Reader to reader advice.
Credit Make-Over
When I apply for a business start-up loan, will the fact that I filed personal bankruptcy in 1991 be a major roadblock? If so, do you have any suggestions about how to go around it?
Carol Harris
Greenbelt, Md.
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Securing a business loan is tough enough without the burden of bad credit, so be sure of your capital needs and maintain realistic expectations. Many bankers view a recent bankruptcy as a neon sign that screams you'll never repay. Still, there are ways to obtain a loan, and that loan needn't necessarily come from a bank.
Your first step is to rebuild your credit, but note that most credit grantors won't consider you until you've been out of bankruptcy for at least two years. John Ventura, author of The Credit Repair Kit (Dearborn Financial; 800-621-9621, extension 650; 1993; $19.95), suggests that after two years have passed, you go to a bank and request a $1,000 loan, to be placed in (and secured by) a certificate of deposit with that bank. Provided all your payments are made on time and in full, you'll emerge with a good relationship with an institution. Another option: apply for credit cards and use them regularly. If you're turned down, try a secured card. Steady payments will reflect well on your credit report. (For a free copy of your latest report, write TRW Complimentary Report Request, P.O. Box 2350, Chatsworth, CA 91313.)
If you still can't get the backing by yourself, find business partners or creditworthy friends and family who'll guarantee the loan. "If you're able to sufficiently collateralize the loan, that will diffuse the impact of the bankruptcy," explains Howard Beck, chairman of the small-business-reorganization committee for the American Bankruptcy Institute, in Washington, D.C.
Don't forget that you can tap sources other than banks. If your employer has a clean credit-union account, you can use it as a reference to open your own account and build credit. Or try the Small Business Administration's microloan program. For more on microloans, see "Start-ups," [Article link].
Throughout your quest for a loan, honesty is the best policy. Beth Bloom Wright, chief financial officer of Quaker Construction Services, in Millville, Pa. (see "To Bankruptcy and Back," September), urges you to be up-front with lenders: "Explain what has been done to rectify those past problems and also what you've learned." Present the lenders with a formal loan proposal, a well-written business plan, and a 12-month cash budget detailing the costs of overhead, inventory, and debt service, along with the time it'll take to collect receivables. For more ways to make your lender smile, see "Plugging Holes in Loan Proposals," Banking and Capital, April 1992, [Article link].
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Testing Temping
We've launched a career-management company specializing in placing executives permanently. We may spread into the temporary-placement arena, so we need a sense of how that market differs. How do other placement agencies sell their services?
Gerry Palmer
President
Palmer & Associates
Bangor, Maine
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The recession has forced corporate America to become more flexible in its staffing decisions, so your instinct to tap the $20-billion temporary-help market is a fine one. Some insiders foresee an explosion in the executive -temp niche as more companies realize that outsourcing short-term assignments to displaced execs can be rewarding for all. But before you diversify, you should explore your home market; consider budget, marketing, and legislative issues; and educate clients.
Executive-placement businesses like yours can compete profitably on the national level from a small-city base, but if you add the temporary dimension, you must survey the Bangor market to be sure that healthy supply and demand exist for your services. Get started with the National Association of Temporary Services' Research/Reference Kit ($30 from NATS, 703-549-6287), which contains industry statistics and lists of consultants and suppliers to the temporary-help market. NATS holds regional workshops and can refer you to state chapters for local market conditions.
There is, of course, a downside to diversification. Be aware that the temporary market is costly to enter and to grow in because you have to carry your temps' payroll -- sometimes for up to 60 days. "People get into the temporary business figuring they can cover everything out of gross. They don't realize we're talking gross margin dollars, not gross revenue dollars," explains Julie Prafke, founder of Humanix Temporary Services, based in Spokane, Wash. What's more, the temporary market is notorious for high turnover and cutthroat business practices. "You'll see real low-margin bids -- even no-profit bids -- just for the hope of getting future business," says Greg Garvis, founder of Denver's BankTemps, a placement agency for financial professionals.
Still, fast growth isn't impossible: a total of 29 temp agencies made the Inc. 500 list in the past two years. Why not contact them to learn about their financial strategies and to find out how to expand your core business and get into the temporary market? You can also get tips from members of the National Association of Personnel Services (703-684-0180; membership is $400).
