Confronting the cash crunch

Virginia Business
December 2005

It's a sad but all-too-frequent story: Entrepreneurs write a business plan, get started and the business takes off so quickly that it suddenly runs out of money. The owners may not have the capital assets to obtain a bank loan, the credit cards are maxed out, and relatives are no longer taking their calls. What are hard-working entrepreneurs to do?

One option might be Snowbird Capital. Started in April, this Reston-based lending company has a $50 million fund designed to provide no-strings-attached capital to small companies that have exhausted their financing options.

The man behind Snowbird is Nelson Carbonell, its 42-year-old president and chairman. He is a former entrepreneur who says he carried a lot of Visa cards to make it through the lean years with Cysive, a technology services firm he started in 1993 and sold in 1999. "I have a passion for entrepreneurship," he says. "It's just fun to see someone build a business and do well with it, and so the more that I can be engaged in helping them do that, the better."

Snowbird provides mezzanine funding, which Carbonell defines as the "no-man's land" between bank loans and venture capital. In examining applicants for loans, Snowbird will look at a business' growth and potential cash flow. Applicants must have at least $3 million in revenue, positive cash flow of $500,000 and management that inspires confidence in Carbonell and his investment team. If a company meets its requirements, Snowbird will provide a non-collateral loan of $500,000 to $5 million for up to seven years. Snowbird also will offer several payment plans, including interest-only payment and partial amortization options.

Like any entrepreneur, though, Carbonell doesn't take unnecessary risks. Companies getting loans must pay a competitive interest rate, and some might have to pledge a warrant — or a very small percentage of equity — to Snowbird. But in keeping with the entrepreneurial spirit, Carbonell and his team will "reverse" the warrant if the company succeeds beyond expectations. "It's a real incentive," says Carbonell, "because business owners don't like to give up equity, even a small amount. So if they feel they can perform their way into a better position there, that's extremely attractive."