Arkansas Capital Corp.: 55 Years and Still Growing

by Mark Friedman  on Monday, Aug. 27, 2012 12:00 am  

In 1989, C. Sam Walls took on the job of revitalizing the entity known as Arkansas Capital Corp. of Little Rock.

During that time, he’s overseen nearly a half-billion dollars worth of loans, with a portfolio that contains government-guaranteed loans, and grown the organization so that Arkansas Capital Corp. is just one of more than a half-dozen entities “empowering entrepreneurs” under the umbrella of Arkansas Capital Corp. Group.

The group is continuing to grow as Walls, who turned 65 in July, is eyeing retirement. He declined to say when he might step down or who might replace him.

Last week, ACCG was wrapping up the creation of its eighth entity, Pine State Capital, which will be a conduit for a federal program that will direct foreign investment in poor areas of Arkansas.

“That’s the reason we exist — to build the state of Arkansas,” Walls said. “And all those little pieces that we’ve added have the same mission.”

Economic developers say ACCG’s myriad services are vital to entrepreneurs and businesses that need money.

“Oftentimes, they are the bridge or the catalyst that makes a project work,” said Jay Chesshir, president and CEO of the Little Rock Regional Chamber of Commerce.

ACCG works mostly as a local channel for federal government programs — such as U.S. Small Business Administration lending or tax credits — designed to encourage entrepreneurs. ACCG’s divisions are a mix of for-profit and nonprofit entities that range in services from the nonprofit Connect Arkansas Inc., which is providing broadband access to Arkansans, to Diamond State Ventures Inc., a for-profit venture capital fund.

But ACCG’s flagship division is Arkansas Capital Corp., a private, nonprofit company that borrows money from the state of Arkansas to lend to startups and expanding companies that don’t meet traditional bank funding requirements. Most of those loans from ACC are guaranteed by the SBA and secured by assets from the borrower. ACC also pays the state of Arkansas interest on the money it borrows.

ACCG usually finds itself near the top of Arkansas Business’ list of largest SBA lenders. In 2010, ACCG was No. 2 on the list with 39 loans totaling $21.9 million in value, but a year later, it had slipped to No. 3 with 32 loans for $17.2 million. Those loans were made through ACCG entities Arkansas Capital Corp. and Six Bridges Capital Corp.

Walls said it was difficult to track down job creation numbers for the whole company, but that Arkansas Capital Corp. added 5,788 jobs to Arkansas firms between 2005 and June 30, 2012.

ACC officials, however, don’t go back to the borrowers and check to see if the jobs were created after the money was released. “Times change, circumstances change, and people … they hire and fire people all the time,” Walls said. “So to go back a year later … you can’t really nail it down exactly” how many jobs were created.

Ability to Lend Millions

ACCG has grown into an organization that has the capacity to lend tens of millions of dollars.

“And much of that money is not Arkansas’; it’s money that we’re importing into the state from other places,” Walls said. “Whether they’re tax credits or whether they’re foreign investors or venture capital money that’s coming out of the private [sector].”

Economic developers told Arkansas Business that Arkansas would be worse off without ACCG. “They are invaluable to the economic development efforts as well as to companies and their ability to grow,” said Chesshir. “They’re a very valued partner in our economic development efforts.”

Randy Zook, president and CEO of the Arkansas State Chamber of Commerce/Asso-ciated Industries of Arkansas, agreed.

“For people starting a business who don’t have a lot of resources to begin with, they’ve got to find access to capital and access to markets,” he said. “That’s the help that ACC and each of their entities provide: helping people find the money to create and grow a business.”

Getting Off the Ground

In 1957, an act of the state Legislature created the entity that would become the ACC Group, and allowed the state to lend money to ACC, which at the time was called First Arkansas Development Finance Corp. To get ACC started, $109,500 was raised from 117 individual Arkansans and $923,725 from 35 utilities.

The purpose of the company was to “promote the industries, business, agriculture and general economic welfare of the state through the creation of employment opportunity of Arkansas citizens,”according to a 1960 article by Herbert L. Thomas Sr. in the Arkansas Economist.

Walls said the founders of the company didn’t profit from their investment. “These people came together and formed this entity for the future of the state,” he said. “And they got nothing out of it, no money whatsoever.”

ACC rarely handled any projects in the early days, though. Between 1957 and 1988, it provided $21.6 million in capital that supplemented other funding for projects valued at a total of $44 million.

ACC could have used the SBA to guarantee the loans, but didn’t, Walls said. By 1989, ACC “was somewhat in trouble because it was somewhat inactive,” Walls said.

Walls left his job as a business consultant at the University of Arkansas at Fayetteville to lead ACC.

“It was a classic turnaround scenario, with one exception,” Walls said. “It wasn’t broke; it just didn’t have any business.”

He then started marketing the company. And the “SBA guarantee began with me,” he said. One of the big turning points for ACC came in 1989 when SBA officials approached Walls with a proposal to handle an SBA program that provides capital for a project but takes a second position behind the first lender, typically a bank.

That division became Six Bridges Capital Corp., and it has provided $220.7 million worth of loans in its history.

Other diverse entities followed.

(See also: The Companies of Arkansas Capital Corp. Group)

By 2012, ACCG HAD provided $488.6 million in capital for projects that totaled $1.23 billion. The company also has grown to 35 employees. When Walls took over 23 years ago, there were only three.

Walls has been rewarded with a total compensation package worth $384,675 in 2009, which A year later had jumped to $435,772, according to ACC’s tax filings. “The recent amounts reported on the IRS forms are misleadingly inflated by the inclusion of some deferred compensation that relates to his full 20-plus years of service to the ACC that had to be funded … in the last few years of his tenure,” Arkansas Capital Corp. Chairman Rush Deacon said in a statement that Walls read to Arkansas Business. “This funding was completely contingent upon the achievement of certain company performance objectives, and I’m pleased to note that ACC has meaningfully exceeded those targets.”

(See also: Heartland Division a Hit for ACCG)

Stories From ACC

Cary Martin said he started working with ACC in 2003 as he prepared to start his business, Little Rock Tours.

Martin said ACC helped secure a Small Business Administration loan as well as funding for the tour bus he needed to launch his business.

Nine years later, Martin de-clined to reveal revenue figures but said Little Rock Tours now has 45 employees.

He said ACC was critical in helping the company get off the ground. “When you’re getting started, everything is fragile, and they definitely got us through the fragile period and helped us become stronger,” Martin said.

Recession’s Aftermath

The recession hit some of the ACCG entities. The number of loans the Arkansas Capital Corp. division closed using money from the state of Arkansas fell from 42 in 2008 to 27 in 2010 and had rebounded only slightly, to 29, last year. This year’s pace has been similar: ACC closed 14 loans in the first two quarters.

The Six Bridges division also has seen a decline. It closed 32 loans in 2008 for a total of $19.3 million using federal money. In 2009, the number of loans plummeted to 16 for a value of $16.9 million. Activity has increased to 24 loans closed in 2011 with a value of $15.1 million. During the first half of this year, seven loans have closed for a total of $3.5 million.

“Have you talked to people in the finance business?” Walls asked. “Things are slow, and they certainly were slow in those periods of time you were asking me about.”

Walls said that ACC has never missed a payment to the state. ACC paid the state of Arkansas a total of $5.15 million in interest in 2005-08 but has only paid $1.24 million during 2009-June 30, 2012 because market rates have declined. The interest rate dropped from 2.16 percent in 2005 to 1.3 percent in 2008 to 0.82 percent as of June 30.

Between 2005 and June 30, 2012, ACC’s charge-off rate was 0.67 percent.

Walls said part of the reason for the low charge-off rate was because of the SBA guarantees. ACC officers also work with borrowers who develop problems paying back their loans.

“Look, we got into this together, and we’ll get out of this together,” he said.

 

 

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