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Cascade: No. 56, Winter 2004

CDFI Expands Business Lending in Southern New Jersey

The Cooperative Business Assistance Corporation (CBAC), a community development financial institution (CDFI) that makes loans to small businesses, has increased its lending in southern New Jersey during the past four years. Its default and delinquency rates are lower than they were prior to this expansion in lending.

Formed in 1987, CBAC is located in Camden. It has specific loan products for the city of Camden, the Atlantic City area, Cumberland and Gloucester counties, and the city of Woodbury. Eight banks take a 70 percent participation of the loans, while CBAC funds the balance, primarily with federal and state funds. Loans are typically made for equipment purchase, inventory, real estate acquisition, or working capital.

The eight banks participating in CBAC are Bank of America, N.A., Citizens Bank of Pennsylvania, Commerce Bank, N.A., Hudson United Bank, PNC Bank, N.A., Sun National Bank, Susquehanna Patriot Bank, and Wachovia Bank.

While CBAC normally participates in loan packages totaling $250,000 or less, it sometimes joins in larger financing packages with the New Jersey Economic Development Authority (NJEDA) or a bank serving as the primary lender. In 2003–2004, it participated in six such loans ranging from $700,000 to $1,362,000.

CBAC also administers two Small Business Administration (SBA) programs that can be used in Atlantic, Camden, Cape May, Cumberland, Gloucester, and Salem counties: a microloan program in which CBAC makes direct loans of up to $35,000 for working capital, inventory, and equipment purchases; and the 504 program in which CBAC packages loans of up to $2 million for the acquisition of real estate, equipment, and building construction. A bank partner shares 50 percent of the 504 loan.

During each of the last three years, CBAC received both SBA’s distinguished lender award for making the most microloans in New Jersey and SBA’s bronze award for total SBA lending.

CBAC has made a total of 511 loans in which CBAC funding of $19.5 million has leveraged private funding of $41.8 million. In the last seven years, CBAC's loan portfolio has increased from approximately 50 loans totaling $1.8 million, to 200 loans totaling $7.5 million. It has also packaged five SBA 504 loans. A summary of CBAC's activity during the last four years is shown in the accompanying table.

R. Michael Diemer has been CBAC's executive director since 1996. He says the organization has reduced its losses and delinquencies substantially during the past decade because of more experienced personnel and closer supervision of borrowers through the use of efficient data-reporting systems. CBAC has four former bank lenders on its staff.

CBAC's diverse borrowers include steel manufacturers, trucking companies, automotive supply and repair businesses, a crab-fishing business, horse stables, accounting and insurance firms, restaurants, medical supply firms, a funeral home, furniture stores, and a baker.

One of CBAC's recent borrowers is Little Sport, a new business in Maple Shade, New Jersey, that operates a multi-sports facility for young children. Jennifer Baker Foley, Little Sport's owner and CEO, said she raised funds through a private placement. When extra financing was needed, however, she was turned down by a bank, which referred her to CBAC. In September 2004, CBAC provided Little Sport with a $30,700 loan for equipment purchase.

CBAC provides a wide range of technical assistance, such as monitoring borrowers' bookkeeping methods and, under a contract with NJEDA, mentoring borrowers. In addition, it services about 50 loans made in Philadelphia, Perth Amboy, New Jersey, and southern New Jersey.

Banks often refer business clients to CBAC. Russell B. Haas, commercial loan officer at CBAC, observed that CBAC has a large network of bank lenders and "not a day goes by that we don't get a call from a bank." CBAC also periodically participates with banks on individual deals and on three occasions has guaranteed a bank loan.

Sun National Bank has invited CBAC lenders to give presentations to its lenders in different regions so they will be aware of CBAC products that might make a deal bankable, and Sun's denial letter refers business borrowers to CBAC for assistance, according to CBAC and Sun officials.

Diemer said that CBAC still has a lending niche because very few banks are interested in making loans of under $250,000 because of low profit margins on such loans.

CBAC's biggest challenge is obtaining low-cost funds in order to have a sufficient "spread" to make its loans, Diemer said. It has a staff of eight full-time equivalents and a budget of $900,000, supported by grants from federal, state, and foundation sources, and with low-interest loans and investments from banks and government agencies. In April, CBAC received an $800,000 loan from USDA Rural Development's Intermediary Relending Program for use in Cumberland County, New Jersey.

Diemer previously worked as a commercial lender for about 10 years at banks in Maine, Vermont, and New Hampshire and earlier served for 18 years in Montpelier, Vermont, as district director of the Farmers Home Administration (which was reorganized as USDA Rural Development, Farm Service Agency, and Rural Business-Cooperative Service).

Many communities become interested in starting loan pools for area businesses, but it's usually impractical to do so, Diemer said. In many cases, after a loan-delivery system has been established and lenders have been enlisted to review applications, loan volume has proven to be low, he said.

He believes that resources must be concentrated in a geographic area in order to have economic development impact. As a result, his long-term goal is to increase loans and services in the six-county region now served by CBAC, rather than expanding to other counties.

For information, contact R. Michael Diemer at (856) 966-8181 or mdiemer@cbaclenders.com.