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Central Mass. Businesses Thrive with State Grants + Loans

Tuesday, August 20, 2013


Carlos Rosado (second from right), owner of Luxury Cuts Barber Shop, is grateful to the Mass. Growth Capital Corp. for helping to expand his business.

In the world of government handouts, there’s good pork and bad pork. For several Central Massachusetts small and micro businesses, the state-funded help they’ve gotten from a quasi-public corporation may be the good sort of sowbelly–especially, given Big Banking’s continued reluctance to lend to the backbone of America’s economy.

One such small business is Luxury Cuts Barber Shop, with locations in Fitchburg and Leominster. Founded three years ago and run by Carlos Rosado, Luxury Cuts is one of several Central Mass. recipients of Small Business Technical Assistance Provider Grants from Mass. Growth Capital Corp. during the past three years. He doesn’t think he’d be succeeding and expanding without MGCC’s help.

In Monson, Brenda Tibbets, founder and owner of Tibbetts Optical, also praises MGCC, from which she received a training grant. When she started the business more than two years ago, she recalls, Main Street, where the shop is located, had many empty storefronts. Now, she proudly point out, there’s only one.

As the Bay State continued to recover from the crippling global recession during fiscal ‘13, MGCC approved more than $23 million in closed and committed loan assistance to help 64 Mass. companies rebound economically–a 68 percent increase from the previous year. MGCC also reports having “preserved and positively impacted” nearly 2,400 jobs–a 105-percent spike over fiscal ’12.

For fiscal ’13 in Worcester County alone, MGCC–which has a Worcester office on Shrewsbury Street–provided a total of $2 million in loans to six businesses with a total of 152 employees. That’s up from $850,000 to three businesses with a total of 124 employees for fiscal ’12.

Yes, MGCC’s efforts are a drop in the bucket, when compared to the capacity of Big Banking. But despite a somewhat misleading 50 percent increase in lending to U.S. small businesses last month versus July ‘12, the multi-billion-dollar behemoths remains a distant third behind community banks, credit unions and non-bank lenders, with a runt-like small-business loan-approval rate of only 17 percent.

Still a fragile economy out there

In 2010, Gov. Deval Patrick signed into law an economic-development bill designed to help small and micro businesses create jobs, in part by providing greater access to capital through the creation of MGCC. The corporation’s formation involved consolidation of Mass. Community Development Finance Corp. and Mass. Economic Stabilization Trust.

For fiscal ‘10, the state law provided $35 million of new funding to MGCC. In addition to providing loans, the agency also awards technical-assistance grants–a total of $700,000 worth during fiscal ’13 alone. The grant amounts for the most recent year ranged from $30,000 to $75,000. MGCC does not break out these figures by county.

“We see ourselves as primary drivers of small business growth in the Commonwealth and anything that can help spur job creation is of huge benefit to the local economy,” states MGCC President Charles Grigsby. “Over the past year, we have seen increased demand for our services and we are thrilled to be able to help a wide array of companies find their financial footing and guide them on a path to ultimate prosperity.”

Grigsby points out that while MGCC loans are high-risk, the low default rate–less than 3 percent–is attributable to “regular monitoring and the use of matching management grants for management assistance to solve problems.”

MGCC collaborates with traditional financial institutions to make “unbankable” loans bankable. The agency does this by working with community development corporations and other non-profits to provide financing for job-producing projects, and by helping small businesses to find the growth capital they need. MGCC also seeks to assist manufacturers that are expanding in the state’s older Gateway Cities such as Worcester and Fitchburg.

MGCC continues to show modest growth in both approved loans and loan recipients. Unlike banks, agency COO Neil Martin says, “We don’t necessarily look at collateral –we’re more of a cash-flow lender.” While MGCC has acted as the bank on occasion, he reports, “85 percent of the time, we’re subordinate to the banks.” And because MGCC tends to “react to the market” instead of “being a market maker,” he notes, the amount of closed and committed loans for the current fiscal year, which began July 1, will increase by only around 10 percent over the just-ended year.

“We’re going to be somewhat constrained by capital, which we’re out looking for now,” Martin says. “But I hope we’re at least going to look at $25 million and help 70 companies.”

For fiscal ‘11, more than half the loans requested of MGCC were to fund growth. That contrasted sharply with two years earlier, when 90 percent of the borrowing was used just to keep companies afloat. While MGCC’s loan statistics gave rise to modest optimism, the increased growth lending was not creating lots of jobs. Bob Baker, an MGCC board member and president of the Smaller Business Association of New England, observed at the time. “They’re pushing the envelope with the staff that they have,” he said. “In the past, you’d hire people if you were busy.’’

MGCC continues to display modest growth in job creations. “There is some job growth,” Martin says. “I don’t think it’s what it was six, seven years ago, but [businesses] are starting to add people cautiously. I think it’s still a fragile economy out there.”

One factor working in MGCC’s favor is that does not have the same restrictions as its two quasi-public predecessors. MGCC can make loans up to $1 million, can lend to more than just manufacturers, and can deal with small businesses throughout the state.

Still, Martin notes, MGCC is not going to give a $1 million loan to a small business with only one employee. “There has to be some rationale behind it,” he says. “We’d love to see growth in jobs, but on the other side we also have to be very cognizant of saving jobs. If we can preserve the jobs, that’s almost as important as job growth.”

Nor does Martin regard MGCC as merely a stop-gap measure until Big Banking gets back to real, sustainable lending to viable small businesses looking to either turn around or grow or expand. The role of his agency, he says, is to provide struggling small businesses with the capital and assistance “to heal up, if you will, and maybe give them some management assistance, and get them into a bank.”

Because MGCC’s loan portfolio is inherently more risky than those of the banks, Martin notes. “What may happen, as the banks start doing [more lending to small businesses], is that we’ll be doing more of the [business] turn-around stuff.”

Content for now with making money and getting established

A key MGCC highlight for fiscal ‘13 was providing loan assistance to nine minority-owned businesses statewide, compared with only three the year before. Luxury Cuts, a minority-owned business that has received MGCC assistance, is also showing good growth.

Carlos Rosado opened his first Luxury Cuts barber shop in 2010 in Fitchburg’s Parkhill Plaza. The master barber and rookie entrepreneur–this is his first business–hired three other barbers. Two years later, he opened a second location at Johnny Appleseed Plaza in next-door Leominster, with four additional barbers.

Rosado worked with Twin Cities Community Development Corp. to develop a business plan, which he used to both start up and expand Luxury Cuts. Initial funding, for the Fitchburg shop, came from the City of Fitchburg’s Micro-Loan Fund Program. Subsequent funding, for the Leominster location, came from the North Central Massachusetts Development Corp.’s Micro-Loan Program.

Luxury Cuts is doing well at both locations, Rosado reports. So much so, that he hopes to open at least two more barber shops in the North County area. But his top priority, he indicates, is to make sure the Fitchburg and Leominster locations can remain stable. “I’ve got a couple of good spots [in mind] for the third one,” he says. For now, though, he’s content with “making money and getting established. I’ll probably take two years, and then start thinking about building two more [locations].”

For Rosado, maintaining status quo for the long term just doesn’t cut it. “We’ve got to grow,” he says, “because if you don’t grow, if you’re not getting better, you’re getting worse.”

Becoming a lot more responsible on the business side

Women-owned businesses have also been bolstered by MGCC’s loan-assistance program. A total of 17 got such help during the most recently completed fiscal year–240 percent more than the year before.

One woman-owned business that got MGCC help two years ago is Tibbetts Optical, which got off to a wild start. Brenda Tibbetts had to shut down her store only five months after opening it because of severe roof damage and resulting flooding caused by a tornado. Fortunately for her, she had good property and business-interruption insurance, and was able to repair and reopen her store in six weeks–without losing any of her original customers. “I felt the community was very supportive,” she says. “This town is very much a shop-local [community].”

Tibbetts, who had previously worked in opticals for LensCrafters and Walmart, had long considered going starting her own business–her first one, too. When she learned that the owner of Jilson Optical in Monson was retiring and putting the 15-year-old business up for sale, she jumped at the chance. She secured a home-equity loan from a local bank to finance the purchase, make needed renovations and buy new equipment and displays. She also set up a full eye-exam office, staffed by a local eye doctor.

Thanks to MGCC grant funding that flowed through Quaboab Valley Community Development Corp., Tibbetts also received 14 hours of QuickBooks training. That enabled her to better control inventory–reducing frames inventory from $38,000 to $23,000, where it needed to be–and better analyze business performance. “It was just amazing, the things I could do,” she says, “once I had [QVCDC’s] support.”

For example, when Tibbetts started her business, she took irregular draws as weekly compensation. Thanks to QVCDC mentoring, she began taking a regular paycheck every two weeks. “It made me a lot more responsible with the business side of it,” she says.

Tibbetts also credits QVCDC and MGCC funding for helping to spur economic revitalization of Monson’s downtown. “The store next to me was empty for a year and a half, and then it was rented out,” she says, “and then the [store] on the other side of that one was rented. [On] our Main Street, now, there’s one opening–our downtown is full.”


Steven Jones-D'Agostino is chief pilot of Best Rate of Climb: Marketing, Public Relations, Social Media and Radio Production. Follow him on Twitter @SteveRDAgostino.


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