The road not taken

Last year, Bob Caruso was at a crossroads.

As president of Vuemark Products Inc. in Twinsburg, a fast-growing manufacturer of point-of-purchase marketing products and displays, Caruso had just landed a $750,000 contract with a well-known local firm. He needed increased cash flow to service the client’s needs but had outstripped his borrowing base with the bank that helped fund his start-up 18 months earlier.

Despite the solidity of the new customer’s contract, the bank wouldn’t extend Caruso’s credit line until he had two years of operating history.

“We only had a $100,000 term loan that was spent acquiring business assets, and our $50,000 line of credit was far insufficient for the order we just got,” says Caruso. “By the time we were turned down a total of 19 times by our own bank and about a dozen others, we were about a day away from closing our doors.”

Frantic, Caruso turned to business loan broker Edward Hopson. As a certified business analyst and founder, vice president and managing director of Akron-based Enterprise Capital & Business Advisors Inc., Hopson secured a private investor for Caruso that resulted in a $200,000 SBA-guaranteed bank loan and $100,000 in working capital from the investor.

“We were very close to the end, but now we have the ability to overcome, and we’ve done it with tremendous sales,” says Caruso.

He says that as a result of being able to service large client contracts, he’s already done a half-million dollars in sales this year.

Hopson says the satisfaction of finding financing solutions for entrepreneurs like Caruso is precisely why he launched Enterprise in November 1998 as a specialized consulting and finance firm. He says comprehensive business development and commercial banking come as second nature to him, noting that from 1993 to 1996, he was director of the Minority Contractors and Business Assistance Program in Akron, and from 1996 to 1998, a loan officer for National City Bank and Bank One.

Likewise, says Hopson, the colleagues he assembled at Enterprise are experienced banking and financing professionals who help provide capital acquisition services and commercial financing by way of traditional and alternative financing facilities. Among these methods are venture capital, accounts-receivable financing (factoring), government-guaranteed loan programs, asset-based lending and equity and debt structures with flexible terms.

Hopson says that with access to a variety of lenders — commercial real estate lenders, business and SBA financing institutions, venture capital and private placement firms, even insurance companies and credit card companies — he can help structure debt and equity financing with lenders and investors on a national scale.

For example, last year Enterprise became the Ohio affiliate of Rivera Finance, one of the nation’s largest commercial accounts-receivable financing firms. Hopson says his company’s alliance with the factoring firm bolsters his ability to offer clients asset-based financing with some of the lowest rates and most flexible terms in the industry.

And having earned the status of “preferred broker” with GE Capital, Enterprise has structured loan origination agreements with some of the nation’s largest commercial financing firms, such as Heller First Capital and The CIT Group.

“Often, we help people structure deals where they can get equity players and investors involved as the qualifying portion that will help them get a traditional bank loan,” says Hopson, referring to Caruso’s case in which there wasn’t enough business collateral to secure a bank loan.

“Because of the nature of banking regulations, traditional banks require brick-and-mortar type collateral or major machinery,” says Hopson.

Since banks are governed by the strict credit standards of state and federal regulators, collateral often includes business assets and personal assets, such as the owner’s home.

To help Caruso get his loan, Hopson says, “He had paper assets in terms of accounts receivable, so we found an investor that committed to put $100,000 into the deal plus more into the company as it grows, and that resulted in a $200,000 bank loan.”

Hopson explains that since nonbank lenders aren’t regulated the same way banks are, they can take more risks, granting business loans and securing the debts with one financial source, such as cash flow.

“Our lenders are what is called ‘cash-flow basis,’ which means they place a higher priority on the company’s current and potential cash flow,” he says. “That changes the whole methodology of historic collateral-based lending and opens the market up to more borrowers.”

Hopson says his typical client is a small- to mid-sized company doing $1 million to $10 million in annual sales.

“They come to us because they can’t get traditional financing because their ratios don’t fit traditional banking norms,” he says.

Other entrepreneurs opt for nonbank financing because banks label their companies, such as a restaurant, retail store or technology firm, as high risk, or because their credit history may be either blemished or not well established.

“Since we’re a team of bankers, we know the banking approval processes and guidelines. So we try to structure the deal so they’ll get approved,” he says.

Hopson and his colleagues present client strengths and weaknesses using comprehensive commercial credit analysis, including a three-to-five year cash-flow, collateral and business/industry risk analysis.

“I’m not the last resort — I’m a borrower’s advocate. We like to believe that we’re one of few specialized companies in this market where the borrower can hire someone to represent them in the financing process,” he says.

For his services, he receives 1 or 2 percent of the loan amount at closing, a 90-day brokering commitment and a consulting fee.

But Hopson cautions that alternative financing shouldn’t be considered a permanent solution but as a bridge to growth. That’s because, while these lenders afford the borrower more time to repay the loan — which in turn boosts bottom line cash flow by reducing periodic loan repayments — interest rates charged by these lenders are higher, and the debt costs more to repay over time.

How to reach: Enterprise Capital, (330) 374-7828. For more information on alternative funding sources, visit the Web site of America’s Business Funding Director at www.businessfinance.com.