The state’s Small Business Express loan program has garnered so much interest that state officials may consider asking lawmakers next year to provide more funding and extend the $100 million program.
So far, almost 1,300 businesses have submitted applications for the program, which will provide $100 million in loans, forgivable loans or matching grants to Connecticut-based small businesses over the next few years.
The program was started in late 2011 and was part of the jobs bill passed by lawmakers during the special legislative session in October. Of the nearly 1,300 applications received so far by the Department of Economic and Community Development (DECD), 247 businesses have received a total of $32.8 million, officials said.
The grants and loans helped retain 2,085 jobs in the state and create 867 new jobs, officials said.
DECD Commissioner Catherine Smith said the interest in the program has exceeded her expectations and money could run out by next summer. Smith said she and her staff will now consider whether or not to ask lawmakers to allocate more funding for the program in the upcoming legislative session.
But she conceded the Small Business Express program will not be permanent.
“We are talking about how long and whether we should extend the program,” Smith said. “It was never intended to be a permanent effort. It was intended to be a stimulus. Banks had some trouble getting credit out the door. We are filling a gap that was needed to help Main Street get back on its feet and help small businesses that have been afraid to do much of anything.”
Companies that have received funding from the program run the gamut from restaurants, fitness centers and solar companies to plastic manufacturers and construction companies.
Centerplan Construction Co. of Middletown, for example, was awarded a $100,000 matching grant for the build-out and fit-out of additional office space and equipment. The firm will also receive an additional $500,000 loan to add five employees to its 31-member staff in 2012 and 20 to 25 workers over the next five years.
Meanwhile, Hartford investment manager Smith Whiley & Co. received a $100,000 matching grant and a $250,000 Job Creation Incentive Loan to introduce its fourth investment fund. The money will help the firm retain 12 jobs, create three more and help pay for the marketing of its new product.
While DECD is running the program, nontraditional lenders like Hartford’s HEDCO and the Community Economic Development Fund are helping to underwrite the loans.
Some critics have raised concerns about whether or not the state should be in the business of investing and granting small businesses taxpayer money, but Smith said the economic stimulus is worth it.
As the state considers extending the express program, however, the banking community, which says it has cash to lend, will be looking on with interest. Competition for creditworthy small business borrowers is intense and has many community banks competing on rates and terms.
The banking community has not been vocal about the Small Business Express program, but privately some bankers want to make sure the state doesn’t encroach on the banks’ territory by poaching creditworthy borrowers.
“If the state, through its partners, were to target bankable businesses, this would be a poor use of taxpayer money,” said Martin Geitz, CEO and president of Simsbury Bank and Trust. “There is no need for the state to substitute taxpayer money for bank lending. Connecticut’s banks have plenty of funding available to meet small business lending demand and we are working hard to find borrowers and close loans.”
As he understands it, Geitz said the express program is primarily targeting businesses that would not qualify for bank financing, so if it sticks to those roots, community bankers will have no issues.
But, instead of direct loan programs, Geitz said he would rather see the state use loan guarantee programs to help banks make loans to companies that may not otherwise qualify.
“This would help leverage bank expertise in business lending,” Geitz said. “And, loan guarantee programs provide the opportunity for the state to leverage its available funding. The state should be able to guarantee a much higher dollar amount of loans than it could make on a direct basis as only a relatively small percentage of the loan guarantees will result in funded losses.”
It’s not entirely clear how much access small businesses have to credit, as different surveys point to contradictory trend lines.
The Federal Reserve Bank of New York recently polled 500 small businesses in the Tri-State area and found 63 percent of companies that applied for financing received credit, but only 13 percent were approved for the full amount, while 36 percent received partial financing.
The poll also found that that microloans — under $100,000 — are highest in demand but are tougher to secure compared to larger loans.
Meanwhile, a Connecticut Business & Industry Association survey released last week, found that credit conditions in the state deteriorated slightly in the second quarter.
The survey of 240 executives showed only 15 percent of respondents saw future credit conditions improving over the near term, while 41 percent believed near-term credit conditions were likely to deteriorate in coming months.
