The New Jersey Economic Development Authority board approved a 12-month pilot lending program to boost small business growth for minorities and veterans at a meeting Thursday.
The new program, Access, will provide $15 million to support small businesses based on cash flow and personal guarantors, rather than other traditional collateral used for bank loans.
The guarantors would be held to a minimum FICO credit score.
Of the $15 million in loans, $10 million will be delegated through the EDA’s 26 lending partners, and $5 million will be directly from the EDA.
“From blueberry farmers to manufacturers and Main Street retailers, New Jersey’s vibrant small business community will benefit significantly from a more supportive environment, including enhanced access to lending,” Gov. Phil Murphy said in a statement. “Small businesses are the backbone of our economy and employ more than 50 percent of our workforce, so helping businesses that may have been left behind previously get capital to grow their businesses and create jobs is essential to economic growth and improving New Jersey’s business climate.”
The lending partners are capped at $1.5 million per loan, and the EDA is capped at $750,000 per loan.
The EDA has a number of lending programs, and always has provided lending services, but many pose barriers to minority and veteran-owned businesses, CEO Tim Sullivan said at the meeting.
In addition, none of the programs have received enough attention.
In a memo, Sullivan said this new program providers more flexibility to help make the state’s economy more competitive.
“Based on feedback from our Premier Lender partners and understanding the current lending gap in the marketplace, EDA sees an opportunity to help small businesses by lending on a cash flow basis with less reliance on hard collateral,” according to the memo.
“This will allow more flexibility to borrowers and us to be more impactful in the market.”
Currently, many businesses, especially those owned by minorities or veterans, are supported by online lending sources with high interest rates.
These are sometimes the only route for those who do not have credit histories.
Lori Matheus, senior vice president of finance and development at the EDA, said the agency’s goal is to help solve that problem.
“We’re trying to get them before they do that,” Matheus said. “Our rates are typically lower … we’re not typically as risk-base-priced as others in the marketplace, so it’s lower cost, longer term.”
“What I see is that those that don’t have access to capital now, they are the ones that usually would like to interact with someone,” he said. “Because the (EDA’s) offices are in Trenton, it is unlikely they are going to be able to cover the entire state.”
De La Hoz said the EDA has to either find new partners who can implement the program properly, or ensure the current partners do a better job of communicating with minorities and veterans.
Both are already part of the plan, Matheus said.
Matheus said the EDA will be doing targeted outreach, outside of the lending partners, to ensure that the intended benefactors can find out about the new program.
“We’re going to be going to the chambers, we’re going to be going to the local business meetings and events to try to listen and spread the word,” she said.
Sullivan said the EDA is in the process of hiring two individuals, who will have to be bilingual, as dedicated outreach for minority and women-owned businesses.
In addition, the EDA wants to partner with more community banks.
“We’ve been meeting with a number of them,” Matheus said. “Some of them don’t do a lot of commercial, they only do residential, so we’re (looking) through that. But we are targeting smaller community banks as well.”
The hope is that this program will fare better than others have in the past.
“We’re going to continue to test and see how the market reacts to what we do,” Sullivan said. “If there’s a lot of interest and uptake, great, if, for some reason it doesn’t, then we’ll continue to tweak and tinker and pilot and make sure we are being responsive to the marketplace. Even if this goes well for the next six to nine months, the market may shift on us in another six to nine months again, and our team will evaluate that.”