You’ve built a successful music retail business. You’ve identified your successor. Worked hard mentoring her over the last decade. You’re finally ready to pull the trigger so you can have time to get the band back together and re-ignite your performance career. There’s only one problem; your traditional banker is coming up short to fund the amount your successor will need to come up with to ensure a successful retirement. Not an uncommon scenario.
According to the SBA (Small Business Administration) web site, a Certified Development Company or CDC is a nonprofit corporation set up to contribute to the economic development of its community. CDCs are located nationwide and operate primarily in their state of incorporation (Area of Operation). CDCs work with SBA and private-sector lenders to provide financing to small businesses through the CDC/504 Loan Program, which provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.
Along comes Stephen Heavener, (Left) Executive Director of Capital Regional Development Council, a Certified Development Company along with Joe Lacerda (center) owner of Manchester Music Mill and CRDC Loan Officer, Jennifer Boulanger.
Although Joe wasn’t funding a succession plan, his bank did come up short on his expansion needs. In 2013 Lacerda obtained an SBA 504 loan through New Hampshire’s Capital Regional Development Council, and purchased a building on the same block that would meet all his needs and house both businesses, giving his customers everything they need under one roof. Even with the mid-year move, Joe doubled the previous year’s revenues, exceeding all projections.
Stephen tells me that his program could also potentially be structured to help fund a succession planning requirement.
Here’s an excerpt from my conversation with Stephen.
JB- Thanks for taking the time to speak with me Stephen. Tell me why most small business owners are not familiar with your services?
SH-We don’t market ourselves to the end user because I don’t want a thousand guys calling me for money because you have to be first vetted by the bank. So you can imagine, if the deal isn’t strong enough, I don’t want to take that call. I want the bank to do the original screening.
JB- Is your program 100% government funding?
SH- We have cobbled together a variety of products and resources from a bunch of different places so even though I’m a non-profit, some of my money I borrow from the Dept. of Agriculture because most of New Hampshire is rural. As a result, I can borrow money from the USDA for 30 years at 1%. Then I’ll turn around and loan it for between 6- 7%. The CRDC loan officers establish the rate based on the risk of the loan request and each loan is unique to the circumstances. So I’m living on the interest. Some of the money may be housing and development money; some environmental protection agency money if we do some environmental cleanup. Some of my money is from SBA- we do a lot of with the Small Business Administration. – That’s how we did the deal with Manchester Music Mill. So depending on the size of the need, and where it’s located we decide which pot of money to use. Although most of the money is federal it is still my responsibility to get it right, because once I borrow the funds it’s my responsibility to make sure the loan is paid back.
JB- How does your company get compensated?
SH- We live on the interest and the fee- so no government agency is writing us a check; we are like a non-traditional bank. So if I’m borrowing money at 1% and loaning it at 6-7%, just like a bank, I live on the arbitrage. In addition we take a 1 or 2 point fee at closing.
JB- Are there subjective factors involved in your decision or is it all about the numbers?
SH- Yes, just like a bank. They have to have good character, you look at their history, you look at them in the eyes and you decide if this person will fulfill the terms of the agreement.
JB- I know your reach is limited to New Hampshire. Where else can music retailers look in other parts of the country?
SH- I suggest that you start with the state economic development organizations in your community, and ask them for a list of appropriate organizations. Your traditional banker, may also be able to help.
JB- Thanks again.
I’m frequently asked how key managers or family members will find the necessary funds to buy out the exiting owner. It may take some leg work on your part, but in the end reaching out to CDCs via your traditional banker may help get your finances in tune.
Please note: BH Wealth Management is not affiliated with Capital Regional Development Council.