner. “I need to know if the board is willing to transfer that financing onto a new proprietor, or maybe increasing it, in the event a primary lender is not interested in continuing it,” he said.

    The message he received from his board is that they’re definitely interested in transferring the $68,000, but they want more information before they green-light an increase that would put CHEDA in the primary lending position. (Hoiseth did note that if CHEDA did have any primary lending exposure as part of a new financing agreement, then CHEDA would have control over the equipment and inventory in the business.)

    Although the potential new proprietor apparently has a successful track record, some in the Valley Technology Park conference room on Tuesday wondered why they’d have any better odds than the Bjorgos of being successful.

    “Is there a magic button for the new people to make the business better?” Mayor Wayne Melbye wondered. “Were (the Bjorgos) doing something wrong or missing the boat? Were they overpaying staff, taking too much of the proceeds themselves? If we do this again, what makes you think it’s a viable operation if (the Bjorgos) couldn’t make it?”

    To that, Hoiseth, while stressing that he wouldn’t “say anything negative” about the Bjorgos, added that “I do think these new people will be more adept at making this a profitable venture.” He added that they’d be open in the evenings as well. They are currently open in the evenings at their other business and are successful, Hoiseth noted.

    Hoiseth said he doesn’t want to compete with local banks; he said he wishes they’d provide all the financing so CHEDA could stay out of it. But that doesn’t always happen, he continued, and that’s where CHEDA’s revolving loan funds come into play. He added, too, that CHEDA typically is ideally suited as a “gap” lender and not “THE” lender, but that sometimes unique circumstances call for CHEDA to be more aggressive.

    Developer Jeff Evers owns the Cofé building. Hoiseth said that the new proprietors would be expected to keep the Cofé name for the new business.

    City Council member Jake Fee said he’s comfortable with increasing CHEDA’s exposure if it means Cofé reopens and has a better shot at success. “If we don’t do that, we’re out $68,000 and we’re down a business,” he said.

    While understanding other board members’ more measured support and desire for more information as part of the due diligence process, Hoiseth said an opportunity to give a closed business new life has presented itself, and needs to be seriously considered. “We’ve had Cofé here for five years and it’s been a great business for Crookston, and that’s worth something,” he said. “I realize it’s our job to steward the money, but let’s not forget what this business brought to the community for five years.”