Whitehouse touts success of loan to rug manufacturer

By:  Donna Kenny Kirwan
Pawtucket Times

PAWTUCKET - When the president and CEO of Colonial Mills Inc., a nationally known braided rug manufacturer, was asked by U.S. Sen. Sheldon Whitehouse what would have happened if he hadn't received a new loan and the chance to restructure some debts, his answer was stark and simple: "We wouldn't be here." Instead, the makers of a product that employs 75 people and sells to major retailers such as Williams Sonoma and J.C. Penney are soon going to add 10 new jobs, building back a workforce that was decimated by the sudden downturn of the economy in 2008.

Whitehouse, along with Mark Hayward of the U.S. Small Business Administration, and Robert D. Twomey, president of Webster Bank, toured Colonial Mills , located at 560 Mineral Spring Ave., on Friday afternoon, where President/CEO Donald M. Scarlata brought him through the various stages of rug making. He also spoke of the economic turmoil that almost sank the company he has owned with his brother since 1977 and how he has been faced with some of the hardest business decisions he has ever had to make in an effort to keep operating.

Scarlata said he had watched while the company, which had grown to a $10 million enterprise, shrank to a $6 million entity when homeowners began to cut back on their non-essential spending and new residential construction slowed, considerably. "We are selling a home product that is bought with disposable income," said Scarlata. "Our success depends on consumer spending and in 2008, everyone just stopped," he stated.

A bustling operation that once employed 150 people working two shifts was cut down to 70 employees and one shift. Scarlata further pointed out to Whitehouse that while the company enjoyed a net profit of $300,000 in 2007, it lost $500,000 in 2008. In 2009, the company was able to reduce that loss to $300,000 but Scarlata still noted that the last two years had been the worst of any business cycles he had witnessed in more than 30 years at the helm of the company.

Yet, Scarlata is starting to see improvements, noting that the first quarter of this year alone, the company has made $100,000 and there is currently a backlog of orders totaling $612,000-"the highest it's been in three years," he stated. Scarlata added that he had originally projected 2010 to be about the same as it was in 2009 in terms of flat profits, but is now feeling cautiously optimistic. "W are ahead so far this year. Things are looking more positive...knock wood," he said, striking a large wooden conference table.

While Whitehouse, Hayward, and others in the room literally "knocked wood" on the conference table in allegiance with Scarlata, they all noted that it was the joint effort on the part of the company president, his lenders, and the city, state and federal government that really accounted for the turn-around.

Whitehouse and Hayward noted that Colonial Mills received a $300,000 loan made possible by the federal American Recovery and Reinvestment Act (ARRA). The rug maker received the funding through a U.S. Small Business Administration (SBA) loan program enhanced by provisions in the Recovery Act.

In addition, Scarlata met with various lenders including Webster Bank, the Rhode Island Economic Development Corporation and the Pawtucket Business Development Corporation, which agreed to provide him with assistance and all-important deferments on his loans. "I needed time and money," Scarlata said.

Hayward praised the cooperative effort that took place between Colonial Mills and its lenders. He also said that a critical element to the arrangement was "the transparency of the management," noting that Scarlata sends monthly financial statements to the parties involved.

"We had to react,, but now we have gotten our expenses more in line with our volume," Scarlata said, of the lay-offs and other cost-cutting measures that were taken. "But now, we're hiring 10 more people."

According to Whitehouse's office, since the Recovery Act became law, SBA has approved 500 loans totaling $155.5 million to Rhode Island small businesses. The Recovery Act authorized SBA to increase guarantees from 75 percent to 90 percent and eliminated fees charged to borrowers on many loans to small businesses. These changes have encouraged banks to lend to small businesses that might not have qualified for loans.

Nationally, SBA has approved more than 58,835 loans totaling nearly $25 billion. Last month, the Senate passed legislation that would continue the Recovery Act SBA Loan program enhancements through the end of the year.

Whitehouse stated, "Small businesses are the lifeblood of the Rhode Island economy, and many were hit particularly hard during the recession even before the recent floods."

He added, "The SBA loan program has provided hundreds of local businesses with vital access to capital to help them weather these tough times."