Hartford Business Journal

8 Hartford Business Journal • August 22, 2016 www.HartfordBusiness.com FOCUS BANKING & FINANCE Small business lending on the rise in CT By Matthew Broderick Special to the Hartford Business Journal D uring her 35 years with the Small Business Administration (SBA), Anne Hunt has seen some major companies grow from struggling startups to household names. "Nike, Apple, Ben & Jerry's and Columbia have all relied on SBA assistance at one time," she said. Today, as the director of the Connecticut Dis- trict Office, one of Hunt's top priorities is addressing what has long been the biggest challenge faced by small and microbusinesses: access to capital. As the criteria for small business loans from commer- cial banks have become more restrictive, the SBA is leaning on a different type of lending institution — Certified Devel- opment Corporations (CDCs) — to make loans available to small and microbusinesses with an emphasis on spurring growth in an underserved area. "One of the requirements [of CDC lending] is that 60 percent of the loans need to go to support low-income areas, minority-owned or women- owned businesses," Hunt said. The trends are positive. Among the $287 million in loans that the SBA district office supported in fiscal year 2015-2016, Connecticut ranked No. 1 across all of New England in the percent- age increase in lending to underserved markets, up 36 percent for the fiscal year, with loans to African Ameri- cans up 42 percent and Hispanics up 61 percent. Community Investment Corp. (CIC), a Hamden-based SBA-supported CDC, led the state in 2015 with nearly $19 million in 504 loans, a type of long-term, fixed-rate loan that can be used by small businesses for acquisition and/or renova- tion of capital assets including land, building and equipment. The real benefit of 504 loans, says Mark Cousineau, CIC's president, is it allows small business owners to get up to 90 percent financing. "That's not something a small business owner could do through a commercial bank," Cousineau said. And SBA's Hunt notes that the 504 loan program actually gets commercial banks and CDCs partnering together. "A commercial bank might loan 50 percent of the amount [for a minimum of 10 years, per SBA regulations], a CDC will cover 40 percent — fixed for 20 years — and the business owner owes 10 percent," Hunt explained. "It's a win for the bank, which takes on less [loan] risk, a win for the business owner who needs less upfront capital and a win for the SBA because these businesses create jobs." Business and job creation have been CIC hallmarks, said Cousineau. He points to his development corpora- tion's early adoption, in 1993, of microlending designed to provide early capital to startup companies. "In its early days, the loan cap was $25,000," Cousineau said. "Today, it's $50,000." Over the near quarter century, Cousineau estimates CIC has helped more than 400 businesses launch with microloans. Last year alone, CIC processed a total of $235,500 in microloans to 13 startups and is on pace to surpass those fig- ures this year, with $189,000 in startup loans through June. That upward trend reflects the overall lending tra- jectory of lending from certified development corpora- tions. In fact, according to the SBA Connecticut's 2016 Small Business Guide, between 2009 and 2015, the total number of loans are up nearly 21 percent and the aver- age loan size is up 24.4 percent to $287,475. But launching a startup or expanding a small busi- ness takes more than just a cash infusion, says Hunt. "Consultative service is a big part of what we do — whether it's helping with creating a business plan or one-on-one mentoring," Hunt said. She points to the state's 35 Small Business Development Centers and active SCORE pro- gram, part of national net- work of more than 11,000 entrepreneurs, business leaders and executives who volunteer to mentor America's small business. In total, the Connecticut SBA office counseled and trained more than 6,000 clients in 2015. And both the SBA and CDCs continue to innovate. Hunt points to the develop- ment of SBA One, an online tool — similar to TurboTax — that allows SBA-affiliat- ed lending institutions to process loan requests fast- er through a series of pre- set questions. "It's a game changer," Hunt said. Cousineau sees both both technology and specializa- tion as drivers of future growth in the small business lending industry. "Since I first started, our business has become more sophisticated," he explained. "Today our staff of 15 is comprised of teams for lending, processing and closing, underwriting and loan services." The organization — which has offered loan pro- grams in Rhode Island since 2004 — opened a new office in Providence this July and is bullish about its future growth. Currently, CIC has nearly $146 mil- lion in loans on its books, with nearly 95 percent in 504 loans. Cousineau said he expects steady growth across all loan programs. n Q&A New investment adviser rules stir industry shake up Q&A talks with Gerald Goldberg, CEO and co-founder of West Hart- ford's GYL Financial Synergies, which recently renamed itself and split away from the independent arm of Wells Fargo Advisors. Q: Your firm Goldberg, Yolles & Lepore Con- sulting Group recently decided to split with the inde- pendent brokerage arm of Wells Fargo Advisors and rename your firm GYL Financial Syn- ergies. Why make this move? A: More and more of our clients, as well as others giving consider- ation to engaging GYL Financial Synergies, indicated they would prefer to do business with us as an inde- pendent Registered Investment Adviser (RIA). Responding to this preference along with wanting to have access to an expanded platform of investment strategies and technol- ogy were some of the reasons for our decision. Our partnership with value- added investor, Focus Financial Partners, also gives us access to thought leadership as well as cap- ital to execute our growth plan. Q: You recently told the Wall Street Journal that this move was partly a reaction to a new federal rule set to take effect in 2018 that will place stricter standards on the advice finan- cial advisers provide to clients. Why is this new rule change so significant? A: When the new regulations are fully implemented the fiduciary standard of care that is applicable to qualified retirement plans and to RIA firms will be applicable to advice provided by advisers affili- ated with broker-dealers to clients relating to their Individual Retire- ment Accounts. Distilled down to its essence, the fiduciary standard requires that an adviser put a client's best interests first. While the fiduciary standard is already applicable to RIA firms, it would replace the "suitability" standard of care that is currently applicable to advice provided by advisers affiliated with broker-deal- ers. Suitability merely requires that the investment recommendation is suitable for the client but it does not have the same limits in place that the fiduciary standard has, such as the requirement to avoid conflicts of interest with the client. Industry experts have sug- gested that this will result in a significant curtailment in com- mission-based business in favor of more transparent fee-based advi- sory relationships. Since many broker-dealer firms still derive a substantial amount of revenue from com- missions, when fully implemented this could have major implications for broker-dealer firms and the advisers who affiliate with them. The business prac- tices of all involved will have to comport to the new standard of care applicable. This will result in both clients and advisers looking for indepen- dent fiduciary firms that have a clearly articulated value-add- ed proposition. Q: Your announcement says you're looking to grow through mergers and acquisitions. What types of firms are you looking to acquire? Is there a particular geographic region you'd like to expand in? A: Our acquisitions will be governed by not only wanting to do transactions that are accre- tive to earnings but more impor- tantly as part of our broader talent-acquisition strategy. We want to attract advisers and investment professionals that are not only capable but also subscribe to the same ethos and client-centric philosophy that is our guiding light at GYL. Although we are not geographi- cally constrained and have clien- tele as far west as Hawaii, it is likely that we will first focus on acquisi- tion activity within our existing footprint where we have a high con- centration of clientele. This trans- lates to us being particularly inter- ested in firms from Connecticut to Maryland. Of course if an extreme- ly attractive opportunity presents itself outside of that area, we are open to giving it consideration. Another important component of our growth relates to our ability to provide and facilitate succession planning for advisers who currently do not have a plan for their clients when they retire or if something happens to them. With the average age of advisers in the industry being above 50 years, this is a critical issue GERALD GOLDBERG CEO and co-founder, GYL Financial Synergies Continued U.S. Small Business Administration Loans in CT No. of Year loans 2009 576 2010 673 2011 695 2012 576 2013 572 2014 587 2015 695 S O U R C E : U . S . S M A L L B U S I N E S S A D M I N I S T R AT I O N Anne Hunt, director, Connecticut District Office, Small Business Administration Mark Cousineau, president of the Community Investment Corp. P H O T O | C O N T R I B U T E D

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