When Andy LaPointe started Traverse Bay Farms in 2001, he was still working full time as an investment advisor. His wife, Jennifer, who doubled as a full-time mom, was the one primarily responsible for getting the company off the ground. It was a very hectic period, LaPointe says. But from a business credit standpoint, it was the perfect setup.
Traverse Bay Farms is now a six-person firm that sells a variety of fruit supplements and juice concentrates under the Fruit Advantage brand. But in its early days it didn’t have many customers or assets to speak of, so getting a straight business loan or credit line would have been difficult. Instead, LaPointe landed money for his startup by using his personal income to guarantee loans to Traverse Bay Farms. That’s why, busy as he and Jennifer were, it was important not to quit his day job.
“I could have left it right away but we wanted to have that solid foundation — and that cash flow — under us,” LaPointe says. “No question, having that personal income, rather than just being self-employed, made it easier to get our first bank loan.”
Marco Carbajo, founder of the Business Credit Insiders Circle, a national business credit-building company, and author of Eight Steps to Ultimate Business Credit, says it’s true that most banks require a personal guarantee from new business owners. But he warns that providing such a guarantee could put your personal assets at risk, including your home. That’s why he advises new business owners to seek out other sources of funding before they turn to a bank. “I would look for money from angel investors or a loan from friends and family first,” he says. “You can even formalize these types of loans through a social lending program like Virgin Money.”
LaPointe left the corporate world in 2005 and jumped both feet first into life as a small business owner. As an investment advisor, the most important thing he learned was to always communicate clearly with clients, whether he was delivering good news or bad news. He carried that lesson with him to his new business. “We’ve built Traverse Bay Farms 100 percent on communication,” he says. “We communicate like crazy with our customers, our suppliers, and even our bankers.”
The company makes a habit of paying its suppliers on time. But at those times when net 30 does stretch out to net 35 or longer, LaPointe gets on the phone and lets the supplier know that he may be a few days late. He explains why he’s late — maybe he’s waiting on a big check from one of his customers — and stays in touch with the supplier until the invoice is settled. One of his largest suppliers was so impressed with LaPointe’s communication efforts and the fact that he ultimately paid when he said he would that the supplier extended his payment terms from net 30 to net 60.
“A lot of folks take good communication for granted but nothing is more important, especially in today’s environment,” LaPointe says.
Carbajo has a piece of advice on the topic of full disclosure, however. Rather than come straight out and tell a vendor you’ll be late with a payment, first try to renegotiate your credit terms. “If a vendor gets the impression that your business is slow, he may turn around and change your terms from net 30 to net 15,” Carbajo explains. “But if you call and say, ‘Hey, I’ve been a great customer, what can you do for me?,’ you may be able to increase your credit terms without having to reveal that you’re running late on a payment.”
One reason LaPointe emphasizes constant communication is that he’s focused on building as many good supplier relationships as possible. The company has several first-tier suppliers with which it does the bulk of its business. But it has also branched out and created a network of second-tier vendors that are able to step in quickly if any problems arise with one of the frontline suppliers.
Last year, for instance, a primary supplier was hit hard by the economic downturn and forced out of business. Traverse Bay Farms was able to quickly promote one of its minor suppliers without missing out on any business opportunities of its own.
“Now is the time to broaden your supplier relationships,” says LaPointe, because the economic gridlock can put you in the driver’s seat when negotiating with vendors. Case in point: One supplier had been pursuing a relationship with Traverse Bay Farms for several years but had wanted 50 percent down on every order and the remaining 50 percent on delivery. LaPointe recently agreed to do business with the firm but on much different terms: zero down, 50 percent on delivery and 50 percent within 30 days of receipt.
Another advantage of additional suppliers, Carbajo says, is better business credit. “The more payment history you have with multiple suppliers, the better you business credit scores, provided they’re reporting that history to a credit bureau like Dun & Bradstreet.” Even if suppliers are not reporting payment history, you can open a trade reference account with Dun & Bradstreet that verifies those relationships and adds them to your credit file.
When it comes to banking relationships, LaPointe also believes in diversification. So he does business with his local community bank, as well as with a large multinational bank. He has a small line of credit, about $30,000, with the community bank and a six-figure line with the big bank. LaPointe enjoys the personal relationship he has with the community bank but appreciates the vast range of financial services he gets from the multinational bank, including currency exchange and international letters of credit for overseas customers.
One thing he does with both banks is communicate often and in detail. For example, when applying for a new loan, LaPointe always provides a written explanation of any changes that occurred in his financial statements year to year.
LaPointe expects the same from his customers: a steady flow of reliable information. If he doesn’t get it voluntarily, he insists on it. During the downturn, Traverse Bay Farms has encountered a number of customers that were unable to pay their bills. So whereas in the past LaPointe asked for just two references before extending net 30 terms, today he makes sure he gets a half a dozen references.