This is a story about two companies that I work with. Both are woman owned and both are in industries that are being affected positively by federal stimulus funds. By most definitions, both are small. Both have been in business for more than 10 years. Both have principals with high personal credit scores and both companies are profitable for 2009. These two well-run companies are poised to pull through the recession and even to succeed, but one critical pitfall in the stimulus plan is getting in their way.
The first company is a distributor of small buses used by public, private, and charter transportation enterprises. Until a year ago, the business had a sizeable financing line of credit with Textron Financial. Under this arrangement, Textron financed the vehicles from the time they arrived on the distributor’s lot until the time the customer paid for them. But in October 2008, Textron announced it was no longer going to be in the asset-based lending business. The distributor no longer had financing to carry the inventory costs. Neither the distributor nor I have been able to find a single financing source that is currently doing vehicle financing. The business has a strong banking relationship with a local community bank and that bank stepped in and helped by raising the business’s regular line of credit. Still, the company doesn’t have enough working capital.
The first major funding being pushed out of the president’s stimulus plan, which was passed in January 2009, is going to cities and states for transportation-related projects. The good news is that cities and other governmental entities are suddenly able to buy vehicles from this distributor. As of November of 2009, this distributor is sitting on a backlog of $25 million in new orders to be delivered over the next two years. Its average annual revenues over the last three years is $10 million. This distributor is tremendously excited about the sales and profit potential. There is only one catch: The distributor doesn’t have enough working capital to handle the new sales. Payroll will increase, overhead will increase, and most of all, accounts receivable will increase.
The SBA has a pilot vehicle floor-plan program that was recently introduced so I scoured the country looking for an SBA lender that would provide floor-plan financing. To date, across the country, I have only found one bank that has made one loan under this floor-plan program. I haven’t found any banks west of the Mississippi that are using this SBA floor-plan line.
My client, the bus distributor, has one other problem that is hampering sales efforts. A fair number of buses are sold to private companies. This year, leasing companies and banks have been reluctant to finance many of these companies. And equipment leasing has dramatically dropped nationwide. My client can’t sell their buses, which cost $80,000 to $150,000, to companies that can’t find financing.
Equity financing may be an option for this company and the owners have talked to several potential investors. But, of course, the downside is they will have to give up a share of ownership.