A look back at lender's impact

Ackneil M. Muldrow II, left, CEO of Development Credit Fund Inc., honors chairman Daniel P. Henson III in 1993. DCF closed last month after aiding small firms for 21 years.
First of two parts

Development Credit Fund Inc. closed last month after 21 years of providing loans and other assistance to small businesses in the Baltimore region.

Established by the Greater Baltimore Committee in 1983, the DCF was financed with $7.5 million from six area banks. The Maryland General Assembly created a loan guarantee fund for the same amount through the Maryland Small Business Development Financing Authority. The DCF was the state's first joint public-private financing entity.

Ackneil M. Muldrow II was named the fund's president and chief executive. He still was running the fund out of its Charles Village offices when it closed on June 30.

Throughout its history, the DCF has provided nearly $40 million in loans, generally spanning five to 10 years for working capital, equipment and machinery. It also managed nearly $5 million in federal funds through various community development programs.

The DCF also struck a unique partnership with Nike Inc. to aid minority entrepreneurs in opening retail stores in Baltimore communities. More than 500 businesses had received financing from DCF, and at least 4,000 people had sought assistance.

Muldrow, a graduate of North Carolina A&T State University, worked at Commercial Credit Corp. in Baltimore and at Montgomery Ward & Co. before joining the DCF.

In an interview, Muldrow discussed the fund, its founding and its impact on the Baltimore region. will feature more excerpts next week.

The Development Credit Fund closed after 21 years because of competition?

Yes. There is a lot of competition from the banks. They're offering the same product that we offer, but they have other services. They can offer these services, ofttimes, more cost-effectively because they're making money in other areas around that customer.


If you're already banking at an institution, they can give you a break on your loan rate because they're making it up with other services. They are looking at the total services, and they're pricing on that.

But you've operated for 21 years. May as well do 25?

Yes, we may as well, but we cannot offer the services that the financial institutions can offer. We can't compete in that market. We're not competitive.

What has this competition done for the DCF's customer base?

We ended up with the highly leveraged business. This is what we started out to do, but we didn't want to get too high with this leverage. Our market began to narrow, because the kind of customers that came to us 20 years ago were basically very strong minority businesses. They basically had no outlet for where they could get loans. Things have changed over the last 21 years.

Did the DCF see this trend coming?

We saw it some 10 years ago, as more institutions came out and said, "Gee, this small-business market is growing, so let's get in there" – and, particularly with African-American and Latino markets. Everybody had a product for a group. We just had a product for everybody.

So what made the DCF different?

We prided ourselves in that we offered a stronger service than most. We got out and worked with the client directly, more often than the bigger institutions with hundreds of clients. We did a little more hand-holding with our clients, to get them through good times and bad times.

That was one of the signature suits of the Development Credit Fund. We called it "Aftercare."

How important was "Aftercare"?

It was very important. Technical assistance directly to a borrower is still needed from lenders. You still need that business engineer to work with the borrower, and we did it as best we could, but we couldn't go too far because of liability issues. But you still need that business-customer engineer.


Because many are first-time business owners; they're not sophisticated. They may know the product, but not the overall business.

A lawyer said to me the other day: "I'm damn good in law, but I'm not a good businessman." But a law firm is a business. So even that individual needs hand-holding, to tell him that these are the things you need to do, as far as good business practices are concerned.

But you have a more sophisticated minority business person today?

True. But still, they can be well-educated, but not necessarily educated to business. They have ideas, opportunities to go into business: Cousin Bertha may have loaned them some money, so they have some equity to start a business.

But it's still a learning experience, even in today's market.

The Development Credit Fund grew out of the Greater Baltimore Committee. How did it come about?

There were people who looked at the marketplace, people who were visionaries in their own right: John C. Sawhill, who was the president of New York University, worked at Commercial Credit Corp. In the 60s, he talked to Commercial Credit about doing something for small businesses, but nobody could define what a small business was, so they did nothing.

There were those who were talking about this back in the 60s, but there was not an audience.

What became of the idea?

Henry Parks [founder of Parks Sausage Co.] began to talk with the GBC and others about a growing market of African-Americans in the community -- and the need for an entrepreneurial class to serve that market.

In the sense of?

Mr. Parks saw that you needed to have a strong business group within any ethnic group, and he wanted to see more African-Americans like him in business.

For example, when the supermarkets fled the city back in the 1970s, that gave rise to Charles T. Burns and Henry T. Baines, who created Super Pride supermarkets and Stop, Shop & Save Markets [respectively].

Henry felt this was what you needed in a community. These people are role models; they contributed to and helped institutions in the community.

He saw that these people could play an integral part of the growth and development of a community, because they were part of it and they -- deriving their livelihood from the community -- could give back.

Wasn't there a danger in Mr. Parks's philosophy?

Now, he didn't say we were going to segregate or boycott anybody, but you do need a certain element in your community who are entrepreneurs.

Were there others who supported this vision?

Yes. There was [Alan P. Hoblitzell Jr., president of Maryland National Bank and later GBC chairman] -- and [Daniel P. Henson III] came along with the U.S. Small Business Administration. He talked about it further.

There was a GBC study group chaired by Mr. Hoblitzell. What came out of it was that these things we needed to address: access to markets, access to capital, access to debt, access to bonding and access to business education.

How did you prioritize these findings?

Access to debt, or credit, was something you could get into quickly -- and that's what started the DCF.

Access to capital, nobody knew anything about that -- as far as how we were going to get capital, investment capital, to put into small business, particularly black businesses. They might give some money to Parks, because he's established, readily available. But, to Neil Muldrow …, who might want to start a video company, "hell no!"

With those challenges, how did the DCF become a reality?

You found people who had the audience; they had the ideas, and they had the resources. Who had the resources? The bankers. There were supposed to be corporations who were supposed to invest in this project, but they said, "I've got my stockholders who I've got to answer to," so they never put up their money.

So the banks said, "Look, we'll start this, as long as we can get a guarantee of some kind from some source." That was from the state. We then moved to the SBA.

The SBA saw us lending to one market -- but public policy began to develop, that you needed opportunities for minority businesses, the SBA saw us as a plus, as opposed to a negative, trying to just lend to minorities.

We ended up lending to minorities and small business – and there are non-minorities that we've loaned to also.

The DCF only provided growth capital to small businesses. Why?

We felt that's what the market needed: expansion capital. The name DCF says "Development Credit Fund," and what we were trying to do was to develop that credit capacity for that business so that they could go to a regular banking institution.

We were really the financial intermediary that provided a credit facility for those businesses who did not have access because they were not deemed credit-worthy by financial institutions …

… Even if they had the start-up capital?

Yes. But it's more than the start-up money. We provided the growth funds. You've got enough money to start a business, but how are you going to fund the receivables that you're going to carry, how do you fund the payroll before the revenues come in -- that is where we provided expansion capital. That was our role for small business.

Was this whole idea of financing new for small businesses in Baltimore?

People were never afraid of the level of work involved in growing a business. They were never afraid of that.

Now, translating that enthusiasm into their total commitment, once you got up and running, some people felt it was too much. There were too many variables, so they just lost faith.

Such as?

The economy, customers, other businesses, acquiring raw products, acquiring contracts. There are a lot of variables you put down on paper, but on the other hand, when you really get into it, you find that there's significant differences between what's on paper and what's out there every day.

And people, sometimes, are fearful once they get in -- and we'd work with them and encourage them.

Was that why the DCF had such a high loan default rate?

We ran about an 8 percent rate, which was higher than any large bank. Banks run about a half a percent default rate, maybe 1 percent. We were dealing with a higher-risk customer.


The need was there to do it. There was a definite need. But then, there was the need to work with that borrower after you made the loan. It was not a thing where you just say: "Here's the money. Pay me back when you get a chance."

How did you work with firms?

We went after people -- in the sense of: "Do you understand what you're doing?" "I need these reports from you." "I need to understand what your business is." We were constantly going after, in terms of providing support, clients over the years.

How well did that sit with businesses?

Of course, people resented that, ofttimes: "You're trying to get into my business," they'd say. "Yeah. But you've got my money."

How did you deal with that resistance?

We'd tell them what we would have to do, or sometimes, we had to threaten to foreclose. We needed to know what was going on in that business because you signed a contract that said I would have the right to your books.

We'd have people who'd go somewhere and find some money and pay us off. That's fine. But if you're not keeping good books -- or if you're doing something that you didn't want your lender to see, that's between you and whoever. But in the meantime, I needed my payments. And I needed to be assured that I would receive them.

How did you stay on top of your companies?

Being in this business, and being in the community, you hear things. So I may come over to a business to just say "hello," because I heard things on the street -- and I know things on the street. We had to do a lot of intelligence, whereas a bank was not going to do that.

For example?

We heard that one business got a contract to haul gravel. "Oh, but I thought he had a service station."

We had to go and look into it, and explain that they were about to go under because my document said you can't get into another business venture without my approval. I hear you're going to be hauling gravel, and you're going to lose money in it -- and if you lose money, that's going to affect my loan. A bank was not going to do that.

Our interest was keeping you open, and if you weren't doing what you were supposed to be doing …

Lots of times, people feared we were intruding, but I didn't mind intruding -- and I think that helped us over the years. People were alert that these guys from the Development Credit Fund would come by if we weren't doing what we were supposed to be doing.

This kept companies on the up and up?

Yes -- not that they were doing anything illegal, but you've got all this money in the cash register, and you might think you can do anything you want to do with it. But you haven't paid your rent, you haven't paid me, you haven't paid your vendors -- so let's make sure we do all that.

I guess that's why we were adamant, very forceful – and some people didn't like us in the marketplace, because of the way we handled things. But you had a responsibility to pay me back.

We'd take collateral and some people would say, "Why are you all taking collateral?" "Well, we want you to have something to risk. If you have nothing to risk, how are you going to pay me back?" And, we had to go to the mat with people about that. Then, they'd say, "Well, you're just like a bank."

"Now see, I was your friend before you screwed up," I'd say. "Now, I want to be paid, and you don't want to pay me."

Would it go any further than that?

Some would call their elected official and tell them what the DCF is doing. And, we'd had to tell everybody that we are a private corporation. We manage some public funds, but the principles of the borrowing and paying back, that's got nothing to do with whether we're private or public.

If you are a responsible borrower, you are supposed to pay me back.

How bad did it get?

One time we had a borrower, and [Kenneth N. Oliver, DCF senior vice president] rolled up beside him and he had a brand-new car. Ken rolled down the window and said: "Excuse me, are you going to pay me, or are you going to pay for that car? "

The man got so scared that he came in and paid his loan off in a week [laughs]. He had heard that we're not too kind when you owe us.

We were kind, but some people wanted to be disruptive -- and I didn't mind being disruptive, my friend.

Next week: Nike Inc. and other success stories.