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They Say
They Have Money. And They Say They Want To
Lend It to You
For smaller businesses, banks are no longer the only place to turn for a commercial loan
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Business New Haven
10/23/1995
By: Mitchell Young
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For many smaller businesses, financing remains the stuff of bank marketing campaigns. But one New Haven organization, with the help of the U.S. Small Business Administration and the US. Department of Commerce, is trying to change that.
According to Faron Lawrence, deputy director of the New Haven Community Investment Corp., the non-profit organization offers several unique financing programs. Lawrence explains the goal of the NHCIC: “The NHCIC is an organization with the purpose of filling the gap for small-business financing. If a business couldn't measure up to the banks' criteria for a regular loan, we see ourselves as the entity responsible for coming in and helping to offset some of the bank's risk. We can do this by putting some of the money into the project, or it might mean that we subordinate our collateral position to the bank. Or any such action that gives the banks more comfort in making the loan.”
The NHCIC administers two SBA-backed loan initiatives: a “microloan” program for loans ranging from $500 to 25,000; and the SBA's 504 program, wherein total loan packages can reach $1,850,000 or more.
The NHCIC is a Certified Development Company (CDC) designated by the SBA. What that means is that businesses can gain access to certain SBA programs only through a CDC. And there is plenty of money available in the coming fiscal year: Congress has budgeted about $2.5 billion for the CDCs nationwide. According to Lawrence, the money is available to the CDCs until it's lent. He adds, “One CDC, if it's very active, can get a substantial portion of that pool.”
The benefits to this type of financing are plain. As Lawrence explains: “The 504 program is designed to help small businesses secure financing at terms that traditionally are available only to Fortune 500 companies: a good rate, sometimes below prime, a long term - minimum 20 years for real estate and ten years on machinery and equipment. And the other benefit is the fixed interest rate. They don't have to worry about the rate changing for the 504 portion of the financing.”
Businesses throughout New Haven County are equally eligible for financing through the 504 program. Lawrence adds the financing is designed to work with traditional bank financing. A project is looked at from three financial sources: One is the borrower himself, who is required to put up ten percent. We get a private bank to put up 50 percent, and we put up 40 percent, which cannot exceed $750,000.” A bank, however, can increase its loan portion, allowing the total package value to rise beyond the paper limit of $1,875,000.
Very Small Is Beautiful, Too
If that amount seems a little steep for your plans, don't worry. Lawrence explains that the NHCIC also administers a microloan program for the SBA, and businesses throughout Connecticut are eligible. The maximum loan is $25,000, and the NHCIC has made loans for as little as $500.
Lawrence explains that the NHCIC benefits from making smaller loans: “The benefit comes in the form of the interest rate that we pay back the government for the money that they lent us to lend. The lower the average loan is, the better our rate. We've approved approximately 75 loans and closed about 55.” Considering the average loan size, there is plenty of money out there - about $650,000 to $700,000 still available through NHCIC. And Lawrence wants to lend it: “Our intention is to get it to small business people who need it, as quickly as possible.”
Dollars for Defense Diversification
The Defense Diversification and Adjustment Revolving Loan Fund, funded by a grant from the U.S. Department of Commerce, is likewise administered by the NHCIC, and with an initial allotment of $1 million, there is still plenty of money left for borrowers.
The program is designed to help businesses that are negatively impacted by the downturn in the defense industry or, as Lawrence puts it, “If they can show in any way, shape or form that they have been negatively impacted by loss of contracts or sales, or if they can show they are in a city that was negatively impacted.” Thus even the local sandwich shop can be helped if they're located in Bethany, Branford, East Haven, Guilford, Hamden, Madison, North Branford, New Haven, North Haven, Orange, West Haven or Woodbridge - all communities that have been determined to be affected by defense slowdowns.
Lawrence explains that any size company can qualify, although loans are typically in the $100,000 range. The NHCIC can be reached by calling 203-776-6172.
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