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'We're here to take some risk': Bankruptcy case may hand development fund major hit

MODE clothing stores are opening up across the midwest. Carrie Snyder / The Forum1 / 2
Ciara Stockeland poses for a photo April 22, 2015, at her MODE store, 4302 13th Ave. S., Fargo. She closed the store in 2017. Forum file photo2 / 2

FARGO—In 2015, the MODE outlet store brand was going strong with locations in Fargo, Bismarck, Grand Forks, Sioux Falls, S.D., and a handful of other cities.

At the time, MODE creator Ciara Stockeland said her goal was to open 75 MODE stores by 2024.

However, by fall 2017, the franchise had withered and many stores had closed.

Stockeland closed her Fargo store, which she opened in 2007, stating she planned to take some time to be a mom and focus on relationships.

Recently, Stockeland and her husband, James, filed for Chapter 7 bankruptcy in federal bankruptcy court, listing assets of $578,480 and liabilities of about $1.3 million.

One of the liabilities is a loan balance amounting to about $272,000, money MODE's parent company, Mama Mia Inc., received from the North Dakota Development Fund, a public agency that serves as an economic development tool under the Development and Finance Division of the North Dakota Department of Commerce.

On its website, the development fund describes itself as a provider of "gap financing"—loans and equity investments — that help make it possible for companies to obtain additional funding through commercial lenders, such as banks.

That means development fund loans typically face a higher risk than bank loans, according to Dean Reese, the development fund's CEO.

"I don't like to lose any money, but sometimes that goes with what you're created to try and do," said Reese, who added that since the fund was created in 1991, its overall loss rate has been 17.4 percent.

He said that compares to typical loss rates for banks of 2 to 3 percent.

Still, he said the development fund has enjoyed more successes than setbacks over the years, enough to keep it self-sustaining and operating largely without legislative appropriations since the early 2000s.

"We've collected more than what we've written off; we've made more good investments than bad," said Reese, who estimated the fund may have a 10 percent chance of recovering some of the outstanding loan to Mama Mia/MODE.

Even when a loan is written off, Reese said if a failed company was in business for several years, it benefited the community in a number ways, including paying wages and taxes as well as buying goods and services.

He said backing from the development fund is often the only thing that allows a young company to obtain crucial funding from a bank, which may feel comfortable financing only a portion of what a company needs.

That was the situation Myriad Mobile, a Fargo-based, full-service mobile and web application developer, faced in 2014, when it went through a growth spurt.

With the help of a development fund loan and assistance from the Bank of North Dakota, the company was able to obtain a commercial loan that allowed Myriad Mobile to double its workforce from about 20 to about 40 over the course of a year and a half, according to Jake Joraanstad, Myriad's co-founder and CEO.

Joraanstad said the company has since repaid the development fund loan and received a new one, this one for $500,000, which helped Myriad acquire a company in Omaha to help it with its growth plans.

"They (the development fund) worked with us to bridge the gap of what the bank thought we needed and what the bank could do to be able to buy this company," Joraanstad said, adding the company does not expect it will have a problem paying off the loan.

Reese said last year the development fund wrote off about $185,000 and the year before that it wrote off about $50,000 in loan money that wasn't repaid.

"We're here to take some risk," he said. "Start-ups, they're still risky."

Messages left for Ciara Stockeland and her bankruptcy attorney were not returned by the time this story went to print.

Dave Olson
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