Financing Questions

Amy

Hi

My husband and I own a remodeling business that we opened in January 2005. Business has been up and down since then. Last year, our gross sales, without materials, was $150,000.

My problem is this - we didnt have much $$ to start the business and used credit cards to finance tools, vehicle purchase, materials, etc. It seems like we now have more money going out than coming in and do not have the working capital to front materials, pay employess on time, etc. We have spent all our savings in order to stay afloat and have maxed out our credit cards to pay for materials.

Im wondering if I can get a small business loan to pay off the business debts (that are in my name and totally scrweing up my credit score), fund materials, and pay bills/employess when customers are late making payments or business is slow. Does anybody have any comments/advice about this? Has anyone ever had this problem and how did you resolve it?

Also, are there any lenders reading this that may be able to help me out?

Grumpy

I was in a similiar situation mostly because of over advertising with methods that didn't work and by hiring salesmen that didn't work.

I sought some working capitol just to get me through the winter months. All banks turned me down because I had not been in business long enough and didn't have enough vehicle and equipment to use as collaterol. Even the SBA wouldn't back me up.

I ended up taking $30k in equity from my condo and using that to float my winter. I am now paying that back because money is once again rolling in. This is just a band aid however.

Not having money is only a result of a larger problem. You MUST fix what is wrong or you will repeat it over and over. If you don't have enough money rolling in, someone needs to focus on sales and/or you need to raise your price!

Amy

Oh, how i would love to raise prices. Customers are so damn cheap. They want all the work for half the price. I wish that there could be a standard set so that we could just say "sorry, that is the lowest price for the industry" or whatever.

Im having that same problem with sba loans. i dont have enough collateral. I guess $20,000 in tools and $20,000 vehicle wont cover the 25% not guaranteed by the sba.

Grumpy

There is a standard, stop wasting yoru time working for cheap asses and you will have more time to focus on those who are willing to pay for a job well done. Don't just bid a job, learn how to inform the customer that they are getting what they are paying for, build value through your sales presentation, and when they ask for a discount say NO.

If you are already on the high end and really and truly feel there is no way to raise prices then you have an operations problem. You might be paying too much for materials. You might be paying too much for labor. You might be paying too much for insurance. You might not be working as efficiently as you can to get jobs done faster thus leaving more profit.

I know that doesn't help your current situation one bit, however it will prevent you from falling into this trap again.

Mike Finley

From your situation I don't see you qualifying for a loan, based purely on your business. (Would you loan an identicle business money based on your cicumstances? You sound like you're a few months away from going broke.)

Like Grumpy said, you are going to have to look to non-conforming methods for additional capital. Grumpy's advice is sound, you need a plan more than you need money, if not that new money will just disappear in a few months and you will be right back where you are today.

#1 you need to cut costs. #2 you need to increase profits.

There are always places to trim the fat, if you look around hard enough. If you have employees I would look at them really hard and see if it's time to let one go temporarily.

Melissa

Amy, Your situation sounds a lot like mine and my husbands. We do all these big jobs and are left with barely paying our bills. We "make more money" each year, but go into more debt each year too. It makes no sense. I doubt anyone would give us a loan either, well maybe for like 30% interest! No thanks! And we don't have the benefit of pulling from a mortgage, we rent.

We've decided to just pull ourselves up by our bootstraps, focus, plan better, spend more time making sure jobs are priced right and don't sell ourselves short! and be more efficient on jobs like said above, and planning helps with that.

joasis

You know, it could be like rowing a leaky boat...you are going somewhere, but sinking before you can get there. If you think you are making money, but you feel like you are sinking, there is definately a problem. Take a careful look at your income vs.expeditures and see if you are really in the black, or bleeding on the ledger.

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realpurty2

Ok, here is some ideas to consider... they may not work in every situation, nor may they be considered "standard practice" but they do work in desperate measures, which it sounds like your facing.

Cost of Materials- Do you get down payments at contract signing to cover cost of materials? Options would include something like Half down, Half on Completion payments for smaller jobs to make sure materials are covered, or for larger jobs, do your payment schedule so that your receiving enough to cover materials at the completion of demo or on a schedule of values progress payment.

Tool Purchases- If your prices/bids can afford it, occaisionally bid a new tool into a job bid. Of course in a perfect world, we'd all like to have had enough tools and start-up capital to have every required tool in place before start-up, but that rarely happens, and... things break along the way requiring replacements. You can't charge enough to supply your entire company off one job, but you can bid in a critical expensive tool purchase here and there and buy what is needed for the job your doing as you go along.

Vehicles, Trailers, Heavy Equipment- Bid in a percent toward their purchase on every job and then try to schedule the actual buy time around either your busiest season which money is fairly steady, or around tax time when you anticipate a refund to go directly toward the vehicle. Other option- bid one month's payment into each job you do and pay it off quickly.

Again, I emphasize these are just random thoughts of a way that MIGHT work for SOME people in extreme circumstances.

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Woman in a Man's World.

joasis

I was reading this again and I remembered something from business economics. Most businesses, like 90% fail in the first year and the reason is always the same: undercapitalization, not having the cash flow to sustain operations (operating money). I struggled the first 3 years with it before I had enough I wasn't sweating blood every payday for the guys.

When you work on jobs, and it is tough, but sometimes you need to lay down the ground rules before you start. A common practice in my area is if a project will go more then a few weeks, you draw on completion, or a percentage of the total job. I still do this, even though I can ride out til completion....and, if you have a problem with a customer, they won't be in nearly as deep as you will be on a long job and the bill can't be paid when you complete.

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