State tallying returns on $300M Small Business Express
The program started seven years ago this week, with a $100,000 grant for the South Windsor innovator Oxford Performance Materials, at the time among Connecticut’s most promising startups with a synthetic bone invention to repair facial fractures.
It’s most recent recipient as of this past November?
El Pollo Guapo, a rotisserie chicken joint with locations in Hartford and Wethersfield serving “handsome” rice on the side, which received a $60,000 grant to match its own investment along with a $30,000 loan.
In the intervening years under former Gov. Dannel P. Malloy’s Small Business Express program, the Connecticut Department of Economic and Community Development shelled out nearly 1,900 grants totaling $109 million and loans for $189 million, initially as a last-resort source of financing to entrepreneurs during the Great Recession.
Enacted at a time when banks had tightened their loan standards to exacting levels, while calling in some loans on fears borrowers would not be able to keep up with repayment schedules — the Malloy administration chose to continue Small Business Express despite business lending in Connecticut having bounced back to healthy levels.
Through November last year, DECD continued to approve Small Business Express applications on file, even as Connecticut banks upped their total lending to $83 billion as of September, up more than $2 billion in a single year and more than $29 billion above the total loans outstanding at the close of 2011 as Small Business Express made its debut.
In mid-December in one of his last addresses as governor, Malloy highlighted Small Business Express as a significant piece of his administration’s “totally new toolbox with respect to economic development” in his words, during remarks at a meeting of the Middlesex Chamber of Commerce.
“We have now ... made investments alongside of (or) made grants to something approaching 2,600 firms and companies — a lot of those small — in the state of Connecticut,” Malloy said.
Less inclined to loan
To get their full allotment of Small Business Express funding, business owners have had to hit job targets, with a spotty record on that front according to DECD records.
Of nearly 1,000 businesses that have reached the expiration of those deals, more than a third missed the job commitments they made to the state, whether in hiring or maintaining their workforce levels at the time they received funding.
DECD exacted penalties in many of those cases, either in the form of cash payments ranging from $1,000 to $70,000, or adding a percentage point of interest to rates that ranged originally between 1 percent and 4 percent. A state audit last year of DECD’s administration of incentive programs found lax oversight across several.
The owner of Norwalkbased OperationsInc expressed disappointment at DECD’s management of the Small Business Express program, with his firm providing support to human resources managers at other companies, and having received financial support under the program to fund its own hiring push.
“DECD had a responsibility to keep those … funds accountable. They failed,” stated OperationsInc CEO David Lewis in an email response to a Hearst Connecticut Media, with Lewis a board member of the Connecticut Business & Industry Association. “I think the program overall was a great idea, creating an alternate and possibly easier path for businesses to secure finances when the banks were less inclined to loan money.”
Lewis said that he supported pivoting Small Business
Express to assisting businesses owned by women and minority entrepreneurs, but said the Malloy administration had a spotty record in backing companies that would prove success stories.
From $50K to $10M
Small Business Express awarded companies not just to Main Street businesses like El Pollo Guapo, but sophisticated ones as well.
In 2013, New Haven-based Trevi Therapeutics qualified for a $50,000 grant under Small Business Express; within five years, the company would secure more than $10 million from outside investors as it heads into clinical trials for neurological conditions under CEO Jennifer Good, formerly head of Penwest Pharmaceuticals in Danbury.
It was the kind of return on investment that Small Business Express was not set up to produce — but illustrative of the take-all-comers approach of the program under DECD
Commissioner Catherine Smith, with awardees ranging from the corporation-backed Business Council of Fairfield County; to entertainment venues like the New Britain Museum of American Art; to financial services firms like True North Capital Group in Stamford.
But many more were legitimate small businesses bent on growth — Wilton Tire & Auto Center which built a new facility on Route 7, or Greenwichbased Zaniac which is now franchising after-school learning programs nationally, or the
stain removal manufacturer Amodex Products in Bridgeport.
“A lot of people forget where we’ve started,” Malloy’s DECD Commissioner Catherine Smith told Hearst Connecticut Media in a recent interview in Hartford. “The Great Recession had hit this state pretty darn hard. ... We had businesses that had survived, but were struggling with access to capital.”