"As part of our plan for growth, we acquired a small telephone and cable-installation and -maintenance contractor and needed a credit line to help us cover our operating expenses, which included new financing costs associated with that purchase. So I approached two banks: a large national bank and Commerce National Bank, a local bank that specializes in serving small businesses," says Ernst.
"It was remarkable how different those two experiences were. We gave both banks the same information and projections, but they handled it -- and us -- so differently! With the big bank, the employees we dealt with seemed to treat us like we were not important. There were very few phone calls from them. After we met with a loan officer, follow-up took a very long time. It was always, 'There's someone higher up who has to approve the deal.'
"With the local business bank, we got personal attention from the beginning. We felt as though they were entrepreneurs, so they understood us as entrepreneurs. Getting the loan approved was actually easy. After our meeting there was immediate feedback. By that I mean that within one week we heard that, yes, the funds would be available. And we also learned the specifics of the bank's terms.
"I'd urge small-business owners who have banks like this in their area to investigate them. It makes such a difference if you don't feel you're getting lost in the shuffle. I really feel that as long as we're fiscally responsible and hold up our end, this bank will be 100% behind our growth efforts."
4. For Inventory
THE DEAL: Up to $350,000 monthly in financing through a credit-card-company initiative to encourage small-business customers to charge inventory and raw-material purchases
THE ENTREPRENEUR: Herbert J. Mallet, CEO
THE COMPANY: Broudy Printing Inc., a printing company in Pittsburgh
REVENUES: $10 million
BACKGROUND: In the past Mallet used his personal credit cards to purchase company supplies, but he felt constrained by the $100,000 borrowing limits, and his accountant and lawyer strongly objected to his use of personal cards for business purposes.
"In my business, the biggest expenses are paper and other printing supplies. But I wouldn't want to use my bank credit line for those items -- why tie it up or make those purchases any more expensive than they already are by adding in financing costs? I believe in using my bank line only for major purchases, like a piece of equipment that I need to finance over 12 months," Mallet says.
"Using the American Express card for these purchases makes sense for me because it's a corporate card with effectively no limit, since my credit history is good. I always pay this bill off entirely at the end of the month. But using the credit card gives me up to 50 days of free financing. If you're talking about a $200,000 purchase of paper, that's a big float. And I save even more money because I discount my supplier bills by 2% to 3%, since I'm paying them within 30 days. It all adds up. You know why this also makes sense? When I get the credit-card bill, it might be three pages long, but we still need to write only one check. And the statements are a big help with our record keeping.
"The American Express part of all this was easy. The vendors were a little tough to convince, but the credit-card company helped us with them. I'd recommend this strategy to anyone, so long as his or her business isn't shaky. The truth is, if you don't have the cash flow to pay off your bills each month, and you get sucked into those penalties, you're going to wind up going down a dark, bleak road."
5. For a Web Launch
THE DEAL: $12 million from a group of venture-capital firms to finance a national product launch
THE ENTREPRENEUR: Stephen King, CEO
THE COMPANY: Virtual Growth Inc., in New York City, a provider of outsourced accounting and bookkeeping services
REVENUES: Undisclosed (75 employees)
BACKGROUND: King started this accounting firm in 1995 with $5,000 that his brother invested in the company, which King used to buy a computer and office supplies. During the next two years, he and his partners financed additional growth by maxing out their credit cards, refinancing a mortgage, and tapping into personal contacts.
"My goal was to raise $5 million from the venture-capital community, so I used my own network as well as those of our investors to develop a very selective list of prospects. I started approaching them in April last year," King says.
"What happened next was pretty amazing. One prominent firm, in conjunction with a major money-center bank, offered us $6 million but only on the condition that we agreed to raise another $4 million at the same time. Their logic was pretty simple: They didn't want me to be distracted by the need to raise more money later on, and they warned me that if I waited, I might not be able to get financing. They wanted us to be able to move aggressively ahead with our growth plan.
"I was completely overcome with joy and trepidation at the same time. After all, it was wonderful to think about not having to raise more money anytime soon. But as the company's largest shareholder, I knew that my personal holdings would face significantly more dilution if I agreed. I wasn't sure how to respond. So I went to our board. But they emphasized that this was my choice. I slept on it, and the next morning reached a basic conclusion: These guys are very smart -- in fact, they're smarter than I am when it comes to financing. They know what it takes to make this kind of growth happen. And if I agreed, I'd be done with fund-raising. I could get on with the things that really mattered to me and the company. So I agreed.
