Jim Middlebrook, the founder and president of Vortech Engineering, was feeling the squeeze of success. After founding his Oxnard, California, company in 1990 to develop performance parts and accessories for the automotive aftermarket, by 1997, he'd revved up sales to more than $7 million.
But finding growth capital was still a problem. With the government taking a large portion of a company's earnings right off the top and tooling costing a pretty penny as well, Middlebrook says, "In the end, there's not a lot left to make the company grow."
Middlebrook knew he needed growth capital to expand in his existing market and enter the marine and industrial markets, but he avoided the usual sources, such as venture capitalists and angel investors. "They want too much involvement or too much equity--or both," says Middlebrook.
In early 1997, a commercial banker suggested Middlebrook consider an Industrial Development Bond (IDB), which provides long-term financing at low rates to manufacturing companies investing in fixed assets, such as land, buildings and equipment. The banker put Middlebrook in touch with Dan Bronfman, an IDB consultant and founder of Santa Monica, California, Growth Capital Associates.
Bronfman says IDBs are largely misunderstood and underutilized because prior to tax legislation in 1986, they were the province of large corporations, which used them to finance manufacturing facilities, distribution centers and retail outlets. Today, Bronfman says, IDBs--worth approximately $1.5 billion annually nationwide--finance companies involved in manufacturing or value-added processing that have sales between $5 million and $30 million and are looking for net financing proceeds of $1.5 million to $8 million.
David R. Evanson's newest book about raising capital is called Where to Go When the Bank Says No: Alternatives for Financing Your Business(Bloomberg Press). Call (800) 233-4830 for ordering information. Art Beroff, a principal of Beroff Associates in Howard Beach, New York, helps companies raise capital and go public.