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SMALL BUSINESS
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| EVENING STAR CAFE Alexandria Restaurant |
The BusinessEvening Star Cafe, a new 95-seat restaurant serving American-style cuisine in a revitalized neighborhood in Alexandria. The PlayersCo-owners Stephanie and Michael Babin and Christi Ehrett. All three have careers elsewhere: Ehrett is a flight attendant for American Airlines and has some restaurant experience. Stephanie Babin is an attorney and her husband, Michael, works for a Washington, D.C., lobbying firm. |
 artwork by Chris OBrion |
The Problem What do you do when the bank will lend only some of the money you need to open a new business? The partners had limited collateral and couldn't convince local banks to take a risk. The Background Longtime friends Stephanie Babin and Ehrett
had often dreamed of owning a restaurant
together. Michael Babin, whose job includes
helping start-up businesses get funding,
kick-started the idea by writing a business plan. |
| All three live in the city's Del Ray
neighborhood, and they saw a niche there for a
restaurant to serve an inflow of young
professionals. The 1,800-square-foot space they
wanted had been home to a local watering hole and
was in bad shape. The partners wanted to gut it
and start anew and were willing to do the grunt
work of demolition and repainting. The catch was, banks wouldn't loan them the $125,000 they needed to get started. And bankers were hesitant to loan even part of the money without assurances that the rest could be had elsewhere. The Solution "Gap funding" is what the partners needed. They got it through a Business Assistance Loan Program run by the city, which was funded by a block grant from the U.S. Department of Housing and Urban Development. The partners got approval to borrow $50,000 from the city's loan fund at 2 percent below prime. They then went back to their local bank with the gap funding option in their business plan and got the rest of the money they needed. The Evening Star Cafe opened in August 1997. A year later, the restaurateurs borrowed another $50,000 from the city's financing program and opened The Daily Planet Wine & Gourmet in the space next door. Together the two businesses have about 30 employees. The funding that made this restaurant a reality is available to businesses on only a few blocks in Alexandria. The program's main purpose is to generate new jobs for low- and middle-income residents. But small businesses around the state can get help with their own gap-funding problems from the Virginia Small Business Financing Authority. The state program doesn't offer direct lending like the Alexandria program does, because that would mean competing with local banks, says Anna Mackley Cobb, the authority's project finance manager. Instead, it sponsors the Virginia Capital Access Program, which matches the premium banks charge borrowers and then sets that money aside in a loan-loss reserve account as an extra protection for the bank. The program gives banks a kind of loan portfolio insurance that lets them exceed their normal risk thresholds for commercial loans, Cobb says. The program started in mid-1996 and so far has helped 60 companies. About 21 percent were start-ups, Cobb says. The program covers loans up to $250,000. To be eligible, businesses must have fewer than 250 employees, less than $10 million in annual sales or a net worth of $2 million or less. Virginia Business collects tales of innovations from small businesses statewide. If you have a case study in problem-solving, e-mail lugincius@va-business.com or call (804) 649-6232.
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