Small businesses flourish with SBIC-backed loans - Albuquerque Journal

Small businesses flourish with SBIC-backed loans

Cervantes Food Products Inc. co-owners Richard and Arian Gonzales are expanding their chile sauce and salsa manufacturing operation from this Albuquerque facility into a larger, custom-built facility in Los Lunas with help from SBIC-backed Accion. (Adolphe Pierre-Louis/Albuquerque Journal)

Cervantes Food Products Inc. will move its chile sauce and salsa business next year from a 2,000-square-foot manufacturing space in Albuquerque to a custom-built, 6,000-plus square foot facility in Los Lunas.

A $280,000 loan from local microlending organization Accion allowed Cervantes’ owners, Arian and Richard Gonzales, to buy property this year in Los Lunas. The couple is now working with Accion and Nusenda Credit Union to obtain $750,000 to build the facility, which they hope to open early next year.

Cervantes Food Products are sold nationwide and even globally through internet marketing. (Adolphe Pierre-Louis/Albuquerque Journal)

The latest Accion loan marks the third time the Cervantes owners have turned to the microlender to help expand their business. They received two smaller loans of $12,000 in 2011 and $50,000 in 2013, both of which are repaid.

But the business couple was surprised to learn that the Accion loans were actually financed with state capital from the Severance Tax Permanent Fund managed by the Small Business Investment Corp., which provides lines of credit to Accion and two other local microlenders to support small businesses throughout New Mexico.

“I’m thrilled to hear it,” Arian Gonzales told the Journal. “They’re investing in our communities. That credit is fundamentally important for small businesses like ours.”

The money source

Thousands of other new and existing small businesses around the state have received loans since 2001 to launch or grow their operations from Accion, the New Mexico Community Development Loan Fund, WESST Corp. and others. But like the Cervantes owners, few are aware that the money they received came from state funds managed by the SBIC.

SBIC funding has leveraged about $82 million in small-business loans through a $23.4 million line of credit to the local lending institutions, which continuously recycle repaid loans back into new credit for more businesses, allowing them to lend out more than three times the original capital provided by SBIC.

All the microlenders have independently raised capital from other institutions and charitable foundations. But the SBIC accounts for the lion’s share of microloans to businesses in New Mexico.

Accion has amassed $46 million in capital from many institutions and foundations to lend to small businesses in five states. But in New Mexico, it draws principally on a $7.5 million SBIC line of credit to assist local businesses.

About 88 percent of locally-loaned money came from the SBIC last year, said Accion President and CEO Anne Haines.

Recyling the dollars

“Through the life of the SBIC line of credit, we’ve continually recycled those dollars, allowing us to loan out almost $39 million in SBIC money,” Haines said.

The Loan Fund has a $14 million outstanding line of credit from the SBIC. That will grow to $20 million this summer. And it’s is now negotiating another $14 million increase, which the SBIC can afford, thanks to a new law that took effect July 1 to double the amount of Severance Tax Permanent Fund capital the SBIC manages.

From 2007 to mid-2019, the microlender has continuously recycled that state money to leverage $50 million of the $60 million in loans its made over the last dozen years to New Mexico businesses, said Loan Fund President and CEO F. Leroy Pacheco.

“The SBIC is our largest funder,” Pacheco said. “They’re a great partner.”

WESST Corp. only has a $375,000 line of credit with the SBIC, since it focuses primarily on training, mentoring and other assistance to startups and existing businesses. It uses its microlending fund to selectively support small businesses as needed.

As of 2018, it’s leveraged SBIC credit to lend $618,000 to 52 businesses, said WESST Vice President of Lending Kim Blueher.

Critical support

The microlenders provide critical support to businesses that, in most cases, can’t access traditional lines of credit because they have yet to build the business history and revenue stream needed to gain approval from commercial lenders. That’s especially true in the aftermath of the last recession, which forced banks to place much higher restrictions on lending capital, greatly reducing the amount of funding available for small-business loans in the banking system, said SBIC Executive Director and Investment Advisor Russell Cummings.

Small loan recipients say the microlending programs are a life saver.

Adrian Chavez Sr., CEO and chief financial officer of Lobo Protective Services LLC, said his startup has experienced hyper growth since launching two years ago to provide security for the local film industry. After receiving a contract with Netflix local productions, its workforce ballooned to 78 people.

But with the company growing so fast, the firm recently hit a cash-flow bottleneck that forced it to seek credit to meet payroll one month. It sought commercial credit, but was turned down by various banks until The Loan Fund provided $20,000, which the company paid back two months later.

Life savers

Thanks to a recent loan from SBIC-backed lender Accion, Cristopher Torres now owns the Village Barbershop in Bosque Farms, where Torres serves local clienst like Anthony Jiron, seated. (Greg Sorber/Albuquerque Journal)

“Without them, we wouldn’t be where we’re at today,” Chavez said.

SBIC-backed microlenders provide tiny loans of less than $1,000, and up to $1 million or more at times. That makes credit available to even the smallest of businesses.

Christopher Torres, for example, became the sole owner this year of the Village Barbershop in Bosque Farms after receiving a $100,000 Accion loan to buy the family business from his parents, who had previously acquired it from Torres’s great uncle.

Torres sought commercial credit but was turned down, until he went to Accion.

“My parents bought it as an investment for me,” Torres said. “I ran it but they owned it, and I wanted to pay them back. I don’t know what I would have done without Accion.”

The microlending goal is to help small, credit-strapped businesses launch and grow to the point where they can access traditional lending institutions.

That’s the case with Cervantes Food Products, which grew rapidly since 2009, raising its annual sauce and salsa production from about 2,400 jars 10 years ago to 240,000 in 2018. And since 2012, the company has moved into custom label making for clients who want to put their personal stamp on Cervantes products.

That part of the business has grown to about eight percent of annual revenue, and now the company is building its new facility in Los Lunas to expand customized labeling to above 20 percent of revenue over the next three years, Arian Gonzales said. It’s turning to Nusenda for a construction loan, which Accion doesn’t provide.

“Accion gives small-business owners confidence to grow and expand by believing in and supporting their dreams,” Arian said. “They’re a huge champion for us and other small businesses.”

Pumping up small businesses with state funds

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