Self Employed Web

The Money Trail

Posted on Monday, March 3rd, 2003 by

The Money Trail

Mark Kreisel thought he had it made.
His company, Tradewinds Engine Services, was doing nicely. Since its founding in 1996, sales for the Coconut Creek, Fla., aircraft-engine refurbisher had ramped up smartly. By 2001, Kreisel added a handful of employees and expanded business services, and the company outgrew its 7,000-square-foot facility. To keep the business purring during cash-flow gaps, he had two lines of credit from a large, nationally recognized bank: one based on Tradewinds’ assets; the other, on foreign receivables insured by the U.S. Export-Import Bank of the United States.

Then came September 11. Even before the terrorist attacks, the aviation business had seemed shaky. But in October 2001, with air traffic grinding to a standstill, Kreisel’s bank told him to find another financial dance partner.

Easier said than done. In fact, Tradewinds’ search for a new bank came up dry. “Everyone got skittish about aviation,” Kreisel recalls. And without a line of credit, Tradewinds would have a hard time coming up with cash to buy engines it could later refurbish and resell as parts. But then Kreisel discovered that a friend from his church worked as a banking consultant. The friend, Carl Sprague of USBX Advisory Services in Fort Lauderdale, Fla., created a five-year business plan for Tradewinds, then hooked them up with UPS Capital and its First International Bank subsidiary. “We hit it off,” Kreisel says.

The lender is essentially refinancing both of Tradewinds’ lines of credit and in the process, has bumped up the total by $1.5 million. Perhaps most important, the deal has allowed Kreisel to continue purchasing used aircraft engines and avionics, grow the company, hire more employees (now up to 22) and move into a new 25,000-square-foot facility that he had built across the street. Sales for 2002 were approximately $21 million—up from $20 million in 2001.

Kreisel’s trip around the Wheel of Fortune is a typical one in today’s challenging economy. Threats of terrorism and the vicissitudes of Wall Street have dampened the enthusiasm of many traditional sources of small-business capital—including angel investors, venture capitalists, even some banks. Yet for business owners seeking capital, whether for startup or expansion, now is a better time to seek funding than they might think. Interest rates are low, government small-business agencies remain as eager as ever to help, and opportunities exist for those willing to do the legwork.

That’s not to say that raising capital is easy. “Today, you need to be creative, aggressive and persistent,” says Andrew J. Sherman, a partner at the Washington law firm of McDermott, Will & Emery and the author of 11 books on funding and growing businesses.

One major change you’ll find is a return to business basics. Gone are conjectural business plans with so-called hockey-stick sales projections. You need real customers, real sales and real profits. “If a company can show a track record of delivering sales to customers, delightful things happen,” says Andrew Birol of Birol Growth Consulting in Solon, Ohio. “I’d rather have $100,000 of customer money than $1 million of venture money.”

Still, it’s possible to raise capital during these trying times, as the following profiles of small-business owners and executives illustrate.

I Owe Ewe

Three years ago, Nicole Pritikin wanted to open an online yarn and knitting store in Bennington, Vt. Pritikin, who loves to knit, had a catchy name, The Naked Sheep (www.naked but no financing. “I was looking for sources for money,” she recalls, “but the local banks said I hadn’t been in business before and turned me down.”

Luckily, she heard about a national nonprofit organization called Count Me In for Women’s Economic Independence ([email protected] Based in New York City, the organization offers business loans of up to $10,000 to qualifying businesses. Pritikin received initial funding, and her business took off. In addition to Internet sales, she wanted to open a retail store. Again, she needed funding for inventory and commercial space. This time, the banks were convinced Pritikin knew what she was doing and provided an expansion loan of $20,000.

Between her online trade and her store, Pritikin generated revenue of $100,000 in year two, shipping products as far away as Japan and New Zealand. She’s now considering expanding again—perhaps buying her own building and providing catalogues for national customers who prefer to shop via the printed page rather than the Internet.

Given the state of the economy, these plans may sound overly optimistic. But in 2002, The Naked Sheep nearly doubled its growth and brought in $175,000. At this rate, Vermont’s sheep can count on many long, cold winters.

Weather Modification:
Government Seeding

Everyone complains about the weather, but a privately held company known as Weather Modification Inc. ( is doing something about it. As its name implies, Weather Mod provides cloud-seeding equipment and services, cloud research, air-pollution monitoring and aircraft modification. What’s not apparent from either its name or its location—in Fargo, N.D.—is that Weather Mod’s international business has been growing rapidly. Essential to that growth has been a series of credit lines and guarantees for small business from the Export-Import Bank of the United States (, also known as the Ex-Im. “Our local bank doesn’t want that risk on the foreign side,” says Randy Jenson, Weather Mod’s CFO. “That’s where Ex-Im comes in.”

Ex-Im is the federal government’s export credit agency. It provides guarantees of working-capital loans for U.S. exporters, guarantees loans to foreign purchasers of U.S. exports and provides credit insurance. It doesn’t compete with commercial lenders, but assumes the risks they cannot accept. It’s an especially important role when shaky economic conditions prevail.

“This is exactly the kind of time when we’re needed,” says D. Vanessa Weaver, a member of Ex-Im’s board of directors. “Namely, when financing is either unavailabile or expensive.”

Weather Mod, founded in 1961, has seen its international business—mainly to agencies of foreign governments—grow to the point that the company now receives 85 percent of its sales from other countries. Like many small businesses, Weather Mod covers fluctuations in its accounts receivables with a working capital loan—actually, a line of credit—from a local bank, U.S. Bank of Minneapolis (

The only problem is that local banks don’t like covering receivables from foreign countries. The solution: a series of loan guarantees from the Ex-Im.

Weather Mod has been getting help from the Ex-Im since 1998, when it received its first working-capital guarantee, then valued at $850,000. About a year later, the guarantee was bumped up to $2 million. Currently, it stands at $1.5 million. Under the arrangement, if one of Weather Mod’s foreign customers can’t or won’t pay an invoice and Weather Mod defaults on its line-of-credit loan from U.S. Bank, the Ex-Im will step in and pay the local bank, then collect the amount from Weather Mod or its overseas customer.

Is it still possible to get venture capital? Yes—but the strings attached are fairly thick. Ask Reggie Best, founder of Netilla Networks ( in Somerset, N.J. When his software firm asked for venture capital, the rules had changed from a few years ago. “The key has shifted from hopes, dreams and visions for the future to what can this business do now,” he says. “They also ask how quickly can the business get customers and break even.”“They don’t just want to hear about technology,” he says. “They want to hear about the applications of that technology to specific customer needs. What does the customer want? How can you quantify it? How easy is it going to be for you to get into those accounts and make your solution rise to the top?”

Best got help from the Emerging Venture Network
, or EVN (, in Washington, D.C., a coalition of several corporations and minority organizations that provides minority-led companies with education, training and access to investors. He signed up for training; classes included practice presentation sessions in front of a camera, other entrepreneurs and a group of real VCs.What else are these venture capitalists looking for? High-growth companies with an exit strategy in three to seven years that can return roughly 10 times the investment, says Michelle Garcia, EVN’s director of operations and investor outreach. “VCs want to see customers, revenue, a team and visibility in the marketplace. And not with just any customer—they’re looking for name-brand, enterprise accounts.” —P.K.

Such risks are more than theoretical. Weather Mod is now struggling to get paid by a state government agency in Argentina, where the economy and the local currency are a mess. “We’re in wait-and-see mode on that one,” admits Jenson.

Although the Ex-Im program has allowed Weather Mod to do business around the globe, it’s neither free nor pain-free. For one thing, says Jenson, there’s a lot of paperwork, and initiating a relationship with Ex-Im can be, in his words, “cumbersome.” For another, there are actual costs—typically, equal to .75 to 1 percent of the loan—that are paid to Ex-Im by the lending bank, which passes them along to Weather Mod and other customers. That led dollar-conscious Weather Mod to seek alternatives, but ultimately without success. “We’ve tried to write our lines with a bank and not add the Ex-Im guarantee, because we have to pay for that,” says Jenson. “But the local banks weren’t willing to take that risk.”

All in the Family

“Live free or die,” the defiant-sounding state motto of New Hampshire, might also suit local entrepreneurs and Brooke Savage and Melissa Mabon. They’ve built their Amherst, N.H., company, Pragmatech Software Inc. (, from a part-time home business to an $8.7 million sales machine. They’ve accomplished this with their own money—and a little help from both a local-bank credit line (to help them through accounts-receivable despair) and a Small Business Administration-backed real-estate loan (

The entrepreneurial couple originally considered seeking venture capital for their startup, since Savage had previously worked with two VC-funded technology companies. “But venture capital can be very negative,” he says. “It can force you into making decisions that can be good from an investor point of view, but not so good for your customers.” It didn’t help that the company’s business model was, in Savage’s words, “out of sync” with the dot-com model. “We had revenues and profits, and the VCs saw that as faulty,” he says. “They said, ‘You’re a fool—go for market share.’”

History has proved those VCs wrong. But when Savage and Mabon, who married in 1989, launched their company in 1994, just two weeks after the birth of their second child, success was far from certain. “Our goal was to start a small packaged-software business we could run from our house,” Savage recounts. They had a highly focused idea: software that helps salespeople in any industry generate sales proposals.


Raising capital isn’t the only way to expand your small business. Other avenues can provide “soft dollar” help—while also putting your tax dollars to work. Many state and city governments offer small-business incentive programs that can make all the difference between staying small and growing large. Your best starting point is the Web site of your local state or city government. To whet your appetite, here’s a brief sampling of what some of the more entrepreneurial-minded states and cities offer:New York City. The Big Apple offers some 15 business-incentive programs ( These include 44 business improvement districts, which let local property owners and merchants levy a special “assessment” on properties within a commercial or industrial area. Also, there are programs to help business owners find employees and real estate, and energy discount programs to help businesses lower their gas and electric bills.
Austin, Texas. Home of Dell Computer and many other entrepreneurial successes, Austin, through its Department of Small and Minority Business Resources, offers small-business training, a minority-vendor database, weekly purchasing notices and access to loan programs. Austin Department of Small and Minority Business Resources:
California. The Golden State runs a Small Business Development Center program to provide one-stop shopping for small-business counseling, planning, marketing and training. There’s also an affiliation with the SBA, and those owners ready to take their company to the next level will find a training program called NxLevel for Entrepreneurs; it comprises 12 three-hour sessions and promises hands-on lessons in areas such as marketing, money management, planning and research. To keep the program convenient, it’s administered from 45 local offices. The Office of Business Development ( offers research reports on nine key industries; skills-development training; and information on economic incentives. MassDevelopment ( offers financial tools, bond financing and economic development loans. And the Small Business Development Center Network (http://msbdc.som. provides counseling, training and access to capital. —P.K.

Their only startup capital came from the money Savage had earned when a previous employer went public. “It wasn’t a lot, but it was enough to gamble for two years from our house,” says Savage. He played Mr. Mom while Mabon developed the code (she had picked up programming skills while working at Columbia University’s computer learning lab). A short time later, Savage’s sister and brother-in-law moved to New Hampshire from Washington, D.C., to help the fledgling company get off the ground.

The first inkling of success came in late 1995, when Savage and Mabon gave the first public demo of their software at a Boston trade show. The response was overwhelming. “We didn’t even have the product boxes yet,” he remembers, “but we were selling licenses right there on the show floor.” A hit was born.

With the money gained from early sales, they hired their first employee from outside the family, a vice president of sales named Deborah Leff, to service large accounts. But by then, the startup money was starting to run thin. “We were so cautious, we put money for salaries into a special account,” Mabon says. But the gamble paid off, and Leff (still with Pragmatech) has won sales contracts with big-name accounts that include Fortune 500 insurance and financial institutions. Before long, Pragmatech was big enough to lease a real office and hire additional staff.

After some bad early experiences with a local bank, the Pragmatech co-owners initiated a relationship with a Philadelphia-based bank to secure a line of credit that would help them pay rent, salaries and other expenses even if customers were slow to pay. “It’s the key to evening out our cash flow,” says Savage. “Many big companies now take 45 to 60 days to pay, and at one point, we had $2.5 million in receivables. That’s great, but no one’s paying us.” The interest rate on whatever money Pragmatech borrows against the credit line is currently about 7.5 percent.

When the landlord of Pragmatech’s main office announced he was selling the building, Savage and Mabon decided to buy the building themselves. They worked with a local bank that had what’s called a 504 Provider relationship with the SBA. The SBA agreed to guarantee the loan and also put up roughly half the money. As another benefit, the SBA’s backing meant that Pragmatech needed to come up with only 5 percent of the price for the down payment, rather than the more typical 25 to 30 percent.

The strategy worked. Today Pragmatech owns one building and leases two others in Amherst; operates one office in London, England; and is poised to open another in Australia.

Pragmatech’s owners also have turned to an unlikely source of working capital: their employees. Last year, when the recession put a crimp in the company’s sales, Savage and Mabon asked employees to take voluntary—but temporary—pay cuts. Several people agreed, and the company was able to limp through the tough times without additional loans. Those noble employees have since been paid back the salary they missed. (Of course, if you’re considering this type of solution, you’ll need to review your state’s wage and hour laws.)

No, the sky isn’t raining money for small business. But for the creative and driven, the sky’s the limit on financing your company’s next big thing—including its survival.


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