Losing sales and profits in the severe recession was bad enough, but small businesses also lost a lot of their ability to get financing.
A commonly heard complaint the past three years has been that starting or expanding a business has been made especially difficult by the unwillingness of banks to lend on favorable terms or even lend at all.
No one tracks overall small business lending per se, but this month the federal Small Business Administration released the results of its effort to quantify commercial loans of $1 million or less — and confirmed what businesspeople have been saying.
From June 2009 to June 2010, the value of outstanding loans to U.S. small businesses plunged $43 billion, a drop of 6 percent, to $652 billion.
The bank data from the Federal Deposit Insurance Corp. and SBA’s own records showed that in 2008, small business lending stood at $712 billion.
The continuing difficult credit climate has compelled businesspeople to get creative about seeking financing, exploring loan sources they might not consider or even know about in normal times.
Two recent examples locally — a Galloway Township restaurant upgrade and an Ocean City lodging purchase — show how that can pay off.
Romanelli’s Garden Cafe
Only a few years old and a beautiful blend of wood, windows and greenery, Romanelli’s Garden Cafe looks like one of the last places in the region that would be upgraded.
Owner Rick Romanelli’s project, however, is one of opportunity, not need.
Until now, the Garden Cafe was a bring-your-own-bottle restaurant, which many people enjoyed, he said.
Many others, however, would prefer the convenience of ordering wine or beer at the restaurant instead of planning ahead and bringing their own, he said. And some wished they could get the mixed drinks ordinarily available at a fine restaurant.
“Some people told me, we come here once a week with a bottle of wine, but on Friday or Saturday we like to go out for a cocktail so we have to go elsewhere,” he said.
Offering patrons this “other source of enjoyment” required buying a liquor license, of course, but it also meant remodeling the restaurant to include a bar.
With the look of Romanelli’s Garden Cafe one of its big draws, that had to be done right — which meant also including a glass wall and three new fireplaces, and giving the bar a degree of privacy.
“We’re very family oriented and we didn’t want to lose that appeal and the look,” he said.
Romanelli said he had hoped to do the work a year ago but couldn’t get the financing.
This year, he was able to line up a $600,000 loan through PNC Bank and its New Jersey Business Growth Fund.
The fund, administered in partnership with the New Jersey Economic Development Authority, provides credit with the additional aim of creating or preserving jobs in the state.
PNC has doubled its commitment to the fund from $25 million last year to $50 million this year. J. William Mills III, regional president for PNC Bank for southern New Jersey and Philadelphia, said such access to capital at affordable rates is critical to small business growth.
Under the New Jersey Business Growth Fund, companies creating or preserving jobs in the state may be eligible for a PNC Bank loan of as much as $3 million with a 25 percent or 50 percent EDA guarantee.
“PNC came in with this rate and some other packages that really helped us out,” Romanelli said
He said he had been looking at an interest rate of 6 percent on the funding, but got one of 3.66 percent through the growth fund.
The ease of working with PNC reminded him of a grassroots business style that used to be common and should be revived, he said.
“They were very friendly. I dealt with Barb Bradley there, and the experience was like years ago working with Collective Bank,” Romanelli said, recalling the area’s largest local bank that was acquired by regional and then national banks.
Val Reyes, 55, of Pennington, Mercer County, is an owner/operator of New York hotels in the 400- to 800-room range.
He happened to get involved in a bed-and-breakfast in Manasquan, Monmouth County, called the Inn on Main, and revised some of his assumptions about smaller hotels.
“I was surprised that I could make money,” Reyes said, laughing. “When you talk to bed-and-breakfast people, you get a lot of exaggeration, in part I think because they live in the building.”
His eyes opened, Reyes saw an opportunity to extend his hotel holdings down the coast.
But to buy the Atlantis Inn in Ocean City, a bed-and-breakfast with a dozen rooms and three multi-purpose apartments, he needed a loan of about $2.9 million toward the $3.2 million purchase price.
He could have worked with the existing mortgage holder, but the interest rate and term of the loan were not very advantageous, he said.
From his property in Manasquan he knew a broker, Chris Miller, with Evergreen Equity Partners, headquartered in Bel Air, Md.
Miller put the specs for the loan Reyes needed on an Internet credit marketplace called BoeFly, asking for proposals. Subscribers to BoeFly, based in New York City, soon submitted a few proposals.
“The first one was no good. I didn’t like any of the terms,” Reyes said. “The second one hit it right on the nail.”
Even though he was close to signing the loan with the original bank, he couldn’t ignore the advantages of the competing offer, he said.
Conestoga Bank, in Feisterville, Pa., offered Reyes the 25-year loan term he wanted and an interest rate 1 percentage point lower (but variable).
“The cash injection I needed was at least $300,000 less,” he said.
The Atlantis Inn, he said, is a turn-key operation. “The former owners did a super job, considering they were not from the hotel industry.”
Reyes said that with his experience and resources, he will be able to boost business at the Atlantis.
“There’s a lot of revenue maximization to be done and use the Internet more powerfully in its marketing,” he said.
Big banks are still the major sources of credit to small businesses, with the 34 largest U.S. banks accounting for 39 percent of all such loans, the SBA survey said.
But they also accounted for a disproportionate share of the credit drop — 42 percent — demonstrating what many suspect: That community banks sometimes are more open to lending in markets with which they’re very familiar.
Sun National Bank, the largest based in the region today, is preparing to launch a package of small-business products in the spring that will include new loans, cash management services “and other solutions to allow them to invest back in their businesses,” said Thomas X. Geisel, CEO of parent Sun Bancorp.
The Small Business Development Center at Richard Stockton College’s Carnegie Library Center in Atlantic City is a source for many SBA lending programs as well as financing through banks and other credit institutions.
On Tuesday, the SBA launched its Small Loan Advantage program, with a streamlined application process for 75 percent to 85 percent guaranteed loans up to $250,000.
On Feb. 28, the SBA will begin accepting applications for refinancings of commercial loans under a new, temporary program meant to help businesses destabilized by the declining value of their real property.
Nontraditional sources of business lending have multiplied in the economic downturn, as government and nonprofit agencies attempted to offset the credit freeze.
Another will be announced Wednesday, for example, when the Atlantic County Improvement Authority rolls out a new loan program for Main Street Atlantic City properties in an effort to revitalize a 14-block area along Atlantic Avenue.
Such efforts are welcome by small businesses, and a timely loan can help a business survive the recession.
“It’s hard staying in business today. The last four years have been the most trying in my life,” Romanelli said. “Half of my friends are out of business.
“They bailed, but I’m not bailing.”
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