Breaking the Bank

Fiscally sound businesses still sometimes lack the capital to advance. Because some conventional lending institutions don’t understand recycling and have not provided the funding needed, many municipalities provide the extra boost these established businesses, nonprofits and startups need to close the recycling loop. Strengthening such operations diverts materials from landfills and benefits local communities.

A number of states offer such programs, including Pennsylvania, Massachusetts and Indiana.

PENNSYLVANIA: DEVELOPING INFRASTRUCTURE. To forge strong markets for recyclable materials, Pennsylvania Gov. Edward Rendell developed the Recycling Market Infrastructure Development (RMID) Grant Awards in 2004, which the Pennsylvania Department of Environmental Protection (DEP) administers. The goal was to build market demand for secondary materials, create jobs and promote growth in the broader economy.

"Our feeling is the future of recycling depends in large part on increasing dependable and financially viable demand," Pennsylvania DEP Information Specialist Charlie Young says. "We’re seeing some tremendous results in innovations in the brief life of this program."

As a result, several companies are creating saleable products and diverting materials from Pennsylvania’s landfills. For example, Young says, "Everlast Plastic Lumber will increase use of recycled plastics from 2.5 million pounds to 6.2 million pounds. Pandya of Cambria County annually diverts more than 528,000 pounds of plastics from landfills. All their recycled plastics are purchased in their local region, they increased wages by $95,000 and they purchased equipment from a local metal fabricator, certainly having a direct effect on our economies." He adds, "They purchased a shredder which enabled them to commingle collections and broaden their product line to get to much higher levels of sales."

As of 2006, DEP leadership responded to industry stakeholders’ requests to include startups in the grant funding as well as existing for-profit and nonprofit organizations. The grants are very competitive and applications are thorough. Cost reimbursement is specifically designated for increasing production and is only for companies that "process/package/transport recyclable materials" destined for manufacturing.

Grant recipients can realize tremendous gains in production, such as a two-fold capacity increase, in some cases. Building products and fuel cube maker Waste Not Technologies expects to increase its input and production dramatically over the next five years.

Thanks to its 2005-2006 RMID grant, Pandya Inc.’s Green Division says it has increased its production by 100 percent.

Though other recycling grants are available through the DEP, the RMID grant establishes the viability of demand. "To make recycling a winner for Pennsylvania," Young says, "we need to establish that demand for materials to create new products and jobs and continue diverting at a higher rate to close the virtual circle."

Companies that have received the funding report great gains. Saylorburg, Pa.-based Waste Not Technologies had limited capacity to produce its solid plastic post and spilt rail fencing from post-consumer plastics. Though leery at first, Waste Not’s Patrick Kelley says the RMID grant process was a great experience. "We needed a second machine to get to the next level in work, improve product and dedicate each machine to separate products," he says. With only one machine, Waste Not’s workers had to continuously change over between the post and split rail processes. The new machine, purchased with grant money, enabled the company to have two dedicated lines.

Kelley says he is applying for another RMID grant to again increase Waste Not’s production capacity.

Everlast Plastic Lumber, Auburn, Pa., produces a 100 percent-recycled plastic wood alternative for outdoor decking. The company’s COO Tiffany Macaulay stumbled upon the RMID grant program while researching online. She says that she found the application straightforward and easy to understand, but that detailing the scope of the project was time-consuming. As a grant recipient, Everlast was also obligated to match 20 percent of the project’s cost.

The grant allowed the company to convert its existing plastics extruder into a continuous production line and to purchase a shredding unit.

Massachusetts, through its Recycling Loan Fund, has also put the emphasis on funding companies that consume recyclables. But the state also offers another option to recyclers in need of funding.

MASSACHUSETTS: INVOLVING PRIVATE INDUSTRY. The Massachusetts DEP dispenses funds to businesses through two avenues. The Recycling Loan Fund, in effect since 1995, provides competitive and low-interest rate loans for businesses that collect, manufacture or process recovered materials. The newer Recycling Industry Reimbursement Credit (RIRC) Grant program, established in 1999, covers the varied needs of processors and remanufacturers of recovered materials, including expansion and research, to an extent.

The Wakefield, Mass.-based Business Development Corp., a privately owned consortium of Massachusetts financial institutions, supplements at times and administers the Recycling Loan Fund (RLF) on behalf of the DEP. Five- to 10-year term low-interest loans of $50,000 to $300,000 are dispensed to diverse recycling operations usually to purchase equipment or to use as working capital. Those that handle food scraps or C&D materials qualify for loans of up to $500,000.

Loan program Deputy Director Greg Cooper says that this type of financial mechanism is not meant to compete with private financing and equity markets. "It’s to access adequate financing of those ineligible or unable to pay current private equity rates in order to do the work. It serves as gap financing and brings a comfort level to the bank, functioning to get the deal through so that expansion activity can take place," he says.

To be eligible for the RLF program, a company must demonstrate that it is able to pay back the loan and that it has sufficient collateral to secure it. There is some flexibility, though, Business Development Loan Manager Karen Michalski says. "The fund was designed to take on more risk than banks would. Often, collateral isn’t available to secure it, or a company had a bumpy year with a loss, and we could supplement, but not replace, bank financing."

Michalski adds, "We found recycling businesses tend to be misunderstood. Conventional lenders don’t get what they are doing and shy away from financing them. So the recycling loan fund fulfills an important role. It’s an education process."

Massachusetts RIRC programs addresses the markets for recyclable materials, but eligible companies vary by changing needs. Yearly applications specify qualifying materials. "We are trying to help those recyclable commodities that are having a particularly difficult time, specifically targeted at processing, not collection," Cooper says. Grant amounts range from $50,000 to $150,000.

Proposals are ranked by thoroughness and as added-value investments in an area. "How much additional material is diverted from waste stream, what type of material, how much money we’re leveraging, the future potential of the activity all weigh into making award decisions," Cooper says.

The grant trail blazes the recycling effort into new territory, benefiting businesses, communities and the state by fostering the development of markets that can be seen as too risky for private equity financing. The grants provide the initial startup or expansion resources in new and innovative areas where established infrastructure and markets are not robust. Such investments improve processing and remanufacturing capacity in Massachusetts, stimulating new end-use markets and new jobs.

Cooper says, "It strengthens the company, makes it more viable and better suited to participate in the community, whether paying their own taxes or through contributions to the community."

Indiana is using some of its grant funding to attract new companies that consume recyclables to the state.

INDIANA: ATTRACTING NEW COMPANIES. Businesses in Indiana that remanufacture recyclable materials into finished products or industrial feedstocks are eligible for loans through the Recycling Promotion and Assistance Fund (RPAF), established in 1990 as a component of the Solid Waste Management Fund. The RPAF is specifically sourced and expenditure restricted. The maximum amount of the loan is $500,000, which can be used for expansion of existing businesses or up to 50 percent of the cost of equipment.

Petoskey Plastics, however, received a $1 million RPAF Attraction loan, which is designed for businesses that want to establish a new site in Indiana or a new product line.

The Indiana Recycling Market Development Program offers financing for businesses preparing recyclables for use as a feedstock or in the manufacturing of recycled content products.

Though the Indiana Department of Environmental Management (IDEM) administers the funds, the Recycling and Energy Development Board and the Office of Energy and Defense Development determine the type and amount of material acceptable, technical feasibility, financial support and economic development benefits in making the final award decisions. Projects must be commercially proven and beyond the research stage, Public Information Officer Amy Hartsock says.

Besides assisting new and expanding recycling businesses and manufacturers that reuse materials and retrofit equipment for recycled materials, Hartsock adds, "Citizens benefit because recycling markets are sustained, waste is minimized and raw materials are conserved, all which are good for the environment. The community benefits not only economically from the sale of recyclables and avoided disposal costs, but also in quality of life."

"The application process was a bit onerous," says Workforcec Inc. CEO Gregg Keesling, "but as a result, the company exists." Through RecycleForce, the nonprofit provides computer demanufacturing and recycling. To receive the 0 percent loan, Keesling and Workforce President Tom Gray had to appear before a loan review board and at a public meeting as well as post a notice in the paper to explain what the funds were being used for.

Workforce had to find a 50 percent matching grant and was not able to purchase vehicles, only equipment, such as forklift, balers, scales, workstations, pallet jacks and tools. Most importantly, the company needed a labor force, creating jobs for 18 ex-offenders, a population that struggles to find work and is in need of reintegration into society.

The pair would have preferred not to have to come up with matching funds, which they used to buy balers to compact plastic and metal, but they say they realize their organization would not be functioning as it is without the loan. "A traditional bank we talked to said there was no future in the industry," Keesling says.

In the first year, RecycleForce demanufactured 600 pounds of computers. So far this year, it has already demanufactured 250,000 pounds.

With a little help from state grants and low-interest loans, consumers of recyclable materials are helping to close the loop and creating viable markets for secondary commodities.