Raimondo has increased small-biz programs, but more work needed

 / PBN PHOTO/RUPERT WHITELEY
/ PBN PHOTO/RUPERT WHITELEY

Woonsocket restaurant owner Judy Beauchemin knows all too well how much effort it takes to make a small business work, and how the unexpected can upend the best of ideas.

She opened her first family restaurant in 1993, and still remembers the financial loss she absorbed when it closed six months later, after the leased space was damaged by flooding from an upstairs apartment. In her next restaurant, termites eventually became a problem, she said.

This past July, a year after opening Missy’s Restaurant, she invested $25,000, “every dime” she had, as down payment on a loan to purchase the building her latest restaurant is in, taking a leap of faith in her business. “I said, I’m either going to make it or I’m not.”

The investment came after she worked with a financial adviser and developed a business plan, for the first time, with the help of a city initiative to connect small-business owners with the University of Rhode Island’s Small Business Development Center.

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As useful as the SBDC help was, she could have used more. But she didn’t know about additional programs and resources newly made available to small-business owners directly through the state, via the R.I. Commerce Corp. and its partners.

Commerce Secretary Stefan Pryor, who recently described small business as the “lifeblood of the economy,” said it has equal stature with initiatives for larger businesses in Gov. Gina M. Raimondo’s administration.

But despite increased efforts by the state to convey information about new loan, grant and counseling options, the information hasn’t reached all the Rhode Islanders, such as Beauchemin, who could use it.

She learned about Woonsocket’s partnership with URI when a city councilman mentioned it to her. Through that program, she obtained a loan through Navigant Credit Union to purchase her building. The closing came after she documented growth in her sales, and learned how to better track and monitor her success.

State officials who oversee small-business programs are trying to get the word out, but say the nature of small-business operations makes that work difficult.

The programs created under Raimondo that address issues such as hiring, employee retention, access to capital and professional mentoring are intended to help support small business in a variety of industries, according to Elizabeth M. Tanner, executive vice president of the client-services division at Commerce RI.

But small-business owners, through their associations and individually, say many of the programs rely on owners to actively seek out state help, and effectively advocate for themselves. In larger businesses, that role is often delegated to professional advisers and lobbyists.

And yet, small business is, in fact, the state’s big employer.

The state has approximately 90,000 businesses, according to Tanner. Of those, 60,000 are sole proprietorships, which tend to have fewer than 500 employees. Tanner estimated about 90 percent of them fall into the small-business category.

“With a few exceptions, just about everybody in Rhode Island is a small business,” she said.

WHAT’S NEW?

So, what has the state set aside for the so-called “little guy”?

Tanner’s Commerce RI division has grown by one employee, to nine, under Raimondo, a position covered by the state’s Department of Labor and Training, to help connect business owners with programs and services for training needs.

“We give her lots of referrals. You can’t sit and talk with a business owner without talking about workforce development,” said Tanner. The division also employs five advisers, a federal grant researcher, and two administrators, including one focused on Salesforce data.

The small-business liaison, an administrative position at Commerce briefly filled by Raimondo appointee Donald J. Lally Jr., a former state representative, has been dissolved, according to Pryor. The functions of that job have been absorbed into other positions.

“Across the Commerce Corp., we’ve created the capacity to assist small businesses,” he said. “And we’re collaborating with other state agencies.”

Client services is often the first contact at the state for small-business owners. It operates the Business Navigation Center, a website and physical presence at the Commerce RI offices, where small-business owners can meet with an adviser.

Oftentimes, the help comes in the form of advocacy with other agencies, or in answering questions about process.

“If they’re having an issue getting a letter of good standing from the Division of Taxation, or getting someone to answer at another state agency, we very often hand-hold through that process to assist them with whatever it is that they need,” Tanner said in a recent interview.

In terms of financial assistance, Commerce RI continues to administer a Small Business Loan Fund, a federally sourced program that was begun in 1986 with an initial appropriation of $12.2 million. Since then, the amount has been recycled through lending and repayment from borrowers.

At the beginning of the current fiscal year, the amount available for lending was $2.34 million, according to figures provided by Commerce RI.

The state is now preparing to launch a companion, state-funded Small Business Assistance Program, which will include microloans from $2,000 to $25,000 aimed at the smallest businesses, those with five employees or less, as well as loans exceeding $25,000 for larger small businesses.

The program has a goal of assisting small businesses that have encountered problems with loan approvals from traditional lenders, according to Pryor.

“Frequently, when an entrepreneur starts a very small business, it’s especially challenging for them to access traditional banks and obtain access to capital,” Pryor said. “They may not have a track record in precisely what they’re pursuing. The dollar amount of what they’re seeking may be so small, it is not practical for a bank to make the loan.”

The state authorized $5.45 million for the program this year, and Commerce RI recently allocated the funds to six lending providers, who will in turn distribute loans to small businesses. Recipients include the Center for Women and Enterprise, Social Enterprise Greenhouse, Community Investment Corp., Business Development Co. of Rhode Island and other enterprises, Pryor said.

In addition to $5.45 million through the Small Business Assistance Program, several incentives directed at small business were created in 2015 by the General Assembly and funded in 2015 and 2016. They include:

n Innovation Vouchers. Target small business specifically. Rhode Island businesses with fewer than 500 employees can receive grants up to $50,000 to fund research and development assistance from a state university, research center or medical center. To date, the state has awarded vouchers to 11 small businesses. More than three times that many had applied. Total allocated – $2 million.

n Industry Cluster-Grant Program. Encourages companies in an industry to work together to exchange ideas and develop talent. Grants of $75,000 to $250,000 are available for the formation and building of such clusters. Grants of $100,000 to $500,000 are available for specific programs in workforce development, marketing, or research and development needs. To date, the state has awarded eight grants, in clusters assisting 315 small businesses. Total allocated – $1.25 million.

n Innovation Network Matching Grants. Available to organizations that assist small business in key industries, such as food production, cybersecurity and health care. Commerce RI to date has awarded $372,996 to four organizations to spur innovation in the state. Recipients include the Hope & Main food-production incubator and accelerator in Warren for buildout of a production kitchen that will make space for additional food ventures. In all, 121 businesses are receiving support. Total allocated – $1 million.

n Wavemaker Fellowship. A financial incentive provided to recent college graduates in key fields to help them defray the cost of student-loan payments. Graduates pursuing careers in technology, engineering, design and other key sectors are eligible. To date, Commerce RI has awarded 215 grants. More than 300 applications were received. Total allocated – $5.25 million.

n Qualified Jobs Incentive Tax Credit. Provides a tax credit for companies that expand their workforces in Rhode Island or relocate from out-of-state. The criteria require employers to create at least 10 new jobs. That puts it out of reach of the smallest businesses, but others can and have applied for assistance. Credits can reach up to $7,500 per job, per year, depending on the salary.

In 2016, Commerce RI authorized up to $12.8 million in tax credits through the program, to be credited to companies over a 10-year span. Of that amount, $3.6 million in credits were allocated to small businesses.

Ivory Ella LLC, an online retailer that moved in July from Connecticut to Rhode Island, is among the companies that have received approval for credits under this incentive. Over five years, Ivory Ella could receive up to $362,055 in tax credits.

The company now occupies about 42,000 square feet of a facility in Westerly near the airport, accommodating its growing production. Known primarily for a variety of long-sleeved T-shirts bearing its distinctive, chubby elephant logo, Ivory Ella has ambitions to become a lifestyle brand.

It now has 50 full-time and 30-40 part-time employees, and will begin hiring soon for temporary, seasonal staff, said Matt Fiano, its founder and chief executive.

To receive the employment tax credits, the company will need to hire workers whose salaries exceed the Rhode Island state median of $38,000.

The company, founded in April 2015, now produces 2,500 T-shirts a day. As part of its move to Rhode Island, Ivory Ella acquired a $60,000 drying machine that cures the painted elephant on each item, so it can be washed without running. It also built offices for its administrative team and graphic designers.

Fiano said the company knew it had to move to a new location. It had been operating out of three spaces in Connecticut. Because most of the employees were from Connecticut, he knew the relocation would have to be either southern Rhode Island or Connecticut.

Fiano contacted Commerce RI. He found the state receptive and easier to work with than Connecticut. One key advantage, he said, was essentially a one-stop shop at Commerce. He spoke with Tanner, and Chief Operating Officer Darin Early initially, who then directed him to other divisions at Commerce.

“It’s the same source for you to find out about all the other programs,” Fiano said. “In Connecticut, it was hard to find out what you would be eligible for.”

SPREAD THE WORD

How well is Commerce RI spreading the word about its incentives and programs aimed at helping small business?

Tanner said the first 14 months after her appointment, from June 2015 through August 2016, the client-services division was focused on outreach, to try to contact businesses and their associations, and explain what new programs were available.

Client services either met or spoke with 200 businesses in fiscal 2015, which increased to more than 1,700 in fiscal 2016, she said.

Contacts or “touches” with businesses, which includes emails and phone calls, numbered 1,000 in fiscal 2015, and grew to 4,000 this year, she reported.

The state’s incentives, which were distributed in fiscal 2016, have reached or are expected to reach 620 businesses, according to a Commerce RI tally.

The referrals to the DLT have led to more small companies getting assistance or additional education. Of the more than 100 referrals sent to the DLT worker in the Commerce RI offices, at least half of them have taken advantage of a DLT program, Tanner reported.

Fiano said he had heard from other business owners that Rhode Island wanted to gain a reputation for being business-friendly, and had new incentive programs.

In many national surveys of business friendliness, the state’s small-business owners have complained that they face burdens in government ranging from high taxes to difficulty getting approvals. Thumbtack, for example, in 2015 gave the state six Fs out of 11 graded categories.

Oscar Mejias founded Hispanic Technology and Education Programs in 2006 to provide certification and training programs for Spanish speakers. He said it is not always clear to owners how they can access state programs.

Mejias no longer owns the business but serves as president of the newly relaunched Rhode Island Hispanic Chamber of Commerce. He said the state’s business website, for example, only recently added a landing site in Spanish. “For minorities, it has always been difficult,” Mejias said. “I can say it has been improved in the last three to four years. There is more access to information that we didn’t have five or six years ago. There are more programs than in the past.”

Mejias, for example, was a recent participant in the 10,000 Small Businesses program in Rhode Island, offered through Goldman Sachs. The company is extending capital, as well as business-support services.

An initial cohort of 30 businesses is participating in the first round.

“Programs like that, which increase the financial literacy of small-business owners, are very, very helpful,” Mejias said.

Ken Block, owner of Simpatico Software Systems Inc. and a longtime leader in the small-business community, said the state still suffers from a poor climate, as measured by the cost of doing business. The state incentives and specialized programs created in recent years will only do so much to raise the floor on that, he said, and are not likely to put Rhode Island on an even keel across the board with business costs in Connecticut and Massachusetts.

“Rhode Island is not an island. We are in direct competition with Connecticut and Massachusetts. When businesses can literally just simply hop across the border and enjoy a much more stable and … less costly environment, you do it,” he said.

Under Raimondo, Rhode Island has had some wins in attracting high-paying jobs and some notable businesses, such as GE Digital. But those jobs are not enough to change the bottom line for surrounding small business, he said.

“Those things do very little to help the broad-based business community here with our daily struggles to make sure we can keep the doors open and compete with the same businesses across the border, who have a cost advantage over us,” Block said.

ACCESS TO CAPITAL

Like Beauchemin, many small-business owners work long hours, making decisions as they go with little formal financial or management training. Their investments in equipment or facilities are typically made with personal savings.

If they seek out commercial lenders, many small-business owners often are surprised to learn that they lack sufficient credit to obtain financing for business loans.

“There are several factors,” said Mejias. “One of them is … a record of growth in their business. Usually, with small business, we start with personal money and our families. And we don’t have records. And in the moment when we go to the bank, they say, OK, what history do you have in the financial area? So, it’s difficult.”

Lenders want to see a history of financial stability, which may be elusive for many small businesses. They may ask for a personal guarantee, which ties the owner’s personal finances to the success of the business. That’s a step many business owners are reluctant to make, Tanner said.

Beyond finances, the kinds of help small businesses ask for, and have received, relate to process, she said.

“A big part of what I do with small businesses is listen to them. And what they want to be able to tell me is what it is that’s bothering them, and what they need help in making changes on. So, sometimes it’s just improving a process to make it go faster. Sometimes it’s understanding the truth, because they think they can do something, or can’t do something, and the answer is they really can.”

In technical assistance, she said, businesses can consult with an adviser as to the direction the company is going. Financial literacy has emerged as a big problem. The state has now added a financial-literacy video to its website, with information in Spanish and English, to convey basic principles.

“They don’t understand why they can’t get a loan,” Tanner said. “They are not in a position to be awarded a loan, because their credit is bad, or they’ve had some issues. … Or they’ve had to declare bankruptcy.”

Tanner said for restaurants, obtaining financing can be particularly difficult because of the high rate of closure in that industry. More than 1,000 restaurants close in Rhode Island each year, she said.

Recently, she met with a group of restaurant and food-industry leaders, and listened to concerns they expressed about finding grants or capital to expand. The state has now developed a list of options for what’s out there, Tanner said, including creative and do-it-yourself options such as crowdfunding.

Industry-specific organizations are also spreading the word.

Lawrence Dressler, CEO and president of five-person bioscience business Agcore Technologies LLC, has noticed over the past 18 months more-frequent communications from Commerce RI.

He is a member of several industry alliances, including one focused on bioscience. For the past three years, his Cranston-based aqua-feed company has received state-funded Science and Technology Council grants to help cover the cost of hiring university interns. About half of those individuals have ended up getting employment offers, Dressler said.

The program helped to keep Dressler in touch with Commerce RI.

In 2016, Agcore was among the companies that received initial awards of Innovation Voucher grants.

Although most of Agcore’s business is now in ornamental fish foods, the growth potential is in feed for fish that will be consumed by people, Dressler said.

In tanks at URI, trout are consuming his feed. When the analysis is finished, the university researchers will write up a paper, describing what effect the highly nutritious spirulina blend had on their weight gain.

“If it’s positive, then I can go to potential customers,” Dressler said. He could have done this independently, but it would have taken him more time to raise the funds to pay the university. “Where it’s a game-changer for us is it sped up the testing process dramatically. In my mind, we’re going to have a sellable product next year, which has been validated by a third party. In this case it’s URI.” •

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