When times are tough, bankers are more likely to call on BDC Capital Corp. So perhaps it’s no surprise that its phone’s been ringing more often over the past few years.
Among other things, Wakefield-based BDC makes loans to small businesses, either solo or in conjunction with banks – often when the borrowers’ financials are promising, but just a bit shakier than the bank would like. And with many businesses struggling through the downturn and nascent recovery these days, BDC is doing brisk business.
Loans grew 30 percent from 2008 to 2009, bringing the volume of loans, investments and loan guarantees to $108 million, serving 284 small businesses. BDC’s volume is on pace to grow another 25 percent in 2010, said Kenneth J. Smith, BDC’s president.
Not Going It Alone
BDC Capital is funded by a group of member banks and insurance companies, mostly located in Massachusetts, Smith said. Some borrowers come to BDC directly, but any bank can also call up and suggest a loan opportunity for a would-be borrower.
BDC Capital is funded by a group of 30 member banks and insurance companies, mostly located in Massachusetts, Smith said. Other institutions particulate in various programs or invest in BDC’s funds. More than 100 are participants in BDC’s loans.
Some borrowers come to BDC directly, but any bank can also call up and refer a would-be borrower in need of a loan.
Often, those borrowers have perhaps slightly thinner earnings than the bank is entirely comfortable with, but the bank still might see potential in the deal. Instead of turning the borrower away, the bank can work with BDC to form a complementary set of loans. The bank might be able to provide, say, a line of credit to the borrower, while BDC steps in with a term loan to supplement the borrower’s needs.
“We’re helping [banks] get more loans in their portfolio than they would on a standalone basis,” Smith said. Ideally, in a few years, when the borrower has strengthened its fundamentals, the bank will take over the entire lending relationship.
Right now, interest is high. Five banks called just this week to ask about becoming members, he said, and BDC has plans to expand its offices in other New England states, including seeking new bank members outside Massachusetts. A recent Massachusetts Bankers Association roundtable explaining the BDC program drew a packed crowd of about 65, twice the expected attendance.
Member banks agree to contribute to a capital pool within BDC equal to 2 percent of their bank capital at the time they apply, according to Smith. Potential loans are presented to, and approved by, a board of senior officers from member banks, which reviews loan applications and makes recommendations.
The board is packed with respected lenders, said David Fallwell, executive vice president of Middlesex Savings Bank, which often deals with BDC.
“Those guys are very good at analysis and credit judgment,” he said. If the board says they can help, it’s a vote of confidence in the borrower, which in turn helps the referring bank’s own confidence in the deal. Another set of eyes reviewing the deal is extremely helpful, Fallwell said.
BDC is a public company. Its shareholders include banks, economic development groups, institutions and individuals. Smith said BDC’s portfolio is audited by Grant Thornton, and the company presents its financials to board members and shareholders. It had no past due loans at the end of 2009, and has had no non-earning loans in six years, he said.
Fallwell demurred from characterizing borrowers with BDC loans as “financially shaky,” but said rather that they often just need a more flexible lending structure than Middlesex alone, or other traditional lenders, would be able to provide.
For example, often a borrower isn’t able to put up enough equity in a transaction, and Middlesex wouldn’t be able to provide all outstanding financing. But by pairing up with BDC, the two lenders together can put up 90 percent of the financing.
“My experience is, with their help, you can put together a better package,” he said.
