Entrepreneur Jane Stout briefly tried to obtain financing from a bank to start her grocery business in Port Chester, an unusual retail venture for Westchester County. Instead of that conventional lending route, she found what she needed through a nonprofit agency that works with small-business owners in the region, many of whom have been turned down for loans by banks.
Stout operates That Discount Place, a 3,500-square-foot grocery in former warehouse space at 155 Irving Ave. that sells foods in damaged packaging or past their stamped expiration dates. The goods typically are priced at 30 percent to 60 percent below those at conventional grocery stores.
“It’s basically the first market in this part of the country,” she said. Discount groceries are popular in the South and Midwest. In her youth, Stout worked at her family’s three discount groceries in Indiana.
Formerly the chief operating officer at a Manhattan marketing and production company, Stout saw her position eliminated following a company merger. “I had a forced opportunity to do something that I had been really wanting to do for a long time” as a discount-grocery pioneer, she said.
Stout was referred by a New York State Small Business Development Center adviser to Community Capital Resources in Hawthorne, the U.S. Small Business Administration microlender for Westchester and five other Hudson Valley counties and the largest nonprofit lender in the region. “I just basically needed to get my hands on $50,000 and they were able to accommodate me.” She opened her business in late October.
Community Capital could not have made a loan in that amount until about 18 months ago, when the SBA raised its program loan cap from $25,000 to $50,000 as part of the federal economic-recovery stimulus package.
“This is a very expensive part of the country to be opening a business in,” said Tamara Underwood, director of small business lending and support at Community Capital, which also has offices at the Orange County Business Accelerator in New Windsor and at the Dutchess County Regional Chamber of Commerce in Poughkeepsie. Previous SBA loan limits were too low for Westchester, she said.
Even with the loan-cap increase, “We see businesses that need more than $50,000,” she said.
Since the recession and the credit crisis that began in 2008, “We saw a big increase in demand for our loans,” Underwood said. Some businesses in 2009 had their lines of credit closed out by banks and severe cash flow problems. “The banks had kind of packed up and shut down” their lending, she said. Community Capital began to see more mature companies and businesses with higher revenues as clients.
The agency’s average small-business term loan has more than doubled since the recession, from $11,000 to $12,000 prior to 2008 to $24,000 to $26,000 in 2011. Community Capital, though, still has only one client with annual revenue of more than $1 million, Underwood said.
One year ago, the agency launched a lending partnership with the city of Yonkers and the state’s Empire State Development Corp. Tapping Empire State Development’s small business revolving loan fund, Community Capital matches dollar-for-dollar the amount of a commercial loan made by Yonkers from its Community Development Block Grant fund. The partnership provides small loans of $25,000 or less and larger loans that range from $25,000 to $250,000. Only businesses that have been operating for two years or more are eligible for the larger loans.
Five Yonkers businesses received loans of $25,000 or less in the partnership’s inaugural year. Three companies have received larger loans and another business is about to close on a $100,00 loan, Underwood said.
From his Yonkers home, Marvin Vasquez operates Multi Marketing USA, an Internet and social-media marketing and website development business he launched in 2010. When he decided to take his startup “to the next level” last year, Vasquez knew from his brother, a Webster Bank employee, that banks would not approve the loan he sought for working capital and to invest in hardware and software equipment.
“I think financial institutions haven’t grasped how lucrative this (web) business can be,” he said. “That was one of the challenges that we had to overcome.”
Referred to Community Capital Resources by his brother, Vasquez obtained the financing he needed. His business location in Yonkers, where the lending partnership operates, “gave me an extra push,” he said. He has hired a graphic designer to join him and his wife in the business.
“It was a very interesting process,” said Vasquez. “It’s not as easy as people think to get funded.”
Between October 2010 and September 2011, the U.S. Small Business Administration backed more than $30 billion in loans nationally and $1.4 billion in New England alone.
While those numbers are unlikely to repeat themselves, there has been a continued strong demand for SBA-backed loans by businesses across Fairfield County and across the state three months into the organization’s 2012 fiscal year.
The robust demand is likely the result of several relatively new measures, including an increase in the maximum loan amount from $2 million to $5 million and a simplification of the CAPLines program, which is designed to help businesses meet short-term working capital needs.
Through the first quarter of the SBA’s 2012 fiscal calendar, which runs from Oct. 1 to Sept. 31, the Connecticut office has backed 137 loans worth a total of $44.4 million compared with roughly 200 loans that were approved with SBA backing in the previous year.
“It looks as though we are ahead of schedule,” said Bernard M. Sweeney, district director of the Connecticut SBA office. “We’ve certainly done more minority loans in the first quarter than we did in all of last year, and that to me says an awful lot.”
Sweeney attributed the perceived annual drop in the number of loans to a huge surge in SBA lending activity that took place at the end of 2010, when a job stimulus bill temporarily increased the guarantee level on SBA-backed loans to 90 percent and waived a number of fees for loans made between September and December of that year.
Currently, the SBA guarantees 80 percent of sponsored loans that are for less than $150,000 and 75 percent of sponsored loans that are for more than $150,000.
The SBA’s two signature loan programs are its 7a Loan Guaranty Program and its Certified Development Company/504 Loan Program that targets businesses looking to construct, buy or renovate fixed assets, such as land, buildings and machinery and equipment.
While business and consumer confidence has risen over the past several months on steadily improving employment numbers and improving retail sales, Sweeney said banks are still lending conservatively and that as a result, there has been a consistent demand for loans with SBA backing.
“The banks are still looking for the enhancement on their loan and of course the SBA guarantee provides the greatest such enhancement,” Sweeney said.
Robert Polito, director of government-guaranteed lending for Webster Bank in Waterbury, said there is generally a higher awareness among Fairfield County business owners, leading to a higher demand for the various SBA loan programs.
“My sense is there’s a sophistication level here that might not be seen in such concentration levels as in other areas,” Polito said. “Because of that, the demand is going to be there for this type of lending.”
Webster Bank divides its clients into a small-business portfolio and a commercial banking portfolio. Among the small-business portfolio, SBA-backed loans represented roughly 14 percent of the total loans approved by the bank last year, Polito said.
“We would like that number to grow significantly for 2012. It would be wonderful to reach that 25 percent level for the portfolio,” he said.
During the SBA’s 2011 fiscal year, Webster Bank was the state’s top backer of SBA 7a and 504 loans and was the seventh-ranked SBA lender among New England financial institutions.
Polito said three areas that will drive SBA lending in 2012 include the organization’s budget flexibility, banks’ response to the October 2010 measure that increased the maximum SBA-backed loan value from $2 million to $5 million, and banks’ and businesses’ response to the simplification of the CAPLines program.
It has taken some time for lenders to get comfortable with the $5 million loan maximum, Polito said, but with 2012 may come a greater application of higher SBA-backed loans.
Additionally, Polito predicted that changes to the CAPLines program would result in a significant uptick in the number of businesses that take advantage of SBA backing of working capital lines of credit.
“In prior years the product was not even remotely used by SBA lenders because of the complexities,” he said. “What the SBA did was to drastically decrease the hoops you have to jump through to get one approved.”
Access to working capital lines are essential for local businesses, Polito said, predicting that SBA-backed loans under its CAPLines program would “significantly increase in volume for fiscal year 2012.”