After meeting with community bankers in mid-October, Gov. M. Jodi Rell requested they pony up at least $40 million in funding for a war chest to free up lending to small businesses most affected by the credit crunch.
Many of the largest banks doing business in Connecticut already belong to a risk pool called the Connecticut Community Investment Corp. And in 1994, the state created the Connecticut Economic Development Fund (CEDF) to offer loans with flexible terms to businesses having trouble securing loans from banks, issuing nearly 20 loans last year in Fairfield County averaging about $100,000 apiece.
CEDF bolstered its southwest Connecticut lending a year ago by launching a $4 million fund, following a $13.5 million infusion from Stamford-based First County Bank, TD Banknorth, New Haven-based NewAlliance Bank and the Connecticut Housing Finance Authority. CEDF has also received support from entities such as Fairfield-based General Electric Co. and Stamford-based Pitney Bowes Inc.
Bankers also have access to the U.S. Small Business Administration”™s SBA lending backstop, which is designed to encourage banks to sign off on loans that might not otherwise get approved by guaranteeing repayment of a portion of any failed loans. The number of SBA loans dropped by one third in Connecticut last year (see related story on pg. 15), although dollar amounts loaned dipped only slightly.
Despite the existing options, the state is in discussions about making Rell”™s proposed pool a permanent fixture, according to Howard Pitkin, commissioner of the Connecticut Department of Banking. The question becomes whether any state action will become moot, following the federal government”™s proposal to pump money directly into banks.
Rell asked community banks across the state to each contribute at least $1 million for a loan pool that will be available for small businesses, overseen by the Connecticut Department of Banking.
“I stressed to the bank officials that I am not asking them to make bad loans,” Rell said, in a prepared statement. “I am not asking them to take on additional risk. I am asking them to work with our small businesses ”“ to send the message that Connecticut”™s banks are open and ready for business and that credit is available.”
Pitkin said Rell encouraged larger banks to contribute more, but said the department did not consider pegging the request to deposits, outstanding loans or other criteria denoting the size of an institution.
“I think it was the most constructive meeting I have ever attended,” Pitkin said. “The bankers were unusually responsive. They came attuned to what the governor had to say.”
The department charters some 40 institutions under savings bank and trust companies, including relatively large banks like Ridgefield-based Fairfield County Bank Corp., which has 21 branches locally, and single-office entities like Darien Rowayton Bank.
In advance of the January legislative session, Rell took several other short-term steps to free up credit. The Department of Economic and Community Development is allocating $5 million for low-interest loans to small businesses in aerospace, medical devices and alternative energy. Dubbed the DECD Direct Loan to Small Business Program, the fund is aimed at helping companies with less than 50 employees retain jobs.
Rell asked the Connecticut Development Authority to bolster its Urbank loan guarantee program by $10 million, to be targeted at businesses with between 50 and 200 workers.
Pitkin said community banks are still making commercial loans available for the most part, but the frozen bond market is creating problems for municipalities to push ahead with some projects, in turn affecting contractors.
To that end, Rell also plans to ask the Connecticut General Assembly to extend the Bond Anticipation Note program, which would help towns and cities bridge any revenue shortfall caused by the inability to sell bonds. Many bonds are coming due this year and next.
The state plans to reallocate $5 million in bond funding authorized by the Urban Act for the redevelopment of mildly contaminated brownfield properties.
