Micro Loans Help Small Businesses in NJ

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Diana DiMonda, co-owner of Dulce Candy Boutique in Montclair, is one of the many small business owners who have gotten help through micro-loans. The store offers jars of penny candy and other nostalgic treats.

Diana DiMonda previously worked for large private equity firm Kohlberg Kravis Roberts, helping prepare documents for corporate buyouts.

But deep in her head, she was thinking of candy.

She and her sister, Melissa Tripoli of Nutley, have always wanted to run their own business. Their vision was to create a nostalgic candy store in a quaint downtown area.

But how could two novice retailers finance a cotton candy machine and shelves full of gourmet chocolate and puzzles? They were turned down by three Essex County banks which only lent to existing businesses. So, they turned to UCEDC, a non-profit community-
Union Development Group.

They applied for a loan of $ 35,000 and opened the Dulce candy store in Montclair last August. Their shop, next to a movie theater, is filled with bright yellow, red, and blue packaging and retro candy like Skybar, Wax Lips, and Zagnuts.

“We pay our bills,” said DiMonda, 37. “If there hadn’t been a micro-loan, we wouldn’t exist.”

Micro-loans – small loans for start-ups – are gaining more attention from entrepreneurs, as the number of commercial banks involved in this type of lending has declined with the difficult economic times.

“Banks are not interested in making a loan of $ 7,000,” said Paige Sato, director of business development for UCEDC. “Typically, we get 300 phone calls a year from entrepreneurs who want a loan. Last year we had 600.

Groups like UCEDC are offering the smallest of small business loans so dentists can renovate space for a new practice or small software companies can buy computer systems. Clients also receive advice on everything from business plans to city bylaws.

UCEDC began in 1977 as Union County Economic Development Corp., a coalition of labor, business and government groups. Today, it is a statewide funding institution that supports entrepreneurs who have nowhere to turn.

It is one of four non-profit organizations in the state that offer micro-loans. Others include Regional Business Assistance Corp. (rbacloan.com) in Mercerville, the Cooperative Business Assistance Corp. (cbaclenders.com) in Camden and the Greater Newark Business Development Consortium (gnbdc.org), which helps minority-owned businesses.

The Union County group borrows money from the Small Business Administration (SBA) to make loans, sometimes joining with other micro-lenders to spread the risk, Sato said. Loans are typically $ 35,000 or less over five years, with interest rates of up to 10.5% for riskier start-ups, Sato said. Entrepreneurs must present a business plan which is reviewed by a loan committee made up of senior business leaders.

“Usually these loans are for small business moms and pops – not the kind that make the cover of Business Week,” said Raman Chadha, director of the Coleman Entrepreneurship Center at DePaul University in Chicago. “Typically, micro-lenders provide borrowers with coaching and mentoring that can be more valuable than a loan because it can give them business acumen. “

REDUCE THE RISKS

Some community banks also offer small loans, but usually for existing customers. Roma Bank in Hamilton Township, for example, provides micro-loans of $ 50,000 and under, according to Richard Davis, vice president of commercial loans. Much of a typical loan is guaranteed by the SBA to reduce the risk of the bank.

“We find it profitable to provide these loans to existing customers, to help them grow their business or grow it,” he said.

Yet many commercial banks refuse to lend to start-ups, said John Warrillow, small business expert and author of “Built to Sell: Turn Your Business into a Business You Can Sell.”

Banks lend money to “people who can prove they can pay it back, that is, people with a lot of equity in their home or other assets they have managed by the bank. bank, ”Warrillow said. “Start-ups are risky, and the only people willing to take that risk are … friends, family, or angel investors who will demand a much higher ROI than a bank could even do by charging. interests.”

NEW OPPORTUNITIES

April Lowell remembers waking up in the middle of the night two years ago to breastfeed her daughter in the dim light of the closet so she wouldn’t surprise the baby. She came up with the idea of ​​a small light that attaches to a mother’s pajamas so that she can see what she is doing without waking the child.

From this invention, she and a friend created a website, nurselight.com, operated from her Denville home with personal savings and a $ 20,000 micro loan. Their business, Pink Magnolia, is owned by Lowell and Patricia Gilbert, who met in ninth grade and were roommates at Rutgers University.

“The problem with bank loans is that they want you to be in business for at least two years,” Lowell said. “This loan gave me an opportunity that I wouldn’t have had otherwise.”

Augusto Wong used a micro loan to expand his dental practice when he bought a building in North Plainfield in 2007. He first tried out a major bank but was put off by the way he was treated.

“When you go to a bank, they move you from one department to another,” he said.
The Union County Development Group not only gave him a loan, but also helped him improve his marketing to Hispanic patients in that part of Somerset County.

“They wanted to make sure I was going to be successful and be able to meet my loan commitments,” Wong said. “They gave me good advice, and that’s something I wouldn’t get from a bank.”

Frequently Asked Questions

Entrepreneurs sometimes fail to obtain financing because they are not ready to answer critical questions about their business plan, said Ellen McHenry, director of financial programs at UCEDC. Here are some questions micro-lenders will ask you:

1. Is this a viable business? Too often, people haven’t done the necessary market research to find out if the business has a chance of success. Two good sources of market research are the local library and relevant trade associations.

2. Do you have industry specific experience? Lenders want to see an operator with at least a year of experience in that particular industry to reduce the risk of granting you the loan.

3. How much money do you really need? If you need $ 300,000, you need to find financing for that amount. Starting a new business is risky at best without being under-capitalized.

4. How much of your own money will you contribute? Lenders want to see you have
skin in the game as a sign of your personal commitment to running your business.

5. What is the value of your credit? Many entrepreneurs don’t think personal credit history should matter. But without a business credit history to examine, the best determinant of your creditworthiness is your personal financial behavior.

Joseph R. Perone can be reached at [email protected] or (973) 392-4262.


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