Coming up with an idea for a successful business is hard enough. Financing that dream can seem insurmountable. Applying for a loan through a Certified Development Company (CDC) is a good place to start, especially if the new business does not have the typical 75 to 80 percent loan-to-value, or ratio of a loan to the value of an asset purchased, required by banks, says Carol Estes, vice president and commercial loan officer at Granite Bank in Portsmouth.
One of those CDCs, Granite State Development Corporation, helped Good To-Go in Kittery, Maine, just over the NH border, secure a Small Business Administration 504 loan, that allowed the startup to launch and later expand, says Jennifer Scism, who co-founded the company with her husband David Koorits. Good To-Go sells natural dehydrated gourmet meals to outdoor enthusiasts.
“As far as the bank’s point of view, there’s always a risk with a smaller company,” Scism says. “We’ve always had 504 loans. They’re a huge advantage for us, because where we need to grow so quickly, financing is not the easiest thing, but it is something we have to constantly go back at.”
Thanks to its recent expansion, Good To-Go has gone from producing 1,500 to 2,000 packaged meals a week to 10,000 to 12,000 and is now the top vendor for Eastern Mountain Sports, Scism says. “If you’re a bigger company, like Stonewall Kitchen with 25 years under your belt, and you say to a bank, ‘I need a million dollars,’ they say, ‘Okay, sure.’ But for growing businesses like us, the SBA 504 programs are so helpful. I’m sure we wouldn’t have been able to get our loan without the 504 as well.”
Good To-Go is one of many businesses that have secured 504 loans through Portsmouth-based Granite State Development Corporation, one of the largest CDCs in the country. Ranked number four for number of loans approved, Granite State Development has participated in more than 4,000 loans in excess of $2 billion since 1990, helping to create more than 10,000 jobs in New England.
CDCs help with more than just launching startups. They help businesses grow. “It’s great if you want to fund the purchase price of real estate plus renovations. It’s a good fit when a business doesn’t have a lot of excess capital to buy a building or they’re trying to preserve their capital for growth in their business,” says Estes, Granite State Development’s SBA 504 Lender of the Year in 2010, 2012 and 2013.
CDCs are nonprofit lenders that authorize the processing and servicing of SBA loans to help small businesses expand, add jobs and thrive. Granite State is one of two CDCs based in NH along with Capital Regional Development Council and a third, Northern Community Investment Corporation, that is based in Vermont but services Northern NH. Together they loaned about $60 million this year to about 100 NH companies, with a default rate on the loans of between 1.5 and 2 percent, says Scott Gardiner, executive vice president at Granite State Development.
“The concept is simple,” Gardiner explains. “We always partner with a commercial bank that provides 50 percent of the financing and then we provide 40 percent of the financing at a fixed, below-market rate for 20 years. So this gives them the security they need going forward.”
Since that means a business can qualify for up to 90 percent financing for fixed assets, it’s easy to see why some consider it a win-win. “An advantage of our program is that most borrowers can obtain more financing than they would with conventional lending,” Gardiner says. “That allows them to retain working capital to help with business growth and hire more employees.”
SBA 504 also offers a 10-year loan term for equipment purchases with 10 percent down. “Most equipment loans are for five to seven years,” Estes says. “So the 10-year term decreases your payment, helping to preserve your monthly cash flow.” For example, restaurants in leased locations are able to use the loans to buy equipment.
Among the NH entrepreneurs that have benefited from these programs is Anne Nichols, owner of K9 Kaos in Dover. If Nichols hadn’t discovered financing from CDCs, it’s likely she would have closed the doors of her doggie daycare business seven years ago when her former facility was taken by eminent domain.
“I had gone to several banks to get the money to move and expand my business and was basically told, ‘No,’” Nichols says. “Carol Estes (then a loan officer at Optima Bank & Trust) was the only one to tell me about the existence of the SBA loans. She told me all about the program. She introduced me to SBA mentors through Granite State.”
Breadth of Work
While loans offered through CDCs can be used to buy land and equipment, and buy and upgrade buildings, they cannot be used for working capital or inventory, speculative investing.
As of Aug. 31, 11 months into the CDC’s fiscal year, Granite State had approved just under $111 million through 197 loans to companies in NH, Massachusetts, Maine and Vermont, Gardiner says, with an expectation to reach about 210 by September. “We have a big impact on rural development job creation and retention in the state,” he says.
CRDC, a smaller CDC in Concord, has funded an additional seven SBA 504 loans in 2016 totaling $3.1 million, according to Stephen Heavener, executive director. CRDC also manages a $12-million direct-lending small-business loan program that has $8.5 million outstanding in active loans to 60 companies.
A Business Partner
The benefits of a CDC are not limited to lending. In the past three years, Northern Community Investment Corporation (NCIC) has offered a host of benefits to 200 businesses including securing project funding, writing grant applications and even assessing manufacturing efficiency.
For instance, Sandwich Tech, a ski manufacturer in Lancaster that was working from a basement, was looking for additional space to make skis. “We helped them identify an available location,” Freeman says. “We provided financing for them to buy it, and once they did buy it and they needed assistance with funds to make it more energy efficient, we found them a unique cost sharing program through USDA Rural Development.” Sandwich Tech now has a near-zero carbon footprint workshop.
When Capone Iron Corporation North Woods, a large structural steel manufacturer based in Massachusetts, decided to expand in Berlin, NCIC, Business NH Magazine’s 2016 Business Assistance Organization of the Year, helped them acquire new market tax credit financing to bring in capital equipment and expand a building, adding 30 jobs, Freeman says.
“We basically find that it’s important to listen and find out what each company’s need is, what their challenge is and what their opportunity is,” Freeman says, adding many small businesses benefit from coaching and other business development services.
Best Kept Secrets
While CDCs and the SBA’s lending programs help many businesses launch and grow, many companies are unaware these resources exist. “I find I’m always having to tell people about the 504 program. It definitely could be publicized more,” Estes says, adding it can be a quick loan process.
There are instances, though, when a 504 isn’t the right program. “A business must occupy at least 51 percent of the real estate they buy for an existing build, purchasing land or doing renovations,” Gardiner points out. There is also a sliding prepayment penalty relative to the loan’s interest rate, which should be considered before reselling the property.
“I think these lending programs have more flexibility than people think,” Estes says. “There are still parameters, but many times you can make it work.”
Just ask Anne Nichols. In 2014 she was awarded the U.S. Small Business Administration’s Women-Owned Small Business of the Year for both NH and the New England region. Today her 14,000-square-foot full-service facility includes boarding, grooming and shopping. “We take care of hundreds of dogs every day,” she says. “We wouldn’t be here without the 504 loan program.”
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