Nine years ago, when Barry Shames started Shames Construction Co., in Livermore, Calif., he couldn't attract a banker's attention. "It was like, 'The wizard isn't in now. Come back in two years," he recalls. At first investing $50,000 of his own savings, he went on to borrow an additional $100,000 from his parents. (For more on borrowing from family, see "Avoiding Problems with Family and Friends," [Article link].) But he aimed to expand his capital base with bank financing.

Shames reached that stage by his third year of operation, when the company generated about $10 million in profitable revenues. At that point he made an important decision: to keep his family loan in place even while adding a bank credit line, rather than use the new loan to pay off the old. "Combining two types of financing made sense for several reasons. For one, I viewed the credit line as a true revolver, which I would pay off whenever I could but would tap into during cash crunches. The loan from my parents, meanwhile, was a commitment to long-term growth." Shames finally paid off that loan two months ago; since his parents liked the predictable monthly income it brought them, there had been no reason for Shames to burden his credit line with a large loan payoff.

Now that he has sales of around $15 million and a $500,000 credit line, Shames offers one caveat: "Even if you build a personal relationship with your banker, be prepared for much more formalized financial communications than you have with parents." For Shames, at first that meant giving his banker monthly financials; his parents were satisfied with an annual report.

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