Too Many Credit Cards?

  by Art Woolf

The Burlington Free Press profiles Rock Art Brewery, a small microbrewery in Morrisville, VT.   How did the Matt and Renee Nadeau, who started the company ten years ago, finance its start-up and growth?

For years, the couple financed the upstart brewery on 12 to 15 credit cards, revolving the debt from one low-interest rate introductory offer to another.

Granted,

They [the credit card companies] were flooding the market with this cheap credit,” Nadeau said. Those days are gone, but the free wheeling credit offers of recent years, which helped torpedo the nation’s real housing market, played a crucial role in getting Rock Art off the ground

It's very likely that the restrictions the new credit card reform bill has put on the credit card industry will make it much more difficult for future entrepreneurs like the Nadeaus to realize their dreams.  They are too small, and future profits too uncertain, to obtain venture capital funding.  They probably don't have any deep-pocketed relatives, and no bank would lend them the cash they would need.

Comments

[Nate Freeman]

Of course this is a national issue for entrepreneurs. That said, owners of Chroma Tech, Gardner's Supply and Burton Snowboard have complained about the banking community here in Vermont. Paul Millman, at the 2004 Vermont Business Magazine 5x5x5 Growth Awards, pointed up from the podium to the Key Bank sponsorship sign and said (paraphrased from memory), "It's ironic this is sponsored by a bank. When we started up no Vermont bank would lend to us. And now that we're at the current stage of growth, no bank in Vermont is big enough to give us what we need." Bill Raap, receiving the same award for Gardner's Supply, reiterated Millman's sentiment.

Unfortunately there are too many stories about Vermont companies starting up with credit card financing. This is what Jake Carpenter had to do when he started Burton Snowboards.

Today there are a few lending options for start ups, including Opportunities Credit Union, Community Capital of Vermont and the Vermont Community Loan fund. However, these lenders also require liquid capital backing of some sort or another. For those of us who simply don't have family and friends who can back the loan, we're basically still in the same boat. Even home equity loans have been tightened up lending qualifications. Angel/venture capital isn't available until much later than the first stage of self-financing.

Right now I'm going through the struggle to secure $80K in financing for my start up, Green Mountain Kitty Litter. Credit card companies are now charging mafia-level interest rates, so financing through MasterCard or Visa is the riskiest lending available.

Rock Art's credit card financing occurred when introductory rates were 0 to 2%, with standard rates under 10% also available.

[Brattleboro landlord]

From 2000 to 2005, I financed many major renovations, and downpayments of two purchases of apartment buildings, with low-interest credit cards. In all cases, the rates were fixed for the term of my intended payoff, at anywhere from 0.99% to 6.99%. I all cases I had cash flow projections to be sure I was covered.

[Paul]

I'm sure all start up's have some kind of cash flow projections. The problem is these are "projections" and not guarantees.

[the Gooch]

Is peer-to-peer lending like Prosper.com taking hold?
Or did the regulation hammer smash that place? I honestly don't know.

[Nate Freeman``]

Correction to my comment above.

Paul Millman says, "We have a great relationship with Merchant's Bank and they have shown great interest in supporting our expansion plans."