2nd Stage Challenge – Financing Working Capital

2009 Great Year

After a nerve-racking recession we finished up 2009 strong in sales being sold out of our Livio Radio featuring Pandora and on allocation for The NPR Radio by Livio.

For the first two years of the business, I focused on pitching and selling the concept to investors, customers, and end users. The startup phase of our business is now complete and the fear of customer acceptance has been replaced with the reality of our countries lack of credit for small businesses.

President Obama has pledged his focus to “recycle” the $30B in TARP funding into small business lending. I am sure the money will be there for small businesses, however I am concerned about when and how. Specifically the fed lent directly to the automakers, and I think they should lend directly to small businesses through the SBA (without the red tape of going through the banks.)

I am sure that funding will come back to small businesses through banks, but probably not in time for me to meet my 2010 sales.

My options:

  1. Live and grow from my earnings = no significant top line sales grown in 2010.
  2. Reduce my NI% by working with PO lending and AR factoring/discounting companies (which costs about 7% per product cycle) = top line sales growth by 2X-3X but no NI.
  3. Raise more money = 2X-3X top line sales growth but giving up equity in the company either from direct equity sale or warrants through convertible debt.

I keep getting turned away from banks saying that in order to get a loan for $1MM, I would need to put in $1MM in cash to secure it… what kind of sense does that make? And as for SBA guaranteeing the loans, well from what I have seen the banks simply don’t care.

To be clear, the issue of our 2nd stage company is not “running out of cash.” The issue is “not having enough cash to fill demand for our radios.”

Considering we now sell through distributors, retailers, and directly to consumers, allocation is an ongoing process managing relationships and cash flow. One of the largest audio retailers in the country asked if we were interested in consignment for placement at the end of the year. There is absolutely no way that we could afford to do the deal, even if the radio was wildly successful as I can’t PO finance a consignment order and I wouldn’t see any cash for at least 45-60 days after shipment.

Stay tuned;

I’ll keep you posted on what we end up choosing. Either way this is relatively a “good problem to have.”