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Thursday, September 02, 2010 - 2:50:01 PM
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Schumer Announces Innovative “Credit for Success” Program - 1/21/2010
Today, U.S. Senator Charles E. Schumer announced the creation of 7 regional lending groups that will use capital from banks all over the state to increase the amount of credit available to small businesses. The program will be based on Ulster County’s “Credit for Success Program” and will establish regional loan pools to be committed by local banks, to provide a critical source of funding for local businesses seeking to grow and expand, but which have not been able to secure financing due to the continuing credit crunch that is disproportionately affecting small businesses. Lending decisions will be made by the New York Business Development Corporation pursuant to rigorous underwriting standards – all loans will have to comply with SBA lending criteria – but the program’s structure will enable banks to increase their small business lending. The consortium structure provides the benefits of “syndicated” lending – i.e., risk sharing among lenders – on a smaller scale, so that businesses that would have ready access to credit in good economic conditions, but are having trouble accessing credit in the current environment, will once again be able to access much-needed capital to create jobs.
Today Schumer announced that across the state there are 25 banks that have agreed to join various regional consortiums, with several banks committing to more than one region. There are at least 4 banks in each region, and a total of $6.1 million has been pledged by these banks. The money will be distributed as loans to small businesses struggling to get credit because of the massive credit crunch. Schumer said that the NYBDC is still in discussions with another 36 banks, and that those discussions are very promising.
“Small businesses will be at the tip of the shovel that digs out of this down economy, but only if we can get them the resources we need, and prevent the credit crunch from strangling their efforts to expand,” said Schumer. “This program will give businesses, which during normal times would have had access to credit, the tools they need to grow and continue to be the backbone of the economy and the force behind the recovery.”
"The regional lending consortiums are a natural extension of NYBDC's core mission - to provide access to the capital necessary for small businesses to start, sustain and grow operations and thereby facilitate opportunity and economic prosperity in New York State,” said Pat MacKrell, President and CEO of NYBDC. “Senator Schumer challenged us to expand the concept beyond Ulster County and our banking partners have responded with enthusiasm. We recognize that so many of our small businesses are dependent on the overall economic recovery to survive and are committed to do what we can to facilitate not only survival but success and growth."
Small businesses are expected to drive the economic recovery -- historically they provide 65% of new jobs. Despite the fact that most banks serving New York continue to lend to small business, there is a clear perception that creditworthy borrowers are not able to access credit. This can harm business confidence and keep otherwise stable companies from operating at full capacity.
Schumer noted, "We're not giving money away, and not everybody will get a loan, but this program will help to ensure that deserving companies in New York at least get a second look."
Prompted by Schumer after he learned of Ulster’s Credit for Success program, the NYBDC - with the help of the New York Bankers Association - has contacted many of its member banks in order to form regional lending consortiums to provide small businesses with an independent “second look” at a loan application which has been declined by the bank of account. The propositions supporting creation of the regional loan funds are as follows:
Small businesses provide the backbone of our economy and account for the vast majority of new jobs in the private sector;
The success of small businesses in the near term will have tremendous impact on the pace and quality of our economic recovery;
New York banks are committed to providing access to capital to creditworthy small businesses;
Loan participations and SBA guarantees reduce exposure and thereby mitigate the risk of loss in the event of default;
An independent “second look” based on the SBA eligibility requirements combined with business/ strategic counseling will identify creditworthy small businesses that would not otherwise be able to access credit; and NYBDC has the staff and experience to manage the loan program and its role in managing the consortiums is at the heart of its mission to promote the economic prosperity of the State of New York by facilitating access to capital for small businesses working in participation with its member banks.
Schumer, working with NYBDC and NYBA and several of their member banks, is in the process of setting up regional consortiums across the state. Each county in the state will be included in one of the following consortiums: Albany, Binghamton, Buffalo, Rochester, Syracuse, Hudson Valley and the North Country. So far, the response from NYBDC member banks has been outstanding. It is anticipated that the initial members of each consortium will be announced over the next two weeks. It is also anticipated that each consortium will have commitments of not less than $1 million.
Below is a summary of the number of banks (including NYDBC) across the state that have committed to the program and the total amount of funding they have pledged to contribute in each region:
· In the Capital Region, 12 banks have committed $1.63 million in small business loans. There are another 6 banks that are considering joining the program.
· In the Hudson Valley, 7 banks have committed $1 million in small business loans. There are another 5 banks that are considering joining the program.
· In the Southern Tier, 5 banks have committed $750,000 in small business loans. There are another 4 banks that are considering joining the program.
· In Central New York, 8 banks have committed $1.13 million in small business loans. There are another 6 banks that are considering joining the program.
· In the Rochester-Finger Lakes Region, 7 banks have committed $1 million in small business loans. There are another 4 banks that are considering joining the program.
· In Western New York, 7 banks have committed $1 million in small business loans. There are another 7 banks that are considering joining the program.
· In the North Country, 7 banks have committed $1 million in small business loans. There are another 5 banks that are considering joining the program.
Applications for this program will only be accepted from small businesses located in a region served by the consortium. The small business must first make the loan application to and be declined by its bank of account. Additionally, the small business must agree to seek business counseling from the Small Business Development Center serving the region. The counseling must be substantially completed prior to the approval of the loan. Applicants must also meet all eligibility requirements of the SBA. The loan amounts will be small – just enough to get a business off the ground or to help it expand - not less than $25 thousand and not more than $150 thousand.
The NYBDC participation amount in each loan will be the greater of 10% or two times the loan amount divided by the number of participants (including NYBDC) plus one. The NYBDC will therefore have skin in the game and will make loan decisions accordingly.
For example:
If the loan amount is $120 thousand and there are 5 consortium members in the region including NYBDC, NYBDC will participate in the loan in the amount of $40 thousand and each of the consortium members will participate for $20 thousand;
Schumer gave an additional example of how this program would work:
Eileen’s exterminating business has expanded from 5 employees to 10 employees and eventually to 15 employees over the last 10 years. At each expansion, Eileen has received a $50,000 loan. She has repaid each loan on time, and her business has grown and become more profitable. Eileen now wants to expand her business again, and add another 5 employees. She goes back to her bank, and is this time turned down for a loan, despite that the fact that her business has only become more profitable and a safer investment. She is told that with the credit crunch, there is less money to lend, and the bank couldn’t meet her request.
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