A hallmark of Gov. Dannel P. Malloy’s economic development strategy has been to seed businesses with government loans, grants and tax incentives to stir job creation.
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A hallmark of Gov. Dannel P. Malloy’s economic development strategy has been to seed businesses with government loans, grants and tax incentives to stir job creation.
One of those programs, Small Business Express, was created in 2011 to provide capital (up to $400,000 per deal) to smaller companies in exchange for their commitments to retain or create jobs in the state.
Through June 30, the state Department of Economic and Community Development (DECD), which oversees the program, completed over 1,600 Small Business Express deals worth around $254 million in loans and grants, according to a Hartford Business Journal analysis of loan program data.
Those companies have committed to create or retain 25,571 jobs in Connecticut, DECD said. But not all those deals have worked out.
A total of 55 companies that received a collective $9.5 million in loans and grants have gone out of business, HBJ’s analysis found.
Another 138 companies that received a collective $19.6 million in loans and grants have not met their job obligations and have been forced to pay penalties, either in the form of a higher interest rate or loss in grant funding.
DECD Deputy Commissioner Bart Kollen said the default rate is relatively tiny when compared to the number of deals that have been brokered.
“If you ask banks about their actual default rate on loans, I think our portfolio would look rather positive compared to a lot of commercial lenders,” he said.
Uncertain future
While the Small Business Express program has seen significant activity in recent years, its future is in limbo.
As part of the bipartisan state budget deal, lawmakers have cut the program’s funds by $5 million this fiscal year and eliminated funding entirely in fiscal 2019, Malloy said.
In response to the cuts Malloy, who was lukewarm to lawmakers’ $41.3 billion two-year budget deal but signed most of it into law, said he wants to work with the General Assembly in the months ahead to explore alternative options.
Deal gone bad
One Small Business Express deal that went belly up recently led to criminal charges against its recipient, Mohsen Youssef, owner of South Windsor’s Amoun Pita and Distribution LLC. Youssef was recently convicted of cheating the state and various lenders out of more than $3 million to finance his fraudulent pita bread baking business.
Youssef, 27, pleaded guilty in New Haven federal court last month to one count of bank fraud and one count of mail fraud, the Connecticut U.S. Attorney’s Office said.
According to investigators, Youssef defrauded various banks, a corporate leasing and vendor finance company, and DECD in a scheme to fund equipment purchases for Amoun Pita and other companies he controlled. As part of the scheme, Youssef lied about the value of his business assets and other items on applications for loans, credit lines and state grants, prosecutors said.
He received $400,000 from DECD’s Small Business Express program in 2013, state records show. A DECD spokesman said the agency worked with the FBI on the case and that the agency takes its fiduciary role seriously to protect taxpayer interests.