Monday, September 8, 2008

Small Business Loans Dry Up In Oregon

From the Oregonian:

Elizabeth Bretko started her tea company Heartsong Chai in Ashland more than eight years ago. Then two years ago, the 36-year-old expanded the business by building a $150,000 brewery on her home equity line and family loans so that she could sell larger quantities to grocery stores. Her special teas sell for $3.29 a bottle, with a 50 percent gross profit margin.
This spring Bretko seemed to hit her pot of gold: Whole Foods, New Seasons and PCC Markets all placed orders. Sales tripled overnight.
But Bretko wasn't able to get a loan to buy the supplies she needed to fill the
orders. The banks told her that her company was growing faster than they liked to see. And the bankers told Bretko that her growing credit card debt made her unbankable, despite the fact that she had $95,000 in sales in 2007 and had orders worth three times that in 2008.
She turned to her personal credit cards, burning through them in months.
"In hindsight, I should have never launched the bigger sales without the working capital to support it," Bretko said. "I just saw this opportunity and thought that there was no way we wouldn't get the money to go for it."
Bretko said her three-person operation has pulled back on filling orders because she can't buy the needed supplies. She expects that without more cash, she'll have to close her doors.

The article is a good read; you can read the rest here.

One of the best uses for a HELOC is to start a business. You get a lower cost of capital and the bank knows the money is being used in a good faith effort to generate revenue as opposed to taking a trip to Mexico. Since banks stopped caring what you did with the money from a HELOC it isn’t too surprising to see some unfortunate casualties like this from the credit crunch.