Business owners dip into capital: nation's top banks sponsor venture capital program for emerging entrepreneurs

Black Enterprise, April, 1996 by Carolyn M. Brown

Small business owners based in New York who are in need of debt or equity funding can turn to the New York Community Investment Co. Formed by the New York Clearing House and its 11 member banks, the NYCIC is a $10 million investment fund whose managers intend to provide long-term capital to small businesses. Currently in its pilot stage, the NYCIC (212-693-0870) will eventually serve as a model for similar venture capital funds nationwide.

Prime candidates for NYCIC financing will be companies that lack an operating history or have insufficient equity to establish or expand new lines of credit. Special consideration will be given to small businesses located in low- and moderate-income areas or that are owned by minority or female entrepreneurs.

"We believe the NYCIC will succeed in tapping the enormous potential for small business growth that exists in New York's neighborhoods," says Robert W. Davenport, president of the National Development Council, a not-for-profit economic development organization that works with small businesses in over 125 communities across the country. A board of managers made up of representatives from the New York Clearing House, the member banks and community organizations will oversee the NYCIC.

NYCIC's 11 member banks are: the Bank of New York, Bankers Trust, Chase, Chemical, Citibank, EAB, Marine Midland, Morgan, NatWest, Republic and U.S. Trust. "These banks strengthen the fund through the large equity base they have provided as well as through the services they will contribute to help reduce operating costs," says Jill Considine, president of the New York Clearing House and chairman of the NYCIC.

She further notes that "the fact that investors are willing to accept a lower level of return on their investment [13% to 18%] enables the fund to provide small businesses with the capital that is so critical for growth and expansion opportunities--at an affordable cost." Business owners can seek financing of anywhere between $50,000 and $500,000.

Essentially, there will be three types of financing, the majority of which will be equity or near-equity investment, which typically are subordinated loans with equity features. Other funds will go to not-for-profits (i.e., credit unions) that grant loans to small businesses. The remaining NYCIC financing will be available for equity mortgages for developers of small commercial properties as part of community redevelopment projects.

To be eligible for NYCIC funds, "companies must exhibit growth potential and demonstrate sound and committed management," says NYCIC President and CEO Howard Sommer. "Companies that may not yet qualify for a bank loan or may qualify for less than their full need will qualify if they can show a strong promise of performance." Candidates will be selected on the strength of their business plans, he adds.

Historically, banks don't like to make loans under $50,000 because the cost to service small loans is the same as million dollar loans but less profitable, notes Sommer. The NYCIC is looking to assist an under-served segment of the business community, he adds.

                        NEW YORK INVESTMENT
                       FUND'S 11 MEMBER BANKS