When Quality Collision Repair at 1240 E. Washington Ave. closed abruptly last summer, employee Rory Rose wasn't ready to abandon the auto painting skills he'd learned in more than 10 years on the job.
"I'd spent a third of my life building a name," says Rose, 28. "I didn't want to give it up."
So Rose started chatting with Ginger Wipperfurth, the long-time Quality Collision bookkeeper. Before they knew it, the pair had launched a new business: Rose Custom & Collision LLC.
Rose rented some garage space behind the Radio Doctor store at 4806 E. Broadway and began transforming it into an auto body repair shop, complete with an enclosed spray painting booth. He used customer connections with Union Cab, the state of Wisconsin and city of Madison to secure jobs painting fleet vehicles. Several former Quality Collision employees were rehired.
As with most start-ups, however, money was in short supply. And like many small businesses, initial financing was done with plastic.
"We'd run up something like $40,000 on Ginger's credit card," laughs Rose, a Cottage Grove native and graduate of Monona Grove High School.
That's when Rose, through a friend, heard about the Madison Development Corp., a quasi-public entity that makes loans to small businesses. After getting more information, he and Wipperfurth applied and last year received a loan for $25,000.
Today, Rose Custom & Collision is supporting six employees and making money — no small feat for a company that's been operating less than a year.
Wipperfurth, 55, says the firm could actually hire more staff and take on more work but is currently strapped by their location's small amount of space. To expand much further would likely require a line of credit from a commercial bank, which she says remains difficult to secure.
"Banks are really tight these days," she says. "They want to see us show a profit for another six months straight and make sure we have enough business lined up to keep us going after that."
Indeed, because of the financial meltdown, most commercial banks have tightened their purse strings, making the lending environment even more difficult than usual for new businesses.
"Banks are being more prudent with their lending," says Kevin Mahany, vice president of commercial banking at Capitol Bank. "All it takes is a couple of bad loans and suddenly your numbers don't look so good."
The credit crunch has been especially harsh on borrowers with little or no collateral. Unlike a mortgage, small business loans carry additional risk since there is often no underlying real estate to back them if the borrower defaults.
But in some cases, the Madison Development Corp. (www.mdcorp.org) has been able to fill the void by making loans to start-up or early-stage businesses that otherwise would not meet conventional bank loan standards.
"MDC has the flexibility to look at collateral differently than a bank might," says Mahany, a former volunteer adviser to the nonprofit lender.
Founded in 1977 under then-Mayor Paul Soglin with $500,000 in federal grant money, Madison Development Corp. has evolved into a multifaceted entity involved in affordable housing, economic development and, most recently, technology venture financing
Located at 550 W. Washington Ave., MDC today counts assets of $13 million in its basic business lending program. The group also runs the Dane County Development Co., which makes loans for businesses outside the city. In 2005, it launched a venture debt fund that uses money from local banks that want some tech exposure without having to make the loans themselves.
Funding for MDC loans come through a partnership with the city of Madison and Dane County through the U.S. Department of Housing and Urban Development's Community Development Block Grant Program, along with money from private banks in the area.
The list of those helped by MDC over the years is long and reflects the diversity of the local economy. Some of the more than 300 businesses receiving help include the Barrymore Theatre, Union Cab and Michael's Frozen Custard.
Longtime MDC President Frank Staniszewski is particularly cheered by the number of jobs created last year at a time when many local employers were cutting staff.
According to the just-released "2009 Jobs Report and Survey," MDC's small-business borrowers reported they created 110 new jobs last year, including 44 new full-time jobs and 66 part-time positions.
"The report shows that even through tough economic times, we can work with local businesses and banks to create good jobs right here in Madison," says Staniszewski, 58, a Cleveland native who's headed MDC since 1985.
For example, a $100,000 MDC loan helped Applied Tech add six new full-time employees last year to its operations at 203 S. Paterson St. Applied Tech is an information technology company that provides services for small- and medium-sized businesses that may not have their own information technology departments.
The average loan size in 2009 was $60,000, with interest rates set to match commercial bank rates. That prevents borrowers who might have otherwise qualified for a bank loan from using MDC to get a lower rate.
Money paid back to MDC goes into a revolving fund used to make more loans. And with a default rate of about 2 percent historically, MDC has been self-supporting since 1991, meaning it doesn't need to draw administrative expenses from the funds it receives.
Business loans can be made for up to $200,000 for working capital, inventory, equipment and lease improvements, as well as real estate. Borrowers are expected to increase employment by approximately one job for every $12,500 in loan funds or one job for every $25,000 if the job pays at least twice the minimum wage.
Last year, MDC made 18 basic business loans for a total of $699,000 and loaned $1.65 million from the venture debt fund. Of the new jobs created, 81 percent of the full-time and 22 percent of the part-time positions paid a quality living wage, defined as twice the federal minimum wage or greater.
Among the borrowers was Daisy Café and Cupcakery on Atwood Avenue, which hired 14 full-time equivalent positions — 4 full-time and 25 part-time employees — after getting a $50,000 loan from MDC.
Semba Biosciences, which received $400,000 in MDC funds last year ($80,000 in a basic business loan and $380,000 from the venture debt fund), created four new jobs in 2009 and continues to add employees at its offices at 505 S. Rosa Road in the University Research Park.
Wipperfurth is optimistic that Rose Custom & Collision will be another success story. She cites the passion and expertise that Rose brings to the operation.
"Rory is great," she says. "He's been like a son to me."
