Lending: New Bank Company Give Minority Businesses a Break

BankBoston is the nation's first bank to form a community development company with the sole purpose of supporting small businesses in inner-city communities. The bank's newly christened BankBoston Development Company (BBDC) L.L.C. will commit $100 million over the next four years to businesses operated by women and minorities in four New England states and parts of Florida.

Unlike other bank-operated community development corporations, which were set up to provide affordable housing, legal reforms by federal regulators have given BBDC the chance to offer small businesses access to major capital markets, credit and financial advice. The aim is to improve local economies by creating new jobs in downscale urban areas, but BBDC also expects measurable profits from the venture, perhaps an after-tax return on capital investment as high as in the teens, says BBDC President Grady Hedgespeth. "We're helping to build companies that will become part of our future business."

Technology will play no small role in moving the BBDC project forward. In the first week of BBDC's launch on April 2, the firm already had taken 20 hits on its Web site from inquiring small businesses. Hedgespeth says BBDC's use of a Lotus electronic interoffice mail system will maximize loan facilitations so that no more than ten people will be needed to service four state areas from a single location in Boston. Sophisticated computer-driven credit scoring models created with the help of Fair, Isaac & Co. will quickly determine if loan premiums are sufficient to cover costs.

BBDC will target businesses with at least $500,000 in sales, requiring at least $250,000 in equity and which are deemed by the bank corporation to have substantial growth potential. BBDC will form close alliances with small businesses to help them overcome operational barriers by providing them with business process solutions.

The bank corporation is hopeful that its connections with Big Six accounting firms will convince the firms to provide the small businesses with pro bono accounting and consulting services. "The idea is that when a business grows large enough, it will become a profit-producing client of the accounting firm," says Hedgespeth.

-peterson tfn.com