The Players
Owner and CEO Robert Stone started the company 10 years ago. He got help from Longwood College's Small Business Development Center and the Small Business Administration.

The Problem
Poor cash flow was making it tough for Stone to pay bills, even though his annual sales were strong. Not having ready cash also made it tough to take advantage of good prices on inventory. If he wanted to grow the business, he needed more cash on hand. "I knew to maintain the sales volume, there was going to have to be more capital."

The Background
Stone had experience in distribution: He had worked in the Martinsville area as a buyer for a New Jersey-based company. When his boss retired and closed the business, Stone stepped in and opened his own company, using his industry contacts to find customers. Sales were strong, but money was tight. "We were plugging along at $5 million to $6 million a year with only $300,000 in equity." Stone struggled with the peaks and valleys of normal cash flows. "Obviously if this month's sales are down, then next month's receivables are down," he says. That was making it hard to seize opportunities.

His only other options were to shrink the business to fit the capital he had on hand, or to sell equity in his company in the form of stock — an unlikely prospect, he says. "There's nothing glamorous about a warehouse full of sweatshirts."

The Solution

With help from the Longwood College Small Business Development Center and the Small Business Administration, Stone got a $200,000 line of credit and a fixed-rate, five-year $365,000 loan using his inventory and receivables as collateral.

He had trouble getting a loan at first, not because he wasn't a good risk, but because some banks didn't want to work with businesses in the struggling textile industry, he says. Others didn't want to bother with that kind of loan structure for less than $3 million.

He eventually got the loan through NationsBank in Richmond, with the SBA giving a secondary guarantee. Stone also saved thousands in fees because he's in the textile business and was able to use a federal program called the Community Adjustment and Investment Program, which is designed to offset the impact of NAFTA-related competition. Without the program, Stone thinks he would have been faced with up to $30,000 in loan fees. "It might have been easier to just let some people go," he says. "I don't know that I would have paid that." Instead, the loan cost him just a few thousand in fees.

Stone says he's used the line of credit several times to borrow based on his need and his inventory on hand. Now he worries less about paying bills and can focus on expanding his company. "If a buy presents itself from a manufacturer," he says, "we hate to not be able to take advantage of it [when] I know there was a margin to be had if I just had the money to buy that product." 

If you have a case study in small-business problem solving, e-mail llarance@va-business.com.