Crains New York - January 7, 2013 - (Page 7)

SMALL BUSINESS Sandy and the chocolate factory Queens firm counts on sweet banker to rebuild M BY HILARY POTKEWITZ adelaine Chocolate Co. closed its factory in Queens ahead of Superstorm Sandy so employees could sandbag the site and raise inventory a foot off the floor. But when waters surged five feet above the Rockaways’ streets, Jorge Farber knew he had problems. Here’s what the CEO found: nearly a million pounds of finished chocolates—foil-wrapped turkeys for Thanksgiving, Santas for Christmas, gold-wrapped Hanukkah gelt, Valentine’s Day hearts,and even early Easter orders, all packaged and ready for shipment to retailers— floating around the 200,000-squarefoot factory. “My first thought, you can’t print,” said Mr. Farber. His second thought? “I’d better call Gerald.” Gerald Joseph, his banker. Five months earlier, Madelaine had taken an $8 million line of credit with Gerber Finance, an assetbased lender where Mr. Joseph is president. Assets Madelaine put up for the loan—inventory, receivables, factory equipment—were now kaput. “I wasn’t sure how that conversation would go,” said Mr. Farber. Fast-forward 10 weeks, and Mr. Farber and his team are working out of borrowed conference space at Gerber’s midtown office. The factory is still disabled, which means no cash is coming in. But Madelaine is busy getting cleanup crews, inspectors and repairmen in,with money extended by Gerber. Rather than cut its losses, as other banks might have in this scenario, Gerber waived Madelaine’s interest payments and is actually extending the chocolate company credit, to fund things like payroll. “We’ve never had to deal with anything like this before, but we just had a comfort level with Madelaine’s management—with their enthusiasm, their integrity—so we threw the rule book out the window,” Mr. Joseph said. The arrangement is a throwback to an earlier era,when banks extended credit based on personal relationships and a promise. In a sense, the storm has given lenders like Gerber an edge. Because the loans are based on the value of assets, these lenders are much more involved in a business than bigger banks, said Brian Cove, chief operating officer of the Commercial Finance Association. Mr. Joseph visits his clients, many of which are in the specialtyfood business, about once a month. Knowing which entrepreneurs can be trusted to rebuild successfully means he can quickly offer terms that will speed up a firm’s recovery— and the repayment of their loans. “In most cases, the lender has a LISTEN to a discussion at CrainsNewYork.com/podcasts much closer relationship with the borrower than a typical cash-flow loan,” Mr. Cove said. “They have a better understanding of the business, so they feel comfortable being more flexible.” Gerber is a small lender with about 40 clients and a loan portfolio of $70 million. The Madelaine loan was sizable for the firm—most are in the $500,000 to $5 million range. One of the largest employers in the Rockaways, Madelaine went from 425 employees to 12, overnight. Family business Once used as a last resort, assetbased financing grew when banks tightened purse strings after the credit crisis. In the U.S., it increased to about $620 billion in 2012, from roughly $550 billion in 2007, according to the Commercial Finance Association. The money is usually more expensive; interest rates can range from 8% to 12% or higher. Madelaine is a third-generation, family-owned business founded 60 years ago by two brothers-in-law, Holocaust survivors. Its annual revenue hovers around $60 million, according to Candy Industry magazine estimates, and it pumps out 20 million pounds of chocolate per year, which are sold under the Madelaine brand at Macy’s and Amazon.com, and through private labels at chains. Madelaine’s damage is expected to be in the millions. Its Europeanmanufactured equipment requires specially trained repair crews. Mr. Farber hopes to start making chocolate again by April. Occasionally, he sees his product on display at retailers—merchandise shipped before his world was turned upside down. He has two last pieces of foilwrapped chocolate on his mantel at home that he refuses to touch. Luckily for Gerber, Madelaine was its only client hurt by Sandy. “We understand that businesses get in trouble from time to time,” Mr. Joseph said. “You can’t just pull away the umbrella when there’s rain.” BUSINESS OWNERS join the thousands of New Yorkers who have reduced their energy use, gotten millions of dollars in incentives, and helped the environment. 1-877-870-6118 conEd.com/GreenTeam ©2013 Consolidated Edison Company of New York, Inc. Ad: Arnell Group EFFICIENCY A WAY OF LIFE BUSINESS OWNERS, GET ENERGY FIT TODAY. January 7, 2013 | Crain’s New York Business | 7 ENERGY MAKE http://www.Amazon.com http://www.conEd.com/GreenTeam http://www.CrainsNewYork.com/podcasts

Table of Contents for the Digital Edition of Crains New York - January 7, 2013

IN THE BOROUGHS
IN THE MARKETS
THE INSIDER
SMALL BUSINESS
BUSINESS PEOPLE
OPINION
REPORT: ECONOMIC OUTLOOK
GREG DAVID
FOR THE RECORD
REAL ESTATE DEALS
CLASSIFIEDS
NEW YORK, NEW YORK
SOURCE BREAKFAST
OUT AND ABOUT
SNAPS

Crains New York - January 7, 2013