When Massachusetts Treasurer Steve Grossman saw that more than half of the state’s reserve deposits were held in multi-billion-dollar money market funds in large banks outside the U.S., mostly in Australia, Europe and Asia, he figured something was wrong with that picture.
“Massachusetts taxpayers’ money should be in Massachusetts banks to be loaned to creditworthy small businesses right here in Massachusetts in order to create jobs here at home,” he said. That’s how the state’s Small Business Banking Partnership was born in May 2011.
The program places up to $5 million in deposits in each qualified community bank, in exchange for the bank signing a Memorandum of Understanding to lend those funds to qualified small businesses for the purposes of expansion, capital investment and job creation. Once the bank has utilized 80 percent of the $5 million, it becomes eligible to receive another $5 million in state Treasury deposits.
Participating banks must pay the Treasury a rate competitive with what the Treasury could get overseas. There are no subsidies involved. They must also insure the loans or back them up with collateral to shield the taxpayers from loss. They must lend to small businesses, focusing on enterprises owned by women, minorities, immigrants and/or veterans, “although there’s no quota of any kind,” Grossman says. Participating banks must publicly post their progress every 90 days as to the number and total dollar value of the small-business loans they’ve made.
A list of the participating banks as of June 30, 2013 is posted on the Treasury’s website. As of that date, 53 Massachusetts banks participated, receiving a total of $322 million via the SBBP through which they’ve made 5,722 loans, according to the data on the web site.
However, it’s important to note that the sums posted represent all small-business loans made by the banks, not just those through the Small Business Banking Partnership. Their total small-business loans are reaching $870 million, indicating that they are leveraging their SBBP deposits to increase their overall small-business lending portfolios.
‘A Catalyst’
“We don’t claim credit for all these loans,” Grossman says. “We have been a catalyst for small business lending, but … we are simply one significant source.” He adds that the state’s small banks have a very low incidence of delinquent loans, and that Massachusetts community banks overall are in good shape. “They’ve got money to lend and they’re extending the reach of this program, and other funds that they have.”
That’s borne out by looking at the results from the lender highest on the Treasury’s list in terms of number of loans. Rockland-based Rockland Trust, with a market footprint extending up and down the North and South Shores, shows 1,300 loans, with 36 of them through the SBBP.
Mary Chetwynd, first vice president and business banking sales manager, credits the bank’s high level of lending activity to relationship-building and community involvement. The bank has lent $808,500 during the program’s two-plus years of operation out of the larger total.
Rockland Trust’s average small-business loan size is about $25,000. The bank doesn’t concentrate on any one business sector. “The whole idea is to increase capital spending throughout the Massachusetts economy,” she says. Of the SBBP in particular, “I think it’s a great program”, she says. “Any creditworthy business can get loans through this program,” She commends its lower rates and 100 percent financing on equipment loans of up to $50,000.
One of those equipment loans went to a Woburn-based marble- and granite countertop company Stone Projects, owned by Brazilian immigrant Leonardo Chantre, who used a $335,000 loan from Cambridge Savings Bank six months ago to buy a piece of cutting equipment He would go onto obtain a contract to supply the Massachusetts stores of one of the major home supply retailers. Grossman notes that Chantre went through the community college system and then Northeastern University to get his education and indicates that the success of the business spills over into the success of the family.
Grossman, who has put his hat in the ring as a gubernatorial candidate, is also the grandson of a Russian immigrant who came to the country in the early 20th century, and started a business in 1910 with $3,000 in credit to buy a printing press. Today, the fourth-generation business is run by Grossman’s two eldest sons. “Why not give every small business that’s bankable an opportunity to have the same kind of banking relationship that helped me and our family grow over a long period of time?” he asks. The SBBP, he says, is “strategically the right thing to do for the commonwealth and it makes you feel good to see small business owners realizing their full potential.”
Email: coneill@thewarrengroup.com
