Boat builder charts course for expansion with its loan: Gladding-Hearn able to keep up with new orders for its fast ferries.

* With his boat-building business growing rapidly and orders for more ferries already: in the pipeline, George Duclos knew he had to add more production capacity. But most banks are reluctant to lend money to shipbuilders, even those with a solid track record like Duclos' Massachusetts operation.

Duclos was under pressure to land a million-dollar loan to add the fabrication facility that would let him deliver his orders on time.

"We had to get into the building. We had penalty clauses. If you're late, they can run up to $5,000 a day," says Duclos, chairman and chief executive of Gladding-Hearn Shipbuilding/The Duclos Corp.

Duclos' business advisers suggested he apply to the U.S. Small Business Administration's 504 loan program for the funds. The 504 program offers growing businesses a long-term, fixed-rate loan for fixed assets, such as buildings and land. In return, the business must create a certain number of jobs--typically one job for every $35,000 provided by the SBA.

Duclos was able to borrow $1.15 million in 1998, including $415,000 through SBA's 504 program, which provided long-term financing at 6.4 percent for 20 years.

His new 24,000-square-foot building at the Gladding-Hearn shipyard in Somerset, Mass., opened on time. The first vessel built inside was a 111-foot catamaran designed for whale-watching tours.

In addition to offering long-term, fixed rate SBA-backed loans, the 504 program also divides the loans risk. The program splits the loan between a private lender, an SBA-backed certified development company and the business, usually with a 50-40-10 ratio.

In the case of the Gladding-Hearn loan, Slade's Ferry Bank of Somerset provided 50 percent, the local certified development company, South Eastern Economic Development Corp., provided 40 percent, and Gladding-Hearn provided 10 percent.

"We made it easier for them to get financing because even though they do well, they are in a high-risk industry," says Maria Gooch-Smith, executive director of Taunton, Mass.-based South Eastern Economic Development Corp., known as SEED. "Banks don't like that. Eighty percent would have been tough, but this lowers the bank to 50 percent."

An active 504 lender, SEED completed 51 such loans last year and is on track to beat that number this year, Gooch-Smith says. "Banks look at us as a way to do some of these deals for the clients they like. There's other business they can do with a client."

The SBA itself is looking for ways to get more businesses and banks interested in 504 loans. In 2002, the program was authorized to lend $4.5 billion, but only $2.5 billion was approved.

SEED had worked with Gladding-Hearn previously, making some small working capital loans. It saw the company as the perfect candidate for the 504 program.

"They run the kind of business we like to see," says Gooch-Smith. "They put all their money back into the business and they've grown the business. They've been very successful in a difficult market."

Gladding-Hearn got its start in custom commercial shipbuilding in 1955 and delivered its first vessel that year, a fishing boat still in use off the Maine coast. The business was, founded by naval architect Preston Gladding and accountant Richard Hearn, who asked Duclos, then 22, to join them.

Duclos, now 70, and his wife, Pauline, took over the company in 1984 when Gladding and Hearn retired.

The Ducloses' children are involved in the business. One son is a naval architect. The other is a mechanical engineer. They serve as co-presidents. A daughter, a retired bank examiner, is chief financial officer.

Gladding-Hearn continues to build tug boats, fishing boats, pilot boats and vessels for specialized uses such as research ships. Today, the company also builds high-speed catamarans under a licensing agreement with International Catamaran Designs of Sydney, Australia. They are used for such things as commuter ferries and the whale-watching boat.

That venture's success was the main reason a new building was necessary. The facility allowed the company to double manufacturing capacity, and sales have grown to $15 million this year from $8 million in 1997.

Gladding-Hearn has delivered more than 300 vessels since its founding. The continued success of the company garnered Duclos the SBA honor of Massachusetts Small Business Person of the Year in 2002.

504 Certified Development Company Program

What: Long-term, fixed-rate financing for fixed assets such as land and buildings. Typically involves a loan secured with a senior lien from a private lender for half the project cost, a junior lien from a certified development company backed by the SBA for 40% of the cost and at least 10% equity from the business.

Amount: Maximum SBA backing is $1 million and includes job creation criteria or community development goals.

Step 1: Contact your local certified development corporation. A list of CDCs is available at www.sba.gov.

Terms: Interest rotes are pegged to an increment above the market rate for five- and 10-year Treasury issues with maturities of 10 and 20 years.

Other stats: 504 loan volume increased 8.8 percent in fiscal 2002. A total of 5,480 loans was approved for a dollar volume of $2.5 billion. SBA reports the number of jobs created and retained was 116,048 for the year.

Gladding-Hearn Shipbuilding/ The Duclos Corp.

Chairman: George Duclos One Riverside Ave. Somerset, MA 02726 [phone]

www.gladding-hearn.com

Year founded: 1955

Employees: 120

Revenue: $15 million

SBA-backed loan: $415,000, 20-year fixed, 6.4 percent from SEED Corp., remainder of financing included Slade's Ferry Bank at 50 percent of project cost and Gladding-Hearn, 10 percent.