As a new business in the late 1980’s, it didn’t take me long to learn about the 5 “C”’s. I soon had maxed out my credit cards and ran through my cash and resources. All the while I was obligating myself with debt. So it seemed like a good time to start looking for credit. More experienced business owners would have done that first.
After a few visits to banks and being lectured about the 5 “C”s of credit, it was pretty clear I only had one of the possible “C’s. According to the people with their hands on the money the five elements a borrower should have to obtain credit: Character (integrity), Capacity (sufficient cash flow to service the obligation), Capital (net worth), Collateral (assets to secure the debt), and Conditions (of the borrower and the overall economy).
I learned about the real business of credit in a story told to me by a local lawyer and great friend, Mr. John Shaw. Mr. Shaw told me about a meeting he had participated in years before. He was invited to lunch to meet a young man who wanted a loan from an Alaskan bank to purchase a small motel/hotel in Anchorage.
Mr. Shaw was asked to join the bankers to give a judgment on what he thought about this young man, Bill Sheffield. Bill Sheffield had been an appliance salesman at Sears and a veteran. He had little going for him expect his character. Mr. Shaw was very proud of the fact that he gave his full and unequivocal approval for the loan. Bill Sheffield built a great business and later became Governor Sheffield.
Well, Alaska and the Mat Su Valley in the 1990, where I lived were about as far down as you could go. There were whole subdivisions in foreclosure. The best job in town was the HUD contract managing the foreclosures. Thinking back, one of my best customers was Fawn. She had been a local realtor and had probably sold many of the homes that were being abandoned. Being smart, with a whole bunch of young children to feed, she hustled and got the federal contract to close out and repair the homes. Many families walked out and left the homes with water on and more. Very much like our current situation in 2010.
It seems like I was not the only one looking for cash. As we would later learn, Alaska had two major economic disasters coming on fast. Mark Air was struggling to take on Alaska Airlines (you know who won) and Martech USA Inc was playing fast and furious in the environmental remediation areas for the feds. Both were federal contractors and the two “M”’s would be a huge disadvantage for me later when I went to the bank with a “government contract” in hand. They shrieked and showed me the door. Many of our Alaska banks were not interested in any more “government” paper.
As for the other three C’s, capacity, capital, and collateral, I was a real dud. That left only one of the five for me: character. As it turns out that was my savings grace.
As I struggled, I had an employee who told me, ”I have some cash I don’t need for a few years. Maybe you could use it.” On a handshake, I had a $20,000 loan. Who needs banks, when these Angels are watching out for fools like me. That stayed me over for the first year. It was paid back and we kept he doors open.
As cash was always an issue, my second Angels appeared in the form of a cadre of girl friends who would hand me their credit cards. I would use it and pay it back in 30 days. Usually it was an Alaska Airlines card that gave mileage. Since we were in Alaska, travel points were a great bonus and they traveled a lot on my hustle. Mark Air never could overtake the Alaska Air travel points. We now know we contributed to their demise but we were hooked on mileage points.
But my most glorious Angel appeared in the form of another federal contractor. As I said in an earlier blog, in 1994 Wal-Mart was thrashing me and every other small business in Wasilla and the entire Mat Su Valley. By this time I had already taken out an SBA loan but needed more operating cash, just as my government business was taking off.
I made the rounds of the banks, which by this time had seen the two big “M’s” go under. I hated talking to bankers who could not talk to you without one hand on the calculator. I thought, if I took that calculator off their desk they would be mute. As soon as they start talking to you, they would reach for a calculator. Then they look at your financials and show you the door.
I was seriously looking at closing and digging out of debt. I had told my husband that we may lose our house as I had missed three payments. To his credit, he told me “this is a house not our home. We will always have a home. Maybe not this one.” That’s when you know you married the right guy.
That’s when Eleanor Andrews and I had a long talk. Eleanor had built a great federal contracting business, had been a political appointee, and was a respected business woman in Alaska. She was, and still is, the go-to model for contracting.
Eleanor Andrews, president and CEO of The Andrews Group, Inc. of Anchorage, was later named the 1998 Small Business Person of the Year by the U.S. Small Business Administration. How lucky to be counseled by Eleanor at such a critical time!
She told me I needed to talk to her accountant. A hard lesson I had to learn was that my local CPA and attorneys really did not understand federal contracting. What they considered okay was never good enough for government purposes. Like a lot of small businesses I had small town thinking and it hurt me. I learned to look for competency rather than a local address. And I never again picked a friend or family over expertise.
I told her I didn’t have enough cash to pay anyone. She went to the phone and called Kevin. He had been her accountant and understood how to “explain” things. Then she said, ”Kevin will see you tonight at 6 PM and I will pay for it. Get your chin up and go see him, now.”
I drove to Anchorage, 60 miles in the dark winter time, and we met for a few hours. He took the information from my financials and restated them. He told me to use as many footnotes to explain each item as necessary.
I took the new financials to the Anchorage bank and with the SBA guarantee got my second bank loan. Whew! So I cut back, slimmed down, and keep going. I hired a new lawyer and CPA. They both understood federal contracting and were not using my company for their on-the-job training.
I learned you have to ask for help and find those angels who are ready to help. In the first case, my employee kept a business open and his job, the second got their vacations out of Alaska, and my angel Eleanor understood that we are all in this together and a failed 8a business was another black mark against the perception that federal contractors are not capable of performing.
I have been having conversations with small companies now in 2010. The banks have frozen credit now because it seems the biggest C of all, the character of our economy is perceived to be questionable. Frankly, I think the banks are lacking that element today as they set on cash needed by the businesses.
The point of all of this? Having survived the crash of Alaska and the multiple bumps of my business, I think we all have to understand that we all have to give all we’ve got and then some more. We can only predict the future by creating it ourselves.