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Small Change

While the number of approved microloans is up 25 percent, it's still not easy to get money-but it's not impossible. Let these entrepreneurs share their true stories.

This story appears in the September 1998 issue of Entrepreneur. Subscribe »

Getting a loan is sometimes harder than you think.

The company: International Musical Suppliers Inc.

Owner: Lisa Argiris

Founded: 1986

1997 sales: $3.5 million

1998 projections: $4 million

Loan specs: $1.5 million from Citibank

So you've got everything going for you: a strong track record, excellent management skills, a compelling business plan, and concrete goals for the future. Securing a loan-even from a bank known for being conservative-should be a piece of cake, right? Not exactly.

As Lisa Argiris learned when her original lender was unwilling to supply the additional capital she needed to start her Chicago-based mail order musical instruments company, banks don't always share your confidence in your business. Argiris contacted 10 banks during her search for a loan earlier this year, but despite her company's impeccable credentials, she had trouble finding a financial institution willing to approve a loan on her terms.

"All the banks were interested in me," says Argiris, 34, but the sticking point was the structure of the deal. "The banks were astonishingly poor at offering me what I needed and were looking instead at what they were comfortable doing." Some banks considered the amount requested too steep; others refused to offer competitive interest rates. But instead of settling for less, Argiris held out for more.

Good thinking. In the end, her company's assets and profitability impressed Citibank-she got everything she wanted from her inventory, mortgage and working capital loan. But the final deal came only after 16 weeks of searching.

What was the problem? For one, Argiris says banks have "cookie cutter" mentalities; most she approached use narrow formulas like debt-to-equity ratios to screen applicants, showing little interest in what her business really provided, its growth potential and its actual funding needs. Second, her company needed a lot of initial capital to produce income.

Argiris learned a lot from the experience. She recommends having a clear understanding of your needs before approaching a loan officer. "If you don't understand that," she says, "you might be persuaded to do things that aren't in your best interest but are in the interest of the bank, which can be devastating to your business."

A Loan At Last

The struggle behind one entrepreneur's executive housing loan.

The company: Corporate Suites at Lakeside LLC

Owner: Vickie Snavely

Founded: 1998

Loan specs: $550,000 from Bank of Floyd (in Floyd, Virginia); $399,000 from the SBA

Are business loans hard to come by? It depends on whom you ask. Vickie Snavely, for one, describes her recent loan search as "a nightmare." That's not what you'd expect from an entrepreneur who's run three successful businesses (a household amenities rental company, a window treatments business and a property management firm) for more than a decade.

But sometimes when you're new to the lending game, things don't turn out the way you expect them to. Snavely had never previously required loans of this magnitude to support her businesses. Then she decided to launch a fourth venture, a Salem, Virginia-based extended-stay facility (for travelers who need lodging for a longer period of time than the typical hotel stay but not long enough to warrant leasing an apartment). Since the project involved real estate and construction, she knew she couldn't move forward without an advance of nearly $1 million.

Snavely had a plan: She was sure if she sought financing from eight banks and 12 nonbank lenders, one would work out. Unfortunately, her strategy didn't account for discrimination or sexual harassment-obstacles she encountered that threatened her chances of getting a loan. She says one bank representative actually said he wouldn't work with a woman; another lost his job after he made a series of inappropriate comments to Snavely. During her two-year search, it seemed everyone she turned to considered her requests unreasonable. "This process has reaffirmed my opinion that it's still a man's world out there," she says.

In late 1997, Snavely looked to her local Small Business Development Center (SBDC) for help, and things finally started looking up. After landing partial financing from the SBA through Virginia Asset Financing Corp., Bank of Floyd in Floyd, Virginia, decided to provide the balance of her loan request. As for the final 15 percent of the necessary capital, Snavely was able to refinance some property to squeeze out the additional funds.

While Snavely is happy with the loan package, it still bothers her that she encountered so many serious obstacles in her search for funding. She's convinced, however, that persistence pays off; without it, she wouldn't have been able to move forward on this latest venture.

To entrepreneurs traversing the same path, Snavely recommends seeking help from local SBDCs as a first step, not as a last resort. She credits her eventual success to a rock-solid business plan, more than a decade of industry experience, an extensive customer base that provided letters of intent, and a reliable accountant.

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