Business Lenders reaps rewards of betting on ventures that banks won't touch
By Luther Turmelle, Register Staff
HARTFORD - October 31, 1999 - An Illinois retail franchiser looking to expand its business to Connecticut and the rest of the East Coast recently turned to Business Lenders, one of the nation's 10 largest non-bank providers of federal Small Business Administration loans.
Cash Converters last week signed an agreement with Business Lenders under which the Hartford-based lender will finance the retailer's 240-store expansion over the next five years. The amount that Business Lenders will finance for each store will vary, but the bulk of the loans will be between $125,000 and $150,000, said Bryan Cote, a spokesman for Business Lenders.
Cash Converters currently has 14 stores in the United States, a fraction of the more than 500 locations its franchisees have in 21 countries worldwide. The 200-plus new stores will include both company-owned and franchise locations.
The retailer is trying to reach those consumers who spend weekend mornings either buying items at yard sales or selling their unwanted goods there, said Roger Hunt, chief executive officer for the company.
Cash Converters buys a wide variety of used consumer items, paying for them with cash on the spot and then reselling them to other consumers.
"We have a niche service that's tailored to families with a budget," Hunt said. "The stores are tailored to people who prefer the face-to-face transaction, but who abhor the cost of advertising and the wait-and-see feel of a yard sale."
Loaning substantial sums of money to a business whose franchising concept is still untested at a national level may seem unorthodox for a lender. But it's a niche that Business Lenders thrives in, said Gary D. Mullin, president of the company.
The company's loan volume nearly doubled in fiscal 1999, increasing $46 million to $99.6 million.
What's particularly remarkable about that increase is that Business Lenders makes its money financing businesses that most banks turn down because they're considered too risky. The loan recipients aren't necessarily credit risks, but many of them operate in industries with high failure rates such as retail, restaurant and hotel operations.
"No matter what a business looks like on paper, we like to hear the owner's story," said Mullin, who is an Orange resident. "You learn to listen for their passion, their intensity for what they're doing. And if their company has had financial problems, you want to hear what the specific problem is and what has been done to fix it."
Among the ventures that Business Lenders has financed are a Rhode Island bed and breakfast, a traveling carnival and a gourmet Italian food company.
One of Business Lender's current customers came to the company by coincidence.
Chris Gaudreau had never heard of Business Lenders until he met Mullin at a local tennis club. Gaudreau sells and repairs tennis gear at his 908 Whalley Ave. store in New Haven, called the Racquet Koop.
The business has been around for more than eight years, but when Gaudreau began looking for a loan of around $50,000 to buy out his partner's share in the Racquet Koop, banks showed a noticeable lack of interest.
"I had tried other venues, but the rates were very high and there was too much red tape," Gaudreau said. "Nobody was willing to help me figure out the loan applications, which were very complicated."
Loan officials at Business Lenders not only delivered the application to Gaudreau's business, but they also worked with him extensively as he filled it out.
"It was the service that really made me go with them," he said. "I'm not a banker. I don't know the ins and outs of the process, and they have made it very simple for me."
Gaudreau is nearing completion of the loan process, but says he's confident he'll be approved.
Despite financing business ventures many banks won't touch, Mullin said, less than 5 percent of Business Lenders' loans are "non-performing," meaning they're not paid back.
"We're still small enough that we spend a lot of time talking not only to people with expertise on our staff, but to people in trade groups, professionals that the loan applicant deals with," he said.
Business Lenders is highly regarded in Connecticut's banking community, said Michael Ciaburri, whose Woodbridge-based firm, Ciaburri Bank Strategies, specializes in raising capital for small banks.
"They're a very well-run company," Ciaburri said of Business Lenders. "They have a very nice niche."
As a finance company, Business Lenders isn't subject to the strict rules and regulations that govern banks, Ciaburri said.
"They don't take deposits, either, so they don't have to worry about that element either," he said.
And while Mullin describes Business Lenders' loan rates as competitive, Ciaburri said the company "prices its loans in accordance with the amount of risk involved."
"They charge a little more than a bank would, but you're talking about businesses that can't get a loan anywhere else," he said.
The other big money maker for a non-bank lender like Business Lenders is the sale of the guaranteed portion of the loan to a big bank or investment company, Ciaburri said.
Mullin founded Business Lenders in 1994 with Penn Ritter, the company's executive vice president, and former President Thomas Kellogg.
By mid-1997, Business Lenders was making about $30 million in SBA loans in a 12-month period. The company was attractive enough at that point that another specialty finance company, New York-based Medallion Financial Corp., acquired it.
Business Lenders now as offices in eight states besides Connecticut and employs about 60 people - which is about five times the number it had when it started.
