There's more to raising capital than tapping bank loans or selling equity, as Steve Marks can attest. The president of Main Street Muffins has pushed his eight-year-old Akron, Ohio, company to $8 million in projected sales and two listings on the Inc. 500 by pursuing nontraditional sources of capital.

Marks has displayed a remarkable sense of financial savvy from the beginning. His first financing package -- in 1987 -- was a 20-year loan for $175,000, subsidized by the City of Akron at a fixed interest rate of prime minus 3%. The loan was supplemented by a $25,000 grant from the city. In 1990, as the company outgrew its existing space, it borrowed $350,000 at 4%, through the Akron Regional Development Board (ARDB), to finance the conversion of a former meat-packaging plant.

Now, for the really fancy footwork. Armed with an estimate that Main Street needed more than $1 million to finance the construction of a building for its next growth stage, Marks began putting out feelers to the ARDB. "But I also talked to our bankers about what we needed, and they asked us to consider a new program they were offering, which ultimately cost us a good bit less," he recalls.

The new financing vehicle takes Main Street away from the city-subsidized loans that are fairly typical in disadvantaged urban areas and into the more exotic realm of private financing. The muffin company raised $1.2 million by selling taxable short-term bonds (with a maturity of one week) to the commercial customers of its banker, National City Bank. The bonds are listed in Main Street's name, but the bank guarantees their payment, for a credit fee of around 1%.

Although the deal was unusual, Marks emphasizes that his legal, accounting, and closing costs "probably came to no more than $40,000 -- very reasonable when borrowing this much money." But the biggest attraction to this financing method was its low cost: "Our first interest charges were only 3.7% -- and even with the rise in interest rates that has taken place since then, we're still only at 4.55%," he said in July. For business owners concerned about committing to interest rates that, essentially, fluctuate each week, Marks notes that "we could have bought a 6% interest-rate cap for about $50,000, but we weren't that worried."

Although the arrangement was complicated, the logistics since closing have been quite simple: "Our bankers send us a fax each week telling us what interest rate we'll be paying," notes Marks. "Then they send us a bill at the end of the month."

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