The noose around the financial necks of small businesses has become ever so much tighter in recent years as new bank loan requirements have gone into effect. Thousands of new and existing businesses are being identified as too risky to qualify for credit under the new terms.
One of those businesses is Valley Fireplace & Stove in Canton. Owners Sherry and Mike Kozikowski explain that the business is an outgrowth of a successful venture the Kozikowskis have run for 20-plus years, Valley Chimney Sweep. In 2004, the couple decided that selling fireplaces and stoves in a retail environment was a natural complement to their chimney sweep business.
“We needed some funds to open up a new store, but being that it was a new business, a bank loan was not available, but we heard about CEDF [Connecticut Economic Development Fund],” said Sherry Kozikowski. “Even though their rates are a little higher because it was a riskier loan, it [represented the best chance at the funding]. It was really frustrating that the banks were not there for the small business.”
The Meriden-based CEDF has helped thousands of small business owners just like the Kozikowskis since its formation in 1994. Funded by more than 20 banks and financial institutions, CEDF works to secure loans for clients that banks deem too risky.
“We help businesses that fall outside of the banking world,” said Donna Wertenbach, president and CEO.
In many cases, the loans CEDF handles are referred to them by the banks themselves, who are shifting the risk away from their own portfolios.
In the case of Valley Fireplace, which had added a second location, CEDF filled a need, not only helping to get the business started, but also to help it survive when it appeared the recession might extinguish its future.
“We did survive, but we did get rid of that second location,” Kozikowski said. “[CEDF] stood by us and walked us through it.”
Part of the strategy behind CEDF, which Wertenbach said offers loans of between $5,000 and $250,000 for working capital and up to $500,000 for commercial mortgages through a $30-35 million investment fund, is to provide more than just financial help.
“We have to provide them with a very difference experience,” Wertenbach said.
“We might stretch payments out to get the payments into an affordable level. Whereas a bank might only go five years, we can do 10.”
In addition to providing needed financing, CEDF offers a variety of financial classes, workshops and seminars. And the strategy seems to be working, as the “charge-off” rates for CEDF loans, those so-called “riskier” loans, lag behind those at banks. According to Wertenbach, prior to the recession, charge-off rates at CEDF ran 2-3 percent, with that number climbing to about 8 percent during the height of the downturn. Still, that was below the typical bank rate of 12-13 percent at that time. As the economy has improved, CEDF's charge-off rate is dropping again, hovering around 5 percent currently.
“That is because we don't just provide capital, we provide counselors on a weekly, monthly basis. We have all sorts of classes … [customers] have a lot of help to guide them,” Wertenbach said. “They learn to use the resources; they learn to trust us. It's always good to have a non-biased opinion [of your business] and the more they take advantage of CEDF programs, the more successful they are.”
Sonja Johnson, owner of 2 Cuzn's Associates, is typical of the success a CEDF client can achieve. Johnson said her New Haven trucking business, which employs three people, may not be in business today if not for CEDF.
“We found out about them through [a local business group]. I was working on my business plan with them and they told me about CEDF,” Johnson said. “I have taken advantage of some their trainings and classes, like Quickbooks. I think by working with CEDF, we'll be able to thrive.”
Johnson, who launched the business in 2006, said she's used the loan money to purchase equipment and hire new employees. “I just needed the resources to move the business forward,” she said. “I didn't have the money or capital to do it on my own.”
Businesses like 2 Cuzn's Associates, who may be looking to expand or replace equipment, represent the typical client these days for CEDF.
“We started to see a shift in this (about six months' ago),” Wertenbach said. “There is a lot of pent-up demand; businesses that did not replace equipment or were afraid to are now doing so.”
Wertenbach said that through the years, the profile of the business that seeks help from CEDF has changed. “If you look at the first 15 years of CEDF, about 45 percent of our clients were startups,” she said. “In today's world, it's all the customers who use to be bankable but are no longer bankable.”
Wertenbach refers to the different world of today as one reason businesses need to take advantage of the services CEDF. She mentions that with these types of loans, CEDF relies a lot on “character lending,” a strategy of considering the business owner's commitment to the venture, not just the financial data.
“What we do is, you come to us and tell us your story; tell us what you need, and we'll work with you,” Wertenbach said. “Don't count yourself out; call and ask, because the world has changed. There is probably a lot more opportunity out there than you think.”
And so far in 2012, there have been plenty of business owners seeking the help of CEDF. As a result, CEDF is “swamped with business,” Wertenbach said. But there is still opportunity out there, she pointed out, if you just ask.