05/ 09/ 2006
by Emily McMackin
Jim Apteker, owner of Boston-based Longwood Events Corporation, gets stunned stares when people learn that his $20 million private events company has no partners or investors. "Part of my game plan was being in control of my own destiny," Apteker says. "It took a lot longer to get where I am, but it was worth it."
When Apteker took over his father's restaurant business 12 years ago, he had big ideas, but didn't turn to venture capitalists or family members to fund them. Instead, he traded his house for an apartment, his BMW for a Jeep??and asked the bank for a $250,000 revolving line of credit. "I didn't use all of the money, but I knew I could if I needed to, and that allowed me to be more aggressive," Apteker says.
Borrowing money scares many business owners, but in the right circumstance, it can fuel growth. Here are some ways to decide if you need outside funding:
Growing pains
Your company has taken off, but working at your kitchen table isn't cutting it anymore, and you don't have time to answer constant customer calls. You can wait until you have enough money to cover six months' rent or another salary??or borrow money to expand now.
If your market is hot and your clients are doubling, "you may feel like you're leaving money on the table by not growing fast enough," says Rosalind Resnick, president of Axxess Business Consulting, a firm that helps small businesses with business plans and financial modeling.
Maybe you've grown so fast that you haven't taken time to reevaluate your cash cycle. Items you've added to your inventory peak at different seasons, but your bills come monthly. Debt financing can bridge that gap.
"More businesses go out of business because of growth than failing sales," says Charles Green, an Atlanta banker and author of Streetwise Financing the Small Business: Raise Money for Your Business at Any Stage of Growth.
Cash flow crunch
Maybe you're waiting on checks from clients, or most of your profit comes in the fourth quarter. You're confident cash flow will pick up eventually, but your creditors want their money now. Tired of dipping into personal savings to pay expenses while waiting on client checks, Resnick once relied on a $100,000 line of credit to tide her over. "You've got money there when you need it, and you don't have to pay interest on the part you don't need," she says.
Negotiating a line of credit is a good way to prepare for emergencies, Green says, because it costs only a small commitment fee, and you can access it quickly.
Long-term investments
Need to acquire property? A loan is your best bet for financing a slow-earning asset like real estate because it yields a greater return. Resnick suggests using a loan instead of a credit card for large equipment purchases since interest payments won't snowball as fast.
