In Part 2 of this series, we follow the story of Bar Marco in the Strip District in Pittsburgh and how their epic struggles to secure a $40k loan could make or break their business - before they've served their first customer. Follow their story on Facebook...and expect to drool over the wonderful pictures of authentic tapas that they have been cooking, enjoying and plan (hopefully!) to serve for customers very soon!
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Partners from l to r. Michael Kreha, Justin Steel,
Bobby Fry and Kevin Cox |
Partners Bobby Fry, Justin Steel, Kevin Cox, and Michael Kreha are working furiously, staying up nights drilling steel and getting the kitchen ready to open their wine and tapas bar in Pittsburgh's Strip District. Yet Bobby's frustration is palpable. In about two weeks, Bar Marco will open its doors. To date, these guys have personally financed $169k in renovations and it shows. Michael is an architect designing custom fixtures (take a peek at the lovely chandelier, below) and taking great care to uncover and preserve the features that make this firehouse so unique and beautiful.
Yet their investment, and essentially their life savings, is at risk. Why? Because what they need right now is a $40k loan to open - and stay open. None of the partners have debt, all have good credit scores, and the nominal $400/month debt payment on the loan is more than doable, particularly given the fact that at least one of the partners has retained his well-paid full time job. Yet they still can't get a loan.
What is the problem here?
Initially, Bobby admits they overreached by trying to finance a much larger loan. But they quickly scaled back those plans and decided to phase the project instead, allowing them to self-finance much of it (with help from friends and family). With the focus squarely on opening the ground floor of the firehouse as a Phase I, the need for financing was significantly reduced.
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A custom-designed chandelier
graces the restored tin ceilings |
At that point, Bobby and his partners pursued loans from traditional and non-traditional lenders...all to the same end. Loans were rejected, after promising starts. In the beginning, Bobby noted that his first meetings with loan officers were always enthusiastic, but by the time the project moved up the ladder to more senior loan officers, somehow the excitement and opportunitity, and what made their project compelling and irresistable, got lost in translation.
What's interesting is Bobby's take on the challenges. Bobby comes from a finance background, having spent a few years on Wall Street working in the financial industry. So his insight is particularly relavent. He believes the challenges that he and his partners face point to systematic problems with the entire financial system. For someone like myself with limited knowledge about the inner workings of the financial system, his commentary was really eye opening...
The loss of relationship lending has hurt "Main Street" businesses
Gone are the days when the decision to provide financing was made by the guy in the front office. In the days of "relationship lending", decisions were made in part on the "soft" information that loans officers collected. In the case of Bar Marco, every loan officer who walked through their space and saw first hand what they have done was enthusiastic. But for some reason that enthusiasm didn't translate to the lending application. This in part because small banks no longer exist. These smaller banks have been gobbled up by larger banks and lending institutions and now have multiple managerial layers. The wiggle room on decision making got narrower, and as loan applications moved up the totem pole, something, clearly gets lost in translation.
Willing to pay a higher interest rate, but not offered the option
Bobby also squarley points the finger at national monetary policy. In his customarily frank way, he expressed frustration at the fact that he and his partners would have gladly paid for a higher interest loan - but instead found loan officers who were "trying to cram 3% loans down our throats" and then rejecting them because they were too risky, young and 'inexperienced'. Bobby believes there is a huge disconnect in how lenders approach projects and how they assess risk. If a loan is riskier, raise the interest rate to reflect the higher level of risk, right? Sounds reasonable...
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| Love the fixtures... |
What is even crazier is that the partners were willing to use their liqour license as collateral, but have found that while the license itself is of greater value than the loan they seek, it is an untraditional form of collateral that lenders are not willing to use.
Alternative Financing
One option is crowd-source financing or "crowd funding". It essentially involves going directly to the community to finance a project. For a business as engaged with the local community as this one, it seems like a promising idea. According to Wikipedia
crowd funding describes the "collective cooperation, attention and trust by people who network and pool their money and other resources together, usually
via the Internet, to support efforts initiated by other people or organizations." Although it may be late in the game for Bar Marco to do this (two weeks and counting!), Bobby is still exploring one crowd funding option - kickstarter.com - which helped a brewery in Pittsburgh raise almost $200k.
At this point, they also plan to continue pressing lenders, finding any way possible to get them into the space to show them what they've done in efforts to revisit lending opportunities.
In the meantime, the countdown clock continues. Will Bar Marco sit beautifully restored and ready for business, yet empty but for a relatively small gap in financing? I sure hope not, but the story is still unfolding. Stay tuned...
