Loans a challenge for small businesses

Three months after Dave Wiloweit started a greeting card business with money borrowed

from family and friends, he discovered he didn’t have enough money to keep his doors open.

With no track record, collateral or revenue history, commercial banks weren’t interested in

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loaning him money.

After being turned down more than once, he found his way to the Colorado Enterprise Fund,

which makes micro-loans — loans $25,000 or less — to small businesses that commercial banks

consider too big a risk. The fund loaned him $10,000.

Today, Wiloweit’s Boulder greeting card company, Feedback Productions Inc., is making a

profit, and he’s projecting rapid growth.

Nancy Schwalm and Maria Arellano found themselves in a similar position when they

decided to start a business coordinating care for elderly people and their families.

“It’s the typical story,´ said Arellano. “If you don’t have a track record, no one is interested

in loaning you money.”

After being turned down repeatedly by banks, the two women went to the Colorado

Enterprise Fund, whose directors granted them an $8,000 line of credit — enough to get their

business going.

“If we hadn’t been able to get this loan, we would have hit up the parents,” Arellano said.

“We’d already done that a little bit to start. Now, we’re going into our third year, and we’re

actually making a profit ahead of schedule.”

The Colorado Enterprise Fund, a private, non-profit organization that gives loans of up to

$25,000 to people who want to start a business or invest money in one, is one of the few places

people can go for money after they’ve been turned down by banks, said Diana Smith, a member

or the fund’s board of directors, and president of Royce Arbour Inc., a Boulder management

consulting firm.

“Typically, for a bank loan, you have to have collateral,” Smith said. “Many businesses being

started today are being started with expertise and not collateral. Knowledge and expertise is

nothing banks will take as collateral.”

A recent study by the Small Business Administration found that bank lending to small

businesses increased 5 percent, or $8.4 million, in 1996.

But for people like Wiloweit and Arellano, who want very small loans and have no collateral

or track record, money still is hard to find.

“Many people who want to start businesses are thrown back to their personal resources,”

Smith said, including credit cards and family members. “If you don’t have those resources, you

don’t have any other alternative.”

The Enterprise Fund gets its money from the SBA, banks and grants. The fund makes loans in

the six-county metro area, including Boulder.

Among the Boulder County enterprises the fund has loaned money to are a bean bag chair

manufacturer, a computer monitor repair shop, a hair salon, a janitorial business, a conflict

resolution practice and a business that develops software for the restaurant industry.

Executive Director Ceyl Prinster said the fund makes higher risk loans than banks, but it still

turns down about half the people who request money. It has a 5 percent default rate, while banks

typically have a default rate of less than 1 percent, she said.

“Our purpose is to help businesses that are not bankable but can repay debt,” she said.

“It’s a good time to be starting a small business in Colorado. We did more loans (26) last year

than ever in a year.”

Since 1990, the fund has loaned $1.5 million to 114 businesses.

Joan Coplan, regional advocate for the SBA, said it’s easier now than ever to get a small

business loan. Some funds make loans only to women or minorities starting businesses, she said.

“There are more places for people to look,” she said. “That doesn’t mean there shouldn’t be

more or it’s as easy as it should be. We’d like to see it be easier, but we feel it’s moving in the

right direction.”

Peter Bernstein, small business loan officer at Colorado National Bank and a member of

the Enterprise Fund’s advisory board, agrees that more money is being loaned to small

businesses.

“In Colorado, small business loans are on the increase,” Bernstein said. “We have such a

strong economy, and businesses are moving into Colorado.”

And many of the businesses that get their initial money from funds such as the Colorado

Enterprise Fund are eligible for banks loan once they have established a history, he said.

“When I look at loans, I look at the 3 Cs: credit, cash flow and collateral,” he said. “We

like to see three years of business history. The risk factor on start-up businesses is really high.

Once a business is up and running, a bank is a great place to go. That’s the time to look at setting

up loans and lines of credit.”

Wiloweit, who started the successful greeting card business, said banks had no interest in

loaning him money.

“I looked everywhere, and I couldn’t find anything, even though I had 10 years experience

in sales, a college degree, and my credit history was good,” he said. If he hadn’t gotten the loan

through the Enterprise Fund, “I would have had to close down. I didn’t have any other choices. It

was a big step to borrow $10,000.”

Now, Wiloweit employs two people, offers 40 cards and projects sales of $125,000 this year,

nearly double $70,000 in sales in 1997.

Wiloweit teaches a class to people thinking about starting a business. He uses himself as an

example of the wrong way to do it and shares what he’s learned about the right way to do it.

“One of the main things is, it has to be in a business you enjoy,” he said. “And you need to

make sure it’s on a growth curve. Greeting cards aren’t on a growth curve. Any time I make a

sale, I take it away from everybody else.”

Another bit of advice: Make sure you have the money in hand that friends promise to invest.

“We had a friend who was going to invest money, and we kept waiting and waiting, and it didn’t

show. It didn’t take long for us to figure out we had a problem.”

Arellano and Schwalm now employ four people, have a steady clientele and have published a

consumer’s guide to picking nursing homes.

Arellano says the Enterprise Funds’ help setting up and running the business has been as

helpful as the money. “It wasn’t just money they gave us,” she said. “There were consultations

with marketing people and classes on problem solving.

“Starting your own business is a risk. They’ve been a safety net for us.”