Borrowing from Employees
Say you need more money to support your company's growth, but the bank is being a stick-in-the-mud. What do you do? Well, one possibility, as Jerry Clarke found, is to let employees invest their savings in the business. At Clarke's $15-million Energy Services Group International, an energy-services engineering and construction company, about 30 out of 400 employees have lent the business a total of around $320,000 for working capital.
The idea first surfaced about two years ago, when the Williamsburg, Va., company got a major new contract from an electric utility in Florida. The business was profitable, but Clarke couldn't persuade his bank to lend him any more money, even though the cash requirements to operate the business had nearly doubled. He called around to ask the company's shareholders to help out; before long, word spread and employees came forward with offers to invest.
Employees who put money in (the investments have ranged from $200 to $74,000) get promissory notes spelling out their rights. They're encouraged to leave the cash in for as long as possible, but they can withdraw the principal at any time. (Interest payments aren't payable until January 15 of the following year.) Lately, the company has offered an interest rate of 1% per month, which Clarke admits is a bit high when the prime rate is 8%. But the flexibility the extra capital brings to the company makes the premium worth it. "Without the extra money, we would not be able to do as much work as we do." -- Bruce G. Posner