Collateral to help grow minority-owned firms

A BOOST FOR SMALL BUSINESS: Raphael Okelola, president of Roplab IT Solutions LLC, works on the home page for the website of the African Alliance of Rhode Island. His company received a $10,000 loan through a program administered by the Rhode Island Black Business Association. / PBN PHOTO/MICHAEL SALERNO
A BOOST FOR SMALL BUSINESS: Raphael Okelola, president of Roplab IT Solutions LLC, works on the home page for the website of the African Alliance of Rhode Island. His company received a $10,000 loan through a program administered by the Rhode Island Black Business Association. / PBN PHOTO/MICHAEL SALERNO

When small businesses with little collateral need loans, they often find it difficult to meet the lending standards of traditional banks.

A new program administered by the Rhode Island Black Business Association hopes to open more financial doors to businesses that, but for the financial backup, have the income to repay small loans.

The Collateral Support Program, launched in January, provides up to a 30 percent collateral addition from the nonprofit business association for small businesses seeking loans of $10,000 to $50,000 through its partner bank, Freedom National Bank.

The businesses need to meet the criteria of the program, including being a minority-owned small business, at least 3 years old and located in Providence. The businesses can have no more than five employees, including the owner, and need to be in certain industries, including construction, electronics, information technology, retail or professional services.

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The program applies to for-profit businesses only. And the businesses need to meet the lending guidelines of Freedom National, a community bank with branch offices in Cumberland and Smithfield.

RIBBA initiated the program with a $200,000 grant from Providence, which awarded federal funds through the HUD Community Development Block Grant program.

Freedom National Bank, meanwhile, has pledged to loan $750,000 through the program to established black and other minority-owned companies that were hard-hit in the Great Recession, according to Lisa Ranglin, president of RIBBA.

Initially, the program was intended for applicants located on or near Broad Street, Cranston Street and Elmwood Avenue. It recently was expanded to include other city neighborhoods where small businesses are located.

“Small businesses typically have a difficult time getting loans from traditional lending institutions,” Ranglin said.

“Prior to the housing crisis, within the urban communities, a home was really what a business owner would use as collateral if they decided to go for a loan through a traditional lender,” she said. “As a result of the foreclosure crisis, in most cases, that asset is no longer available.”

The program is among several in the U.S. that focus on urban communities, or that target specific industries, according to Ranglin.

In Michigan, a much larger, state-run program allows businesses with no more than 750 employees to request up to 49.9 percent of an extension of commercial credit. The program has a $5 million cap per business, and targets specific industries, including mining, manufacturing, research and development, and digital media production.

In Providence, the guidelines include that no investment is made in real estate as part of the loan, Ranglin said.

A RIBBA manager reviews the applications to determine if the businesses meet the program guidelines, as well as the bank’s underwriting requirements.

In mid-January, the first award was announced. JC Electric Inc., a minority-owned business on Hathaway Street, received a $25,000 loan. The electrical contractor, in business for 25 years, primarily works as a subcontractor on public projects in Rhode Island, according to owner John Cruz.

In mid-February, his employees were working on several projects, including at the University of Rhode Island and at the Rhode Island Adult Correctional Institutions.

In construction, Cruz said, the work is sporadic. He typically receives payment after work is completed, but the expenses are upfront, as are the business taxes. The additional resources will help provide a cushion for equipment purchases and other business needs as he bids for more work.

“These aren’t big jobs,” he said of the current workload. “They come and go.”

A second loan was awarded recently to Roplab IT Solutions LLC, for $10,000, according to Ranglin. The company, led by President Raphael O. Okelola, offers website and software design, as well as information technology consulting. Founded in 1998, the small business has two employees and also employs contractors, Okelola said.

One of the greatest challenges for a small business, he said, is that the turnover between services and payment can be as long as 90 days. The loan, he said, will help the business retain its contractors as it pursues larger contracts.

“It will give us an ability to bid for bigger-client jobs,” Okelola said.

As part of the public-private partnership, businesses can also receive up to 10 hours of accounting and legal consultation, ongoing business-development consultation and software services, including installation of QuickBooks with training to meet bank requirements.

The business association is holding monthly informational meetings for small businesses interested in applying, according to Ranglin.

“We’ve had a lot of interest,” she said. •

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