She calls herself the “chief bottle washer,” but Donna Wertenbach, who leads the Community Economic Development Fund, is elbow-deep in the greasy mechanical workings of the small business credit market.
While the demand for credit by small businesses is strong, the supply isn”™t always there. Wertenbach”™s organization, which has doled out $25 million worth of loans to small businesses ranging from a headhunting service to an ice cream shop and a machine shop in Connecticut, is trying to fill that gap.
“We cater to the nonbankable small business,” said Wertenbach, who noted that the CEDF”™s clients were often too risky for banks to loan money, lacked collateral or just needed too little money for it to be worth a bank”™s while to lend to them.
“We do what the banks won”™t do,” Wertenbach said. “They want the depositor relationship, but they don”™t make enough money off of the loans to warrant taking the higher risk. We deal with restaurants ”” but banks won”™t touch restaurants or businesses with bad cash flow and no collateral.”
While bank lending to small businesses is down according to the New York Federal Reserve Bank”™s most recent Small Business Credit Survey, the Meriden-based CEDF is one of several unique alternatives out there for small businesses looking to borrow money.
Notably, eBay subsidiary PayPal lends money to small-
business owners through their PayPal accounts, and then siphons a portion of revenue received through the accounts for repayment.
“PayPal Working Capital is a great fit for existing PayPal small businesses looking to expand inventory, help open a new location or receive hassle-free access to capital in a timely manner,” a PayPal spokesman told the Business Journal via email.
To receive a PayPal Working Capital business loan, businesses must agree to continue to process payments through their current PayPal account until the loan amount and fee are paid in full. It”™s not a requirement to do all or even most sales through PayPal, but they must also agree not to direct payment volume away from PayPal intentionally to avoid repayment.
“Since its launch in September of 2013, more than $150 million in loans has been distributed, and a high number of businesses have returned for an additional loan after repaying their first,” PayPal”™s spokesman stated. “Of course, all of the businesses use PayPal to process sales, but a majority also happen to sell on eBay.”
Not all banks are abandoning the small-business credit market. HSBC Bank announced on Oct. 1 that it was expanding its international business loan program by $3 billion, citing rising demand by small and medium-size U.S. businesses looking to export and expand internationally.
“U.S. small and medium-size businesses are key contributors to U.S. exports and domestic job growth,” said Derrick Ragland, executive vice president and head of U.S. middle-market corporate banking for HSBC Bank USA. “Helping them secure financing to tap into the growing buying power of emerging economies to thrive is essential.”
Ragland said that HSBC”™s program has done a large share of its lending to businesses in the Northeast, and that the bank sees more small businesses taking advantage of overseas markets, noting that 95 percent of the world”™s consumers are located outside the U.S.
“The typical loan is in the few millions, generally to buy more inventory or equipment to grow the business,” Ragland said. He cited medical devices as a growing segment of the program”™s business, but added, “we make it available to any business that wants it.”
For the CEDF, the support of banks is a key element to the fund”™s existence. Wertenbach”™s program is capitalized by both local and national banks. The CEDF enables the banks to point businesses to an entity that can lend to them, while the banks can maintain a deposit banking relationship with the businesses.
During the mortgage debacle, Wertenbach explained that banks learned the hard way that they can”™t take wild risks. They since applied that lesson to the small-business lending market. Her organization provides working capital, lines of credit, and term loans up to $250,000, served with a side of financial education.
“We design loans to meet the circumstances of the borrower,” Wertenbach said. “We”™ll ask, ”˜How much can you afford to pay in debt service each month?”™ From there, we can start the educational process and teach them not to take it right to that limit, and calculate the loan payment using half that amount for debt service.”
The educational lesson to the businesses is a simple one.
“It”™s ”˜You need to spend within your means,”™” Wertenbach said. “Gosh, I sound like my father.”
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