Leo Chantre is living the American dream.
The Brazilian immigrant opened his business, Stone Projects, in 2005. Now, about eight years later, he’s grown his business to the point where he’s landed a contract to supply Lowe’s Massachusetts stores with natural stone and quartz.
Chantre recently took out a $335,000 loan from Cambridge Savings Bank to purchase a new piece of cutting and finishing equipment. That machine will increase his productivity and even give him the means to hire four new employees. Chantre estimates this move will eventually grow his annual revenue by as much as $1 million.
In and of itself, there’s nothing especially unique about a small business borrowing money from a community bank to finance the purchase of a new piece of equipment, but for Cambridge Savings Bank’s participation in a statewide initiative aimed at moving state reserve funds into local banks on the premise that those banks will then channel the money back into their communities in the form of small business loans.
Last week, Needham Bank became the 52nd bank to sign onto the Small Business Banking Partnership, receiving $5 million in state reserve deposits on the condition that it loans the money out to small businesses in its community.
“It’s a no-brainer, honestly,” said Eric Morse, a vice president at Needham Bank. “It seemed like a very natural and easy extension of what we’ve been doing anyway.”
Treasurer Steven Grossman said the program arose in response to small business owners’ complaints about lack of access to capital, coupled with Grossman’s discovery that more than half the state’s reserve funds were sitting in bank accounts outside the United States. That was in 2009, at the height of the recession, and while credit conditions have certainly improved in recent years, Grossman has plans only to expand the partnership, which has been a hit with banks and businesses.
The state has a fiduciary responsibility to seek the highest return on that money, he said, so his intent is not to move 100 percent of that cash back into Massachusetts, but rather to funnel a good portion of those funds into Bay State-based banks and businesses. In return for a deposit of $5 or $10 million in state reserve funds, the banks make a two-fold promise: To offer a competitive rate for the state’s deposits and to reinvest that money into loans to local small businesses.
In a way, it’s like a stimulus program, but it doesn’t actually cost Massachusetts taxpayers a dime.
Today, just shy of its two year anniversary, the Small Business Banking Partnership has moved $317 million in state reserve deposits into 52 banks across the Bay State.
“The focus of the program is to put money into small businesses in gateway communities, with a particular focus on women-owned and minority-owned businesses,” Grossman said.
Banks participating in the partnership aren’t required to put a percentage of the money into any particular type of loan, however, and while the state reserves the option to ask for the funds back if it determines a bank is not putting enough of that money back into its community, Grossman says he simply hasn’t had to do that.
“These banks are thrilled with the program. We don’t have any intention of pulling this money back,” he said, adding, “They’re reserve deposits we don’t intend to use anytime in the near future.”
Cambridge Savings Bank, which has been participating in the Small Business Banking Partnership for just over a year now, has made 57 loans that Stephen Leonard, vice president of commercial lending, attributes to the partnership.
Those loans range in amount from $20,000 to $300,000 and according to Leonard, the bank has loaned about $3.4 million in state funds to local businesses like restaurants, retail storefronts, landscapers, manufacturers and more. He said it’s likely the bank will loan the full $5 million within the next few months.
They’re good loans, he said, and the bank probably would have made most of them anyway, but the partnership with the state gave Cambridge Savings an added incentive to lend to these businesses.
Leonard also attributed the bank’s participation in the partnership to boosting its Small Business Administration (SBA) lending.
“This absolutely leveraged our SBA activity. A lot of these loans are SBA loans,” he said. “We went from being a relatively minor player with the SBA to being the number seven SBA lender last year.”
And from the banking perspective, the program is easy to implement, with Morse noting that it takes “very little” additional effort to participate.
“We’re very proud of the fact that not a penny of taxpayer money has gone to subsidize this,” Grossman said. “It’s a very straightforward, simple, common sense idea. I don’t know why other states don’t do it.”
Email: lalix@thewarrengroup.com
