When Jennifer Brady-Brown and Sara Sprague approached The Washington Trust Co. in March with an idea to start a women’s boutique on Block Island, bankers told them securing a loan would be difficult. The business would be a startup during a downtrodden economy and located on an island where the retail season lasts just 10 weeks.
The two friends stayed up until the wee hours of the morning creating a business plan and then, in a critical turning point, the U.S. Small Business Administration agreed to guarantee a portion of the loan in case of default. Washington Trust approved the $40,000 loan and Wild Flowers Boutique opened May 22.
“We did the research, and we knew what we needed to do,” Brady-Brown said.
The SBA has stepped up promoting itself on the island in recent years, seeking people like Brady-Brown and Sprague who need help persuading a bank to approve a loan. In 2009, the SBA guaranteed a portion of one loan totaling $75,000. So far this year, the SBA has guaranteed three loans totaling $61,000.
Still, that’s behind 2008, when the SBA supported two loans totaling $575,000 and 2007, when the SBA guaranteed four loans totaling $124,800.
This year, Rhode Island District Director Mark Hayward visited Block Island with a group of about 35 state and federal officials and representatives from a half-dozen banks on June 23. It was the 16th such annual trip by the SBA.
The contingent arrived just as businesses were preparing for the height of the summer tourist season.
“They may be closed nine months of the year, but they’re an integral part of our economy,” Hayward said.
Virtually all businesses on this 10-square-mile island close during the winter, when the main commercial area appears like something akin to a deserted movie set. With no cash flow for most of the year, island business owners spend time explaining to loan officers how they will pay their debts. It doesn’t help matters that banks typically view hospitality as one of the riskiest industries to lend to because of the volatile nature of consumer spending. Enter the SBA.
“[The SBA guarantee] provides an extra layer of support, which out here is important for either startups or because the business might not have the collateral,” said Barbara MacMullan, a vice president at Washington Trust and the manager of the island branch.
In the case of Wild Flowers Boutique, Brady-Brown and Sprague lacked the collateral to back their loan. They were hesitant to use personal property and risk the company defaulting and the friendship falling apart when one lost a home or the like.
“We had to do it this way because it’s a friendship, and we tried to make it as professional as possible,” said Brady-Brown, who is the town’s land use administrative officer.
For established businesses, finding collateral is easier thanks to the island’s high property values, says Steve Filippi.
The president of Ballard’s Inn wants to raze the existing restaurant and small hotel and replace it with a four-story, multimillion-dollar hotel and banquet facility. The project has yet to receive approval from the town, but Filippi said banks are already lining up to finance it.
Filippi said banks like his property’s value – the town values the land alone at $3.2 million – and the fact competition is limited.
“Block Island has a lot more positives to offer than there are negatives,” Filippi said.
He is exploring the potential of involving the SBA in the deal, attracted by the low interest rates that are now 5.25 percent for the agency’s most popular program.
Ballard’s would not be the first inn to take advantage of the program. An SBA-backed loan helped Ann Law refinance her Blue Dory hotel in 2003. Seven years later, she’s contemplating an expansion of the Blue Dory and her other inn, the Avonlea. While the plans remain in their infancy, Law understands what a sour economy means for seasonal businesses seeking loans.
“Quite frankly we’re in an economy where banks aren’t listening anymore, resources have decreased, and now you have to get creative,” she said.
That creativity on the island is starting, albeit slowly, to spill over to the Internet. Some island businesses are recognizing that the Internet can keep cash flowing year-round and strengthen balance sheets. When the SBA visited the island last year, Hayward said it was apparent that a Web presence could help businesses boost sales. The SBA quickly put several businesses in touch with students at Johnson & Wales University to develop the sites free of charge.
Since the meeting last summer, Johnson & Wales University students have finished 10 websites for island businesses, with another two on the way.
Even with those additions, Kathy Szabo, the executive director of the Block Island Chamber of Commerce, estimates that less than half the island businesses have a Web presence. Jon MacKenzie, owner of 234 Water, was one of the first island merchants to offer his products online, launching the site last year.
In the first three months of this year, the site recorded 2,509 visitors and about 40 sales while the physical shop was closed for the winter. MacKenzie said last year he made about 125 online sales, comprising about 5 percent of his business.
“It’s sitting there on your shelves, why wouldn’t you do it?” MacKenzie said.
MacKenzie and Szabo speculated that few island businesses go online because of a wariness of technology, the expense or a belief that a Web presence is unneeded.
But Mark Brodeur, director of tourism at the R.I. Economic Development Corporation, said island businesses miss a huge advertising opportunity by not venturing on the Web. Even if they don’t sell products online, a virtual presence creates the opportunity for other sites to link to the business. That builds branding and puts the business in the minds of tourists before they even step off the ferry.
“You’re missing out on all the new marketing by not having a website, and you don’t even realize it,” Brodeur said.
John Cullen, who owns T-shirt shop B.I.T.’s and toy store Building Blocks, took the SBA up on its offer and expects his websites for each business online in the coming months, eight years after an SBA loan helped him and his wife launch Building Blocks.
“It’s tough to survive out here,” said Cullen, who is also president of the Block Island Tourism Council. “Everything’s expensive. If I can increase what I do, it will increase the chances I can retire some day.” •
