A fiedgling small-business lending program is winning unqualified praise among New Jersey bankers.

The Loan Pool for Small Businesses was developed by the state's Economic Development Authority - an independent agency established in 1974.

In 1990, Gov. Jim Florio issued a mandate to revamp the agency - a job which fell to its chairman, George R. Zoffinger, and executive director, Anthony R. Coscia.

Since then, "We've turned a sleepy institution into one of strongest lenders in state," says Mr. Coscia, who succeeded Mr. Zoffinger as chairman.

The loan pool has created or maintained 5,000 jobs, the agency estimates. Originally funded by bond issues, the authority now earns income mainly from operating profits and investments.

Its small-business lending operation was unveiled in November 1991. It buys 30%, and will guarantee another 30%, of loans for fixed assets of $50,000 to $3 million. It does the same for working-capital loans of $25,000 to $500,000.

Mr. Coscia, an attorney in New Brunswick with Windel, Marx & Davies, New York, had hoped to provide $30 million in financing by the end of 1993. Instead, the total by then will top $125 million - and participation has grown to 68 banks - two-thirds of those making small-business loans in New Jersey.

|Wider Avenue of Comfort'

"It's probably one of the best programs the state's ever developed," says Thomias J. Shara, senior vice president of 1 billion-asset Hudson United Bank, Union City. "It provides a wider avenue of comfort for credits that aren't pristine, and we're pleased with the turnaround time."

Mr. Coscia says applications are processed rapidly - in four to six weeks. That gives the program an edge over the Small Business Administration, says Mr. Zoffinger, president and chief executive of Constellation Bank, Elizabeth.

"Our program is designed to be banker friendly whereas SBA is far more labor and paperwork intensive," he says.

It's also less expensive, Mr. Zoffinger says, because the state's minimum 5% lending rate - even after blending in with a bank rate - still yields a cost savings to the borrower. "That way you're increasing cash flow and increasing the strength of a credit," he says.

In the early 1990s, however, "Banks in New Jersey went through a series of regulatory difficulties in terms of credits they could, and couldn't, finance - and businesses found themselves on the outs with banks they'd been with for many years," Mr. Coscia says.

Bob Larcara, assistant vice president of $403 million-asset Interchange State Bank, Saddle Brook, points out that the state "was in a deep recession in the early '90s, so banks had to study the borrowers' financials very closely, and sometimes - even with long-standing customers - the numbers sometimes didn't support the recluests. Gov. Florio definitely pushed EDA to address the problem."

Seeing Our Way Out'

Says Hudson United's Mr. Shara, "We're seeing our way out of recession. Competition in the last six months has heated up significantly, so it's a great time for healthy businesses to be borrowers. It's the businesses emerging from losing years that still make banks edgy."

Barbara McConnell, New Jersey's commissioner of commerce and economic development, says "there very definitely was a credit crunch, and we had a high percentage of failures among businesses that failed to find financing."

A turnaround is in the making, however. Ms. McConnell says the state's failure rate for newly incorporated businesses has fallen to 10% - well below the 15% national average. She adds that the failure rate among established businesses has plummeted 50% since 1991, and links a jump in new-business formation to the lending program and other state incentives.

She says small business has been identified as the states leading growth opportunity, but international, middle market business has been ranked high, as well. Mr. Zoffinger agrees. "Export is the next big step for EDA because banks will very much be looking toward export financing," he says.

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