Trouble Getting A Small-Business Loan? R.I. Program Fills That Gap

By Kate Bramson
The Providence Journal, R.I.

WWR Article Summary (tl;dr) A loan program in Rhode Island offers loans to “viable entrepreneurs” and small businesses that face difficulties obtaining adequate credit from traditional lenders. The Rhode Island Commerce Corporation has allocated $5.45 million to six lending agencies that now underwrite the loans or partner with banks to make the loans.

The Providence Journal, R.I.

Ruben Ogando needed financing help to buy new washing machines for his Providence coin-operated laundry and expand by moving his tailor shop into its own space across the street.

Paula Charleson created four flavors of organic chocolate bars that are GMO- and preservative-free and persuaded Whole Foods to sell her CocoFuel candy in all of the grocer’s Northeast locations. But she needed money to buy ingredients for the fledgling company in Cranston.

Robin Silva, manager of the Teddy Bearskins clothing and toy shop in Barrington, had a chance to buy the business where she’d worked for a dozen years.

None of these three people found their answer in a conventional bank loan.

In Silva’s case, for example, banks viewed the clothing and toy shop as a “start-up business” if a new owner bought it. That meant it wasn’t easy to get a traditional bank loan for the shop she now calls Piccolo, said Buck Harris, vice president at the Community Investment Corporation.

Silva turned to Bank Newport for a loan, and the bank referred her to the CIC, Harris said.

CIC, a nonprofit agency in Hamden, Connecticut, with a Providence office, has now made loans to eight Rhode Island businesses, including those owned by Ogando, Charleson and Silva.

CIC is among six agencies — five nonprofits and one for-profit enterprise — that the Rhode Island Commerce Corporation turned to last year as Gov. Gina Raimondo’s administration launched a small-business loan fund with $5.45 million.

The Small Business Assistance Program allocated the state money to the lenders and requires them to match the state money with their own funds when they issue loans. Each loan doesn’t need to be a dollar-for-dollar match, but once a lender has loaned its allocation of state funds, it’s expected to have matched that, Commerce spokesman Matt Sheaff said.

Business leaders in Rhode Island have long lamented companies’ difficulties accessing capital, such as bank loans, to help finance expansions.

Now, Commerce Secretary Stefan Pryor said, the loan program is one of several state efforts to help small businesses, including Main Street grants to improve their streetscapes and innovation vouchers that help smaller companies pay for research and development assistance from Rhode Island academics and researchers.

Since 1986, Rhode Island has had a revolving loan fund for small businesses that began with federal financing. But Sheaff said the Commerce Corporation has no record of Rhode Island funding a small-business loan fund for at least 30 years.

This program was the final of a number of economic-incentive programs that the Raimondo administration launched with tens of millions of dollars in her first state budget as a way to entice companies to expand or move here.

The Commerce Corporation allocated the state money to lending agencies so the state wouldn’t need to underwrite the loans. Throughout the last year, the lenders and Commerce set regulations and rules for the loan program, intended to be used as a revolving fund: when recipients pay back their loans, that money can then be loaned out to others.

The lenders have now issued nearly $2.4 million in 19 loans to 17 companies — about $691,000 of which has been state money.

That means there’s $4.76 million more in state money available to interested companies.

And the lending agencies have even more money available. When Commerce approved the agencies, board member Oscar T. “Tim” Hebert told the board the agency’s Access to Capital subcommittee expected the state’s $5.45 million would elicit about $20 million from the agencies.

Loans in the program range from “micro loans”– $2,000 up to $25,000 — to larger loans that cannot exceed $750,000.

“These efforts are as important as any we’re undertaking,” Pryor said in an interview. “Small businesses are the lifeblood of our economy. Though these efforts don’t always get attention, we are working to provide technical assistance and hand-holding through the regulatory process of government.”

As the lending agencies decide which loans to make, those who have closed on recent loans talked with The Providence Journal about how important it is to get to know the business owners, study their business plans and determine whether their companies are likely to succeed. This program is for companies that can’t get traditional bank loans, which means the loans are riskier.

It’s complicated determining when to make a loan, or when to suggest that a smaller loan might be better, said Peter Dorsey, president of the for-profit Business Development Co. Part of his job is recognizing who’s not ready for a loan — such as a company that’s growing fast but with a management team that’s “flying a little bit by the seat of their pants.”

“If adversity strikes, those people tend not to be able to respond as quickly or appropriately,” Dorsey said.

The lenders often work extensively with business owners before making a loan, CIC’s Harris said. He helps company owners develop their financial projections, work on a marketing plan, examine whether their expectations about customer demand are realistic and even determine how much money they might need to borrow.

Plus, Harris often connects a small business owner with other people and businesses in the community that can use their services.

“Sometimes you have businesses that naturally fit together, and you’ve loaned money to one and then another and you say, ‘You guys need to talk,'” Harris said.

From the state’s viewpoint, “the advantage to making loans via third-party lending professionals is that these half-dozen agencies are publicizing and loan-administering on our behalf,” Pryor said. “Each of these … lending institutions has community relationships, has marketing know-how, has credibility. We viewed this approach as preferable precisely because it will enable us to reach corners of Rhode Island that we would otherwise be unable [to reach].”

Although most of the lenders in the program will make direct loans to businesses, BDC Capital, of Wakefield, Massachusetts, has modeled its Rhode Island program on its Massachusetts Capital Access Program. BDC Capital, which operates here under the name Rhode Island Capital Corporation, has signed up 14 banks to make loans here, said David Harrington, director of BDC’s Capital Access Program.

Those banks will make loans to small businesses that might not meet conventional underwriting standards, Harrington said. And because those loans are riskier than a typical small-business loan, BDC Capital uses some of the state money and a fee charged to the borrower to create a reserve pool. If a borrower defaults on a loan, the bank can dip into the reserve pool to help pay it back, Harrington said.

Over the past 20 years, BDC Capital has attracted $370 million in bank financing for 5,800 small-business loans in Massachusetts — a track record that Harrington said encouraged Raimondo and the Commerce Corporation to invite BDC Capital into Rhode Island.

Ogando, the tailor, is like many small-business owners who begin financing their endeavors by borrowing money from friends and family.

He began learning the tailoring trade at age 7 in his native Dominican Republic, long before he moved here, became a U.S. citizen and worked a decade at Men’s Wearhouse. When his brother died and left behind his tailoring business, that brother’s son tried to run the business. But Ogando said his nephew was not a tailor and eventually found the shop a poor fit.

At that point, Ogando told his nephew he’d buy the business and give it a go. He sold his apartment in the Dominican Republic and invested the money in the business, now called Reymond’s Brother Tailor Shop and Laundromat.

His sister loaned him money, and so did a friend, and then his mother. He also used his own line of credit.

As his brother’s customers returned and began trusting him with their tailoring, Ogando turned to the City of Providence to explore whether he might qualify for a loan. A city official suggested the new state loan program.

Now, after buying 11 new washing machines with two joint state-CIC loans, Ogando said he’s seeing more and more customers and offering promotions to attract new clients.

“It’s very important for me,” he said of the loan money. Without it, he said, buying those new machines would have been “impossible.”

This program offers loans to “viable entrepreneurs” and small businesses that face difficulties obtaining adequate credit from traditional lenders.

The Rhode Island Commerce Corporation has allocated $5.45 million to six lending agencies that now underwrite the loans or partner with banks to make the loans.

State contacts:

Dan Jennings, senior economic development adviser at Commerce — Email: [email protected]
Doris Blanchard, client services executive at Commerce — Email: [email protected]

Lenders that can loan $25,000 to $750,000
Business Development Company of R.I.
State allocation: $1 million
Peter Dorsey: (401) 351-3036
South Eastern Economic Development Corporation
State allocation: $1 million
Maria Gooch-Smith: (508) 822-1020, ext. 314
Community Investment Corporation
State allocation: $1 million
Buck Harris: (401) 406-7282, ext. 128

Lender that coordinates loans from $1,000 to $750,000
BDC Capital, of Wakefield, Massachusetts, doing business here as Rhode Island Capital Corporation
State allocation: $1.9 million
Dave Harrington: (781) 928-1117
Rather than making direct loans as the other lenders do, BDC Capital encourages banks and credit unions to make slightly riskier loans, by charging a fee to the borrower and using some state funds to create cash collateral accounts.

Lenders making micro-loans between $2,000 and $25,000
Center for Women & Enterprise
State allocation: $250,000
Susan Rittscher or Carmen Diaz-Jusino: (401) 427-6538
Social Enterprise Greenhouse
State allocation: $125,000
Kelly Ramirez: (401) 749-7238
Community Investment Corporation
State allocation: $170,000
Buck Harris: (401) 406-7282, ext. 128

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