SCC's Clint Gwin
Note: SECC rebranded as Pathway Lending-27 October 2010.-Ed.
For entrepreneurs facing tougher lending criteria from banks, Pathway Lending (fka Southeast Community Capital) may have a lifeline.
SCC President Clint Gwin told VNC Thursday his MetroCenter-based nonprofit organization is well positioned to help small businesses that have proven their model, but which are struggling for working capital and other necessities.
Technology, software and related companies are very much among SCC's target industries, said Gwin, partly because of SCC's history: SCC was formed in Oak Ridge in alliance with Technology 2020 nine years ago, producing a flow of techcentric customers. SCC originally dealt in both equity and debt, but the equity portion of the portfolio stayed in East Tennessee with the Southern Appalachian Fund when SCC relocated to Nashville in 2003.
Gwin stressed, "We love technology - that's why we were created." He explained SCC currently serves "10 to 15" technology companies, within a total portfolio of nearly 100 loan customers statewide. Since its founding in 1999, SCC has originated about 390 credit transactions for about 300 companies.
SCC loans average about $76,000 per customer, with loans ranging from about $35,000 to a handful at $2 million. Companies seeking SCC loans typically are undercapitalized, but generating revenue from $50,000 to $8 million per year.
SCC interest rates range from 9 to 13 percent, Gwin said, noting that that's "about half the rate" an entrepreneur pays to float a business using personal credit cards.
Gwin said SCC's $2 million annual revenue is expected to grow as much as 15 percent during the next three years, while assets are projected rising 25 percent during the same period, from the current base of nearly $25 million. Margins earned from lending and federal grants provide SCC's earnings.
Gwin's cautious optimism is fueled partly by the added scale SCC recently attained by partnering with the Tennessee Bankers Association to launch the Tennessee Rural Opportunity Fund (TROF), a Bredesen Administration initiative that created a $12 million revolving-loan fund and brought SCC a $1.25 million grant spread over five years.
Partly due to the TROF, SCC has roughly doubled its staff to 11 in the past year, including five lending officers. SCC is also opening new offices in Jackson and Kingsport, to complement the Nashville headquarters and offices in Memphis and Knoxville. A recent SCC staff addition is Senior Vice President Amy Bunton (at right), who was previously the Tennessee Valley Authority's general manager for economic development.
To fund its own operations and services, SCC borrows from 32 Tennessee financial institutions, most of them community banks. Banks are motivated in part by their obligations under the federal Community Reinvestment Act.
SCC also relies heavily on its relationship with the Tennessee Bankers Association, which has endorsed SCC services. In addition to providing funds, banks also screen and refer customers to SCC. Those referrals constitute 70 percent of SCC's customer portfolio.
The nation's current economic and financial strains have produced a "tremendous uptick" in demands for smaller amounts of credit that were once the province of traditional banking, Gwin said. Traditional small-business loans are "not readily available in the market anymore," he said.
Gwin explained that SCC does not put as much weight on a company's history as a bank does. After all, he said, "at the end of the day, an entrepeneur's going to have a dinged-up credit score." Instead, it scrutinizes the proven character and ability of management, business definition, paying customers, cash flow to service additional debt and other forward-looking factors.
Because of its mission to serve promising, but less bankable businesses, "We're typically the first lender in," Gwin said. He noted that SCC also quickly "graduates" successful business to relationships with banks, but tends to hold onto companies while they are struggling.
"At the end ofthe day," he said, "SCC's job is to help work through entrepeneurs' problems and help create somebody else's great company" - a employer that will qualify solidly as a customer for traditional bankers.
Gwin said SCC doesn't just extend credit and walk away: SCC provides close counsel to companies to create what is often the business' first accounting system, first budget and other metrics and reports. In addition, SCC makes clear to struggling companies that entrepreneurs' behavior often needs to be modified to increase the probability of success.
Even when an SCC customer is ready to graduate from SCC mentorship - often after three years' effort in creating equity on the balance sheet - the company is likely to need to borrow about $100K from a bank, in order to pursue its plans.
In addition to technology, which is a small portion of its portfolio at present, SCC also targets light manufacturing, service businesses and assembly operations that will generate jobs for corresponding portions of the workforce. As SCC's website makes abundantly clear, SCC is also adamant about avoiding riskier businesses, including clothing retailing, restaurants andothers.
Further, Gwin said SCC does not generally support development of housing, "but anytime we see additional resources such as this type of grant come to the market it is great for the low-income citizens we all strive to serve." His comment reflected the fact the Nashville Housing Fund recently received a $1.2 million grant from the U.S. Treasury Department's Community Development Financial Institutions Fund (CDFI) which also provides vital grants to SCC.
Gwin said SCC loans typically support purchase-order finance, working capital, equipment purchases and related needs. However, he said, need for help recovering from an employee embezzlement or a sudden loss of a major paying customer are not uncommon. If a borrower's management team has particularly deep experience in an industry and a good track record, SCC can lend larger amounts for such purposes as a management-led leveraged buyout of a company or a division.
That's the closest SCC gets to an actual startup, Gwin said. This, he said, is in keeping with SCC's 501c3 mission of helping create wealth among small business owners and to create jobs, the majority of which may pay and average of $15 per hour. SCC estimates it creates 1 new job for each $24,000 it puts into an employer.
Gwin, 39, has been with SCC six years and became president in 2003. Before SCC, he was a field operations supervisor and field examiner for the Federal Deposit Insurance Company in the mid-South and in Albuquerque. He earned an MBA at the Owen Graduate School of Management at Vanderbilt University and his bachelor's in economics at Centenary College at Shreveport. ♦