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CCC sows its seed money
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January 27, 1999: 2:26 p.m. ET
Commercial Capital's CEO explains how his firm helps small biz to grow
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NEW YORK (CNNfn) - Charles Freeman's Commercial Capital Corp. has provided seed capital for many small businesses, and in a short period of time has become one of the top start-up lenders in the United States.
The company was founded in 1995 and wrote $12.5 million in checks during its first year. Charles Freeman, founder and CEO of Commercial Capital, has helped his company double that volume every year since then.
CNNfn's Valerie Morris spoke with Freeman about the dynamics of his company's success and the fundamentals for helping small businesses get the financing they need to succeed.
Here's his "Business Unusual" interview:
VALERIE MORRIS, CNNfn ANCHOR: You are in a sense a prototypical small business yourself.
CHARLES FREEMAN, CEO, COMMERCIAL CAPITAL CORPORATION: That's right. We started this concept in 1994 and got licensed by the Small Business Administration, an agency that I had a prior connection with. And much like a regular bank or other type of commercial finance company, we were off and running with a modest start in 1995.
And at the end of calendar year 1998, we've achieved a volume of $95 million in loans to hundreds of small businesses in about 20 states of the United States.
MORRIS: Every entrepreneur loves to know how another got started. Yours was from a pretty impressive address -- the White House.
FREEMAN: Yes. I was fortunate enough and greatly honored to have been appointed the administrator of the U.S. Small Business Administration for the Northeastern United States and the Caribbean in 1986. And I served in the last two years of the Reagan administration, and for three years of the Bush administration in that capacity.
So that gave me exposure to banking and finance, which was not my normal avocation. And I went on to serve as president and CEO of a community bank in northern New Jersey. And from that, the seeds of the work put into motion to start Commercial Capital.
MORRIS: You have the seeds that were put into place to start that. But you also have such a critical mass of information with regard to small business in the United States -- the needs, where to get the capital from. Can you tell us what would be a typical loan, if you will, that CCC would make?
FREEMAN: A typical loan would normally be beyond the start-up phase, although we do a number of start-up businesses. But a business that's reached its critical operation of two years or more in existence, needs additional money for expansion, for hiring new employees oftentimes to buy a building that they wish to be in that they often had a lease for. And now they need a larger amount of money to go forward and take the next step.
MORRIS: I understand that CCC makes loans nationwide. And in so doing, you are frequently lending money to women and to minority-owned businesses.
FREEMAN: And for example in the northeast area, in the New York metropolitan area, we are the third-most-active lender to minority- and women-owned businesses. I'd say that nationally, about 25 percent of our loans fit in that category. So that's something that we're interested in.
People that know we're in business have confidence in the kind of loan specialists we have, and getting a sympathetic ear and a knowledgeable ear. And they tend to come to us more often than not for that type of help.
MORRIS: It's a sympathetic ear and a knowledgeable ear. But one also that understands the basis and the fundamentals of good business. Of the requests that are made to you, how many actually go through and how many don't?
FREEMAN: I have to say that the credit standards of Commercial Capital as it shares with other banks and the Federal Small Business Administration are fairly strict. But I would say that of the loan applications that are made, eventually 52 percent get approved; 48 percent, not total declination but a number of them withdraw their interests. And others just don't qualify because the credits might be bad or there is just not enough… collateral that the federal government insists upon.
MORRIS: I look at CCC. It's one of the top Small Business Association leaders in the United States. With that in mind, are there downsides to doing this? Are there difficult things when you see people that have good ideas and they just don't have the fundamentals that are needs?
FREEMAN: Very often, in that downside area -- the people that we have to reject, we have more often than not felt very bad about having to reject them. Because the ideas, as we said, Valerie, are wonderful. It's just that there isn't enough there to put together a credible piece and to show that perspectively it has the chance for success.
And as all people in banking know, loans go bad very quickly. So you have to be doubly sure that these ideas are coupled with the know-how and coupled with a marketing plan which will allow the company to succeed in the market niche that it has set out for itself.
MORRIS: What about the default rate? How are you managing that?
FREEMAN: The default rate is something that -- when you said what are the bad sides of this business. Obviously that's one of them. One doesn't like to see a loan get into trouble. We, as is our mandate, along with the federal government, work very hard to try to see that a borrower has all the assistance necessary when troubles do set in. And helping them overcome some troubles. And so to avoid a loan going completely bad.
When it does, unfortunately we're talking about 3 to 4 percent of the portfolio that eventually don't make it.
MORRIS: All right. Before I let you go. To growth, a small business; that's what CCC is. But I understand that you are growing. And therefore what are your plans, as you go forward? And what can we look forward to from CCC?
FREEMAN: When we opened our doors, we had five employees. We now have 41. We have employees in 14 states. We're planning in the next year to go 20 states in terms of having actual regional representatives.
We project that we will have a loan volume in 1999 of $120 million in loans closed. We hope to go beyond that and go to $200 million in the year 2000. In addition, we hope that at some point to offer other products to small business, maybe small cap leasing products that are complementary to regular long-term business loans, which is the main business of Commercial Capital. 
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