From the September 1999 issue of Entrepreneur

When we got her letter at the end of last year, Rosemary F. Gozdowski's frustration was obvious.

. . . I have been in business for four years now and find myself wondering how to get financial help. I have tried all the routes [suggested] in articles like those you publish, but the fact is, not everyone is treated equally and given the help they need . . .

We offered to introduce her to a professional loan packager who might be able to help. She agreed, and her story unfolded.

In 1994, Gozdowski, 49, left her six-figure salary in medical equipment sales. Armed with 25 years of experience in the medical field, an ultrasound technician's license and $5,000 in savings, she opened the Sylvania Ultrasound Institute in Sylvania, Ohio.

After four months in business, Gozdowski went looking for a $50,000 loan. She was turned down by almost everyone even though she had strong credit and collateral. Gozdowski believes the banks were deterred by her company's youth and their perception of her business as risky. She was finally able to find a bank willing to give her an SBA Low Doc loan, but even that wasn't all good news. "I found out I could have extended the terms of the loan," says Gozdowski. If she had, her payments might have been much more manageable.

In December 1996, Gozdowski decided to purchase a $200,000 ultrasound scanner--and her financial troubles began in earnest. When she approached banks for financing, they said her cash flow wasn't strong enough to support her debt.

Then Gozdowski heard about a new bank, Town Bank, opening in her city. "I showed them a brief business plan, and the bank said `Sure, no problem.' They didn't look at my financial [information]; they didn't look at anything." While she was skeptical, Gozdowski was also glad for Town Bank's offer: a $120,000 equipment loan and a $50,000 line of credit to be increased as necessary. It was May 1997.

What happened next is a gross case of Murphy's Law and poor banking, says Doug Hood of Rainmaker Capital Corp., the Cartersville, Georgia, loan packager we consulted. The scanner Gozdowski originally intended to purchase was discontinued by the manufacturer. She then went to General Electric Co., which offered a 4 percent interest rate--much lower than Town Bank's 10 percent. But the loan officer counseled against this option, convincing Gozdowski she needed a relationship with a bank that would grow with her.

Town Bank was supposed to make the deposit needed for the scanner with another loan for $12,000. Instead, in September 1997, the bank took the $12,000 from Gozdowski's credit line, promising to replace it later--but that never happened.

In early 1998, Town Bank was put under a cease-and-desist order by federal regulators--a fact Gozdowski discovered only by reading the local newspaper. "That left me in a big mess," she recalls.

It gets worse: Exchange Bank, which bought Town Bank, called her line of credit due. "They said I didn't have the cash flow, even though up until then all my payments were made on time," says Gozdowski. The bank declared her in default despite her attempts to arrange payments and her warning that calling the note would send her company into bankruptcy.

In September 1998, Exchange Bank termed the loan out, rolled the line of credit and equipment loan together, and gave the entrepreneur a 20-year amortization. "In five years, I had to either pay off the loan or refinance," Gozdowski says. "That gave me some breathing time with a lower payment, but it left me with no cash flow."

Subsequent applications to other banks with a business plan projecting a 20 percent monthly increase in 1999, on top of her achieved 30 percent monthly increase for 1998, yielded nothing but a credit report filled with damning inquiries.

Further complicating her balance sheet were cash infusions from herself and family members totaling about $32,000--leaving the company in a negative debt position and making banks even more wary of lending to her.

Abused And Battered

"I have only ever heard of one story worse than Rosemary's in my 18 years of lending. She could be the poster child for lender abuse," Hood says, adding that tying all her assets into one loan shut off Gozdowski's access to capital.

He suggested converting the $32,000 to equity and seeking someone with strong credit willing to guarantee any bank loan. Gozdowki's brother, Jack Pasienza, agreed to cosign for a loan, so the pair went to the institution that had made her original SBA loan. But the bank said no, so they went to the institution where Pasienza banked.

Gozdowski viewed this bank optimistically. "They bailed my brother's business out, and he had been in worse shape than me," she says. Bank representatives talked about taking over Gozdowski's current loan and giving her $25,000 to $50,000 of working capital.

But about three weeks after that initial meeting, the bank turned down Gozdowski's loan request. The reason: Unfamiliarity with the industry. The bank also wanted Pasienza to be at least 80 percent involved with her business, which wasn't possible because he had a company of his own.

Totally disgusted with banks, Gozdowski decided to explore the venture capital route. We suggested contacting Capital Across America and Women's Growth Capital, two women's small-business investment corporations, but to no avail. Gozdowski's company was too small for one of the institutions and the other felt conventional financing would be best.

So where does that leave the determined entrepreneur? Struggling, and looking for an angel investor. "We'll just continue being very frugal," says Gozdowski, "barely making it even though we're growing and could do so much more with a little money."

Next month: What you can learn from Rosemary Gozdowski's banking travails.

Contact Sources

Rainmaker Capital Corp., (770) 382-8773, http://www.rainmakercapital.com

Sylvania Ultrasound Institute, (419) 882-7723, sui@solarstop.net