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Connecticut’s economy posted a new superlative last year. And it was not a good one.
The Constitution State was alone among 50 states to record negative economic growth last year. The state’s gross domestic product shrank by 0.1 percent in 2012, the worst performance in the U.S., according to a U.S. Economic Analysis released June 6. Job losses in financial services, real estate and federal, state and local governments were cited as the most significant contributors to the dismal performance.
The financial-services sector, which includes real-estate jobs, fell by 2,200 between December 2011 and December 2012. Construction jobs also declined by 1,800 over the same time span. Over the same period 1,000 government jobs were shed.
According to the state’s Department of Labor, Connecticut has regained less than half (47 percent) of the jobs it lost during the recession. The state’s unemployment rate is 8.0 percent, compared to 7.5 percent for the nation.
The negative GDP growth took some economists by surprise. “I wasn’t expecting it to be so bad,’ UConn economist Steven Lanza told the Wall Street Journal.
At long last, signs of a lending thaw
After five years of frosty of not frozen credit, it is finally getting easier for companies to get loans.
Lenders who spent the recent past pulling back dramatically on lending and reassessing their portfolios are beginning to gain confidence. That is good news to local small businesses and startups that have been waiting for a chance to grow.
Owners of existing business as well as new enterprises have options including traditional banks, community banks and non-profit economic development corporations from which to borrow.
From its 50 branches in Connecticut, Webster Bank offers small business term loans with long-term financing, small business lines of credit, and U.S. Small Business Administration (SBA) guaranteed loans.
Jeff Klaus, regional president for Webster Bank’s greater New Haven service area, says that Webster’s loans to small businesses are typically used to increase working capital, purchase real estate or equipment or pay employees.
“There are a few obvious situations where a bank will not be interested in making a loan: if the loan request is financing consistent losses at the business,” explains Klaus. “The bank should not be looked at as an insurance policy.”
Klaus says the most important element in applying for a loan with Webster is to have a strong business plan. Within two or three pages, such a document should outline the mission statement of the business, include a terse, compelling executive summary, details on how your company will market its service or product, what will make the company successful, a summary of past financial performance and biographical information on the principals.
“The forecast is vital,” says Klaus. “That is where the loan amount is painted. What do you want to borrow the money for? What will you use it for? And, most importantly to the bank, how will you pay us back?”
In order to get a loan, the company must be cash-flow-positive. “It’s not enough just to be in business for several years — you have to be profitable,” acknowledges Klaus. “Banks do not want to lend into a problem.”
In support of that Klaus says that most of Webster’s loans are to established businesses, small and large. He adds that banks typically do not finance startups. “You have to have a track record of success — typically three years — before you can qualify for a loan without credit enhancement,” he says.
“Credit enhancements” might include a state or SBA guarantee. “It’s a fall-back,” he says. “It’s a very risky situation because businesses fail and if this business fails, at least I have some liquid collateral with which I can repay my loan.”
For those startups and small businesses without perfect credit or sufficient credit history, the Connecticut Community Investment Corp. (CTCIC) specializes in SBA loans and so-called microloans.
CTCIC is a small-business lender that provides not only the financing, but business consulting services that go hand in hand with microloan financing for startups and companies that can’t qualify for traditional financing from a bank.
According to CTCIC President Mark Cousineau, the SBA microloan is a unique hybrid of financing and providing technical assistance.
The SBA microloan provides small, short-term funding to small companies and certain non-profit child-care centers. Funds are made available to specially designated intermediary lenders such as CTCIC.
“If you talk to a traditional lender, combining business advice with lending is referred to as ‘lender liability.’ You don’t want to be giving advice to people you lend money to, because then they eventually have a [legal] defense to what happens when things go bad,” Cousineau explains. But because CTCIC runs a government special-use program, it is permitted to offer advice.
CTCIC loans range from $5,000 to $50,000 and along with the cash comes technical assistance in the form of business counseling.
“Startups are scrutinized fairly closely, since what you’re being asked to do is bet on a horse that’s never run a race before,” Cousineau explains.
Once applicants are prescreened and deemed potential loan recipients, an advisor will work with the applicant on a business plan and an effective loan application.
“The real reason we provide that is because if you can help a business in their planning in the early stages, it makes for a stronger business post-loan,” Cousineau says. “We all have the same goal here. When your paycheck depends upon the fact that you have good loans in your portfolio, there’s a motivating factor.”
What separates a government lender such as CTCIC from traditional bank lenders is that though the organization does factor in the applicant’s credit score, that score isn’t the sole determinant in how the application is scored.
“Those scores can be funky at times,” Cousineau acknowledges. “What we really look at is the behaviors behind the credit score. There could have been a life event that happened or a medical situation” that negatively affected an applicant’s credit score.
“Every lender wants the borrower to have some skin in the game. If a business owner is looking [to borrow] $100,000, I’d like to see them have $20,000 to put in,” Cousineau says. But that’s in a perfect world. “Amassing thousands of dollars could be a barrier of entry for some folks who have the ability and talent, so we can compensate for that in other ways, such as household income can give us a level of assurance that there is some cushion there, if there are bumps in the road.”
Cousineau agrees with Klaus on this: “It’s really cliché, but a well thought out business plan that assesses the market and has quality projections is really key. That gives the lender insight as to whether or not the owners really do know their business.”
CTCIC’s SBA 504 program allows it to provide 90-percent financing to small companies to acquire machinery, equipment and real estate. The microloan program provides financial muscle to business people who have powerful ideas, but don’t have the ability to execute them without a small amount of cash.
The SBA 504 program is a long-term loan, designed to encourage economic development in a community. The program provides small businesses with long-term fixed-rate financing to acquire major assets for expansion or modernization.
These loans go to owners at such small businesses as hair salons and pet day-cares.
“They are impactful loans,” Cousineau says. “They may not create the 25 jobs that an expanding service or manufacturing business does on the SBA 504 side, but it’s very impactful to the people we lend to.” CTCIC has over 400 active loans.
Somewhere between a non-profit such as CTCIC and a large regional bank such as Webster is an option that many local business new business owners and startups are looking at: the community development bank.
Start Bank, with branches on Whalley Avenue and Grand Avenue, is a relatively new alternative for companies looking seeking financing. The bank was founded in 2010 for the purpose of pursuing, well, community development. Start has since been actively growing its commercial loan portfolio of New Haven businesses including restaurants, retailers and convenience stores.
Start Bank underwrite loans both to startups and existing businesses, but since startups have no track record, Start works with the SBA to provide additional support to the application process. Startup applicants should have a clear personal track record with a clean credit report. Start also prefers a startup owner has some money to inject into the business and personal collateral.
Tom Whitbread, Start’s senior vice president, explains that his loan officers like to see three years of financial statements or tax returns showing sufficient profitability that can be used to repay the loan. Since many business owners are not showing much profit in the past three years, providing a deeper financial history — five years — and a projection of profits would be beneficial to the outcome of a loan application.
The bank provides commercial loans to small and mid-sized companies in New Haven County.
“We do everything from lending money to folks who are rehabilitating properties to commercial loans, and financing equipment,” Whitbread explains.
Since the bank was formed after the unstable years between 2008 and 2010, Start Bank was not saddled with the problem loans that so many other financial institutions are still dealing with today. Start’s mission is to invest money in the New Haven community. Financial institutions are enthusiastically looking for small local businesses to lend money to.
Junior Achievement stresses need to empower students
As prospective college students receive word this month on whether they’ve been accepted to their preferred college and how much financial aid they’ll be receiving — the greater challenge begins. That’s the exercise to crunch the numbers to try to come up with ways to afford the impending and imposing tuition bill.
That reality makes the findings of the Junior Achievement USA (JA) and the Allstate Foundation's 2013 Teens and Personal Finance Poll ring alarm bells for teens and their families, as they look ahead to the financial impact of college:
• Only nine percent of teens report they are currently saving money for college.
• More than a quarter of teens (28 percent) haven’t talked with their parents about paying for college.
• More than half (52 percent) of teens think students are borrowing too much money to pay for college.
Working with students from kindergarten through grade 12, JA aims to help students understand the importance of saving and planning for future financial needs.
The increasing cost of college, poor job market and sluggish economy appear to be affecting teens’ views on the timetable for attaining financial independence, and the prospects for their long-term financial security. According to the poll, during the past two years the percentage of teens who:
• Think they will be financially dependent on their parents until age 25 has more than doubled — from 12 percent in 2011 to 25 percent this year.
• Say that don’t know or are not sure at what age they will attain financial independence from their parents jumped from just one percent in 2011 to 11 percent in 2013.
• Don’t know or who are unsure if they will be financially better off than their parents has risen sevenfold, from four percent to 28 percent.
Teens’ uncertainty about their financial future is also a reflection of their lack of financial knowledge and understanding. More than one-third (34 percent) are somewhat or extremely unsure about their ability to invest money. And of the 33 percent of teens who say they do not use a budget, 42 percent are "not interested," and more than a quarter (26 percent) think that "budgets are for adults."
“Today’s teens expect to be financially dependent on their parents longer, and the number who can’t even predict when they might gain financial independence has jumped ten-fold in just the past two years,” said Louis J. Golden, President of JA of Southwest New England. “The economy certainly plays a role, but part of the uncertainly is because far too many teens lack a fundamental understanding of how to manage their money.”
More information is available at jaconn.net.
EASTON — Few things eat at the insides of a business owner worse than when a client stops paying you. But there are ways to avoid bad debt even before it goes bad. Cliff Ennico, former host of the PBS reality series Moneyhunt, leads a frankly named workshop called “Dealing with Deadbeats: Getting the Money You Are Owed Fast & Legally.” The so-called “Ann Landers of the Business World” will teach attendees four tactics for dealing with overdue debt and what creditor companies can and can’t do. The session, sponsored by the greater Bridgeport chapter of the Service Corps of Retired Executives (SCORE), takes place from 6 to 7:30 p.m. March 12 at the Easton Public Library, 691 Morehouse Road. More information about the workshop is available by calling 203-378-8664 or visiting greaterbridgeport.score.org.
BRANFORD — Connex Credit Union this month opens a new Branford branch, at 620 West Main Street. The new branch will also debut Personal Teller Machines (PTM), which the “Unbank” bills as a convenient, electronic way to handle personal finances while still providing the personal service of person-to-person transactions. For its scheduled February 13 opening Connex pledged to make an opening day charitable donation of $500 to benefit the Community Dining Room, a Branford-based non-profit that provides food, support and companionship to the shoreline area. Connex has pledged to make an additional donation of $10 for every new checking account or loan opened at the new branch through March, up to $500.
New Haven Magazine