Obtaining a small-business loan requires creativity and due diligence, as Minneapolis’ Butter Bakery Cafe has discovered.
The owner of growing Butter Bakery Cafe on Nicollet Avenue S. likes his bankers at Franklin Bank and Wells Fargo.
And he hopes one day they’ll make him a business loan.
“I’ve gone back a couple times, and there seems less hesitation, but they don’t seem ready yet,” Dan Swenson-Klatt said the other morning after shoveling his south Minneapolis sidewalk and greeting customers. “So far, I use their credit cards up to about $50,000 a month, and one line of credit.”
Swenson-Klatt calls running his expanding business seven days a week a stressful joy. He’s also something of a proxy for the slow pace of the economic recovery. Although Fortune 500 companies sit on billions in cash and have posted record profits with fewer employees than before the recession, small-business expansion has been subdued, credit experts say. And small businesses remain pessimistic, according to the National Federation of Independent Businesses.
Small-business lending, other than government-guaranteed loans, hasn’t rebounded to anywhere near pre-recession levels.
“The bank-credit screen is just a lot tougher than it was prerecession,” said Iric Nathanson, who works with small businesses for the Metropolitan Consortium of Community Developers (MCCD), a nonprofit business lender and counselor.
But Butter Bakery was able to get the capital it needed to move and expand last fall with the help of a $20,000 loan from MCCD.
“We like to come in with a relatively small amount to help fill the financing gap,’’ said Nathanson. “Our analysis was intensive, and we determined that Dan was a capable business owner and that the business was growing. We don’t just look at the credit score. This was a popular bakery with a skilled owner. And it’s an important part of an affordable-housing development.”
The $9 million Nicollet Square project, including Butter Bakery, is an economic upgrade to an old neighborhood on a corner that was occupied for years by a vacant mortuary. Swenson-Klatt, who employs 22 full- and part-time workers, turned to a variety of sources to finance the $400,000 investment in building out the space, equipment and inventory.
The developer of the apartment building provided about two-thirds of the money. Swenson-Klatt also borrowed against his house, raised money from friends and others through crowd funding. Then he got $20,000 from MCCD matched by a low-interest loan from the Minneapolis economic development agency.
“I’ve cash-flowed for a few years, but the banks still seem worried about my personal debt,” said Swenson-Klatt.
To be sure, there is risk. Swenson-Klatt, who quit a $54,000-a-year teaching job to start his own business, couldn’t afford to be an entrepreneur if his wife didn’t have a good job with benefits. That helps when you’ve also got two kids in college. Swenson-Klatt takes only up to a $1,500-a-month draw from the business during the best good-weather months.
Butter Bakery, started in 2006 in a tiny shop a few blocks away, grew every year through the recession, including $450,000 in sales last year. Amid growing patronage in the larger space, Swenson-Klatt and his business adviser project $550,000 in sales this year.
MCCD has made dozens of high-risk loans in recent years to help small business owners survive or expand. The agency is supported by Wells Fargo, Franklin and other banks that invest in the belief that some of these businesses will prosper to the point where they can be full-fledged commercial accounts.
MCCD is not just an inner-city counselor and lender. Last fall, it provided a critical loan that allowed Cherokee Bank and other lenders, including the city of East Bethel, finance a $5 million plant expansion for Aggressive Hydraulics, a growing manufacturer that makes replacement equipment for U.S. trucks and heavy equipment that once was produced in China.
MCCD makes about 35 small-business loans annually and its default rate since the recovery started is less than 2 percent. Businesses that take MCCD loans also agree to work with its small-business counselors.
“I’ve got a couple of business mentors, but I’ve survived because of the MCCD,” Swenson-Klatt said. “I couldn’t grow any more in the old space. I know this is a huge risk. But Nicollet Avenue is reshaping itself. The developer really wanted me here.’’ Wells Fargo declined to discuss its relationship with Butter Bakery. However, a spokeswoman noted that its government-backed Small Business Administration lending was up 27 percent in the last quarter and that it has invested $500,000 in MCCD.
Frank Fuller, president of Franklin Bank, said his commercial loan portfolio is growing. And loans to businesses smaller than $1 million in sales are up 50 percent, to $9.8 million, since 2008. But Fuller, who also oversaw foreclosures and bad-debt collections during the recession, admitted that Franklin is more conservative than in the past.
Lee Blons, executive director of Portico Collaborative, the nonprofit developer of the Nicollet Square project, said the restaurant financing was a great investment. The corner has come alive. And Butter employs several interns through an adjacent youth nonprofit that subsidizes the wages and helps the teens move through training and to permanent employment.
Nicollet Square, with 43 units, houses teens leaving foster care who are completing their educations or looking for work.
“It was wonderful to find Butter Cafe,” Blons said. “Dan is so community-minded. So far so good.”
Neal St. Anthony • 612-673-7144