Secrets of the SBA-loan winners
They got how much? Meet some of New York’s biggest beneficiaries of multi-million-dollar loans guaranteed by the U.S. Small Business Administration.
By Benjamin J. Spencer
Published: January 12, 2011 – 1:00 pm
Phil Vallone, the co-owner of Vallo Transportation Ltd., could barely contain the relief in his voice. At times, he sounded like the latest sweepstakes winner. “We no longer have to be like gypsies, moving from place to place,” he said. “We have a home now. Watch out!”
After a months-long application process, Mr. Vallone and his sister were approved last year for $4.6 million in loans, including $2 million guaranteed by the U.S. Small Business Administration, to help their 30-year-old private school bus company purchase its own building and lot in Whitestone, Queens. Vallo, which contracts with the city as well as the Bronx High School of Science, will be able to house its buses, operations and management offices all in one place.
Despite the bureaucratic challenges, last year was the right time to revisit the program, he said, mostly because of historically low interest rates. Mr. Vallone also cited the SBA’s continued relaxation of New York City’s mortgage recording tax on their portion of loans over $500,000, which currently stands at a substantial 2.8% of the principle, according to the city.
Vallo’s success is evidence of a larger trend of increased small business lending, according to the SBA. Last September saw the enactment of the federal Small Business Jobs Act, which increased incentives and funds available to small firms around the country. From all evidence, both startups and existing companies in the New York area wasted no time taking advantage.
“It’s a good time to be a small business in the New York area,” said Pravina Raghavan, the director of the U.S. Small Business Administration’s New York district office.
The agency recently reported a 53% jump in lending for October and November in the lower counties of New York state, including the five boroughs. New incentives, such a Congressionally-approved, two-year refinancing period and increased funds for micro-lenders, spurred the trend, she said.
“If you look at New York, most of our businesses are small businesses,” Ms. Raghavan said. “And I want a business that gets a loan today to be in business 20 years from now.”
Ms. Raghavan counts industry giants like Apple, Staples, and FedEx among the SBA’s past success stories—all were recipients of loans from the agency in their formative years.
The services provided by this year’s biggest approvals are all over the map—from food to flooring, transportation to decoration (including a company called American Christmas Inc., a Mount Vernon, N.Y.-based holiday decoration and installation firm that created displays for Rockefeller Center and Saks Fifth Avenue, among other famous spots). One thing virtually all had in common, though: They were well-established.
Patrick MacKrell of the Empire State Certified Development Corp., the nonprofit organization that guarantees local loans through the SBA—including 21 of the Top 25 on the Crain’s list—said that the majority of applicants were looking to expand to take advantage of real estate opportunities in the city. A full 95% of the approvals, he said, were 504 loans, which cover mainly real estate and high-value-equipment purchases. That’s a stark contrast to the previous two years, when 504 lending volume dipped 20% and co-called 7(a) loans, mainly used to keep businesses afloat with working capital, skyrocketed 40%.
“People were dealing with immediate needs, not long-term needs,” Mr. MacKrell said. “[Now, 504 lending is] back at the 2007 level.”
In December 2010, Empire State Certified Development saw about 46 loans approved, Mr. MacKrell said. That’s the highest single-month total since March 2007. “Nobody wanted to be on the outside looking in,” he said of the December rush. “It was a race to get the incentives before they expired [at year’s end].”
Those incentives were a factor for Haim Kedmi, president of Manhattan sportswear store Transit, the No. 1 loan recipient on the Crain’s list. Roughly half of Mr. Kedmi’s $7.9 million total loan amount was guaranteed by the SBA and facilitated by Empire State Certified Development.
“I was expanding this year anyway,” he said of his decision to apply, noting that he made sure he had strong financial statements and solid outside advisers to navigate him through the system.
The result: The SBA loan helped Mr. Kedmi move the headquarters of Transit to lower Broadway, between Canal and Walker streets.
The move allowed him to keep his office in the same location as his retail operation, a big advantage for an owner-occupier.
Over his 20 years as an entrepreneur in the city, Mr. Kedmi has purchased and opened different sportswear companies in five locations throughout Manhattan. Still, this was his first time applying for SBA loans. “I was scared in the beginning,” he said of the substantial paperwork process. Now he’s an enthusiastic proponent. “If I could do it again, I would do it all over.”Brothers Joseph and Vito Panobianco say much the same thing. They hope to expand their Astoria Espresso & Cappucino Machine Corp. into the warehouse space they built not far from their headquarters in the Castle Hill area of the Bronx. Joseph Panobianco said that after 35 years in business selling espresso machines direct from Italy, it was time for his company to start manufacturing many of the products it sells.
The brothers first applied for a loan four years ago to build a new warehouse, but Mr. Panobianco said the banks he spoke with wouldn’t budge—until he obtained the help of the Bronx chapter of the SBA. “The banks want so much more now,” he said. “Five years ago, we’d be closed and sealed [on the deal] and set up. But they want to know how many toes your great-grandchildren are going to have.”
[Download the full Excel list of the largest SBA-guaranteed loans in the New York area.]