Despite jobs decline, manufacturers find state financing in a recession

July 27, 2009

East Coast Power Systems has moved to a new factory in Tinton Falls that’s 10 times bigger than its old Keyport plant, landed $11 million in financing from the state Economic Development Authority and The Provident Bank, and now plans to hire up to 30 new employees.

“I always had a gut feeling that you could still manufacture in New Jersey, and this is the way to bring it back: with new, state-of-the-art equipment,” said Salvatore J. Rinaldi, whose company supplies electrical equipment vendors.

The nation is in the grips of a recession, and credit is tight. Strong net worth isn’t good enough, as banks want to see sufficient cash flow to pay off loans, said CPA Robert Traphagen, in Oradell. “I have six loans that are pending — but a year and a half ago, they’d all be closed by now.”

But deals like East Coast Power still are getting done, experts say. And EDA is putting more money on the street this year than last, as it battles the headwinds of the downturn, said Caren S. Franzini, the agency’s chief executive.

“Our activity has increased tremendously this year,” Franzini said. “This is a time when businesses and banks should be looking to us, and this is exactly the role we should be playing. In a time of economic downturn, there are pockets of the economy where businesses can still be successful. Businesses who find their niche in this tough climate are standing their ground and doing OK.”

The volume of EDA deals is up 40 percent; 80 projects closed this year through July 14, compared with 57 projects at this time in 2008, the agency said. Those 80 projects received $70.9 million in EDA financing, up from $60 million in financing received by the 57 projects at this time last year. EDA provides financing via tax-exempt bonds, direct loans and loan guarantees. Including bank financing, total EDA-supported investment in New Jersey businesses so far this year came to $252 million, up from $126.2 million last year. EDA said these projects have added 1,591 jobs so far this year, compared with 898 at this time last year.

“But it’s not all rosy and wonderful — we are in a national recession, and New Jersey is part of it,” Franzini said. Mitigating the impact of the recession, she said, are the financing programs Trenton rolled out earlier this year, including an EDA-guaranteed line of credit, plus what Franzini said was a stepped-up effort by EDA to use its lending tools to combat the recessionary credit crunch.

But there are always businesses that don’t qualify for EDA financing — and the recession makes it tougher to make the cut, Franzini said.

“It is hard to say no, but sometimes we will just put the company in a far worse position if they borrow money” they can’t repay, Franzini said.

Asked what kind of companies are likely not to qualify, Franzini said “a business that has had, for the past six months to a year, a continual decline in their revenues, and they don’t have a real plan in place to cut expenses and look for new lines of revenue,” isn’t likely to get financing.

Given the severe recession, characterized by a de-leveraging of business and household balance sheets, increased savings and lower spending at every level of the economy, “companies need to look back at their strengths, make cutbacks and try to get more equity into the company to get through this tough time before they take on more debt,” Franzini said.

It is “very tough” for businesses to obtain bank credit right now, said CPA Ralph Evangelista, of Frazer, Evangelista & Co., in East Brunswick. In response, some firms are “reducing their staffs and their inventories,” he said.

Evangelista said a number of his clients “are not expanding — they are not venturing into other lines of business or acquiring other businesses.” None of his clients have been forced out of business by the credit crunch, but spending is down.

“They are buying less supplies. When it comes to capital expansion, computers and equipment, they are fixing the old ones or not buying the latest and the greatest equipment, because they don’t have the credit,” he said.

Gerry Banmiller, chief executive of 1st Colonial Bank, in Cinnaminson, said many businesses can’t get loans because their results are down this year, but said banks should consider several years of past performance.

“If banks start lending aggressively, and understand that companies have a history, and not just look at the present, we would be out of this recession in six months,” he said.

John Witkowski, a partner at the accounting firm Weiser, in Edison, said companies “are reducing their work force, and trying to remain profitable by cutting costs instead of growing.”