Nontraditional funding facilitates business growth

While traditional bank loans or U.S. Small Business Administration-guaranteed loans are available to many businesses, some entrepreneurs may have to dig a little deeper to sustain or grow their companies.

Seeking investors

Jeff Brinkhoff, founder and president of B&M Inc. — a Mount Vernon company that creates, produces and distributes Red Monkey Foods — began working with Springfield investment company Quest Capital Alliance in 2003, about a year after establishing his business. B&M offers an organic line of spice products, and Brinkhoff needed more money to boost his company’s volume and compete in the growing organic market.

“The investment that we needed superceded anything that could be backed by collateral,” he said.

Because Brinkhoff’s business didn’t have assets necessary to back a loan, he began looking into investment companies.

“We saw an opportunity in the market with organic spices and the organic industry as a whole,” Brinkhoff said. “You’ve got to grow quickly, or somebody else is going to come in and do it a lot faster and better, and you’ll be left out in the cold.”

Brinkhoff declined to say how much capital his company gained from working with Quest, but he said, “It definitely allowed us to continue to push toward our ultimate goal of becoming a player in the spice industry which we could not have done with large up front expenses and the time that it takes to get the volume up.”

Return on investment

Brinkhoff’s company benefited from working with an investment company, but for Quest and other local venture capitalists, there has to be return.

“Oftentimes an owner will say, ‘I want a whole lot of money, and I don’t want anything to change,’” said Clint Kasten, manager of StoneBrook Capital LLC, which was formed in 2005 to provide capital to companies with annual revenues between $3 million and $10 million. “I don’t see any reason to take ownership-type risks unless I get ownership-type returns.”

When it makes investments, Quest typically becomes involved at the board of directors’ level, but if it’s needed, Quest also can participate in company management. In terms of a return on investment, Quest charges the companies it helps – though the fees vary.

“Depending on what the company needs, we will charge a management fee for helping them run their business, but ultimately it all comes into the pricing of the deal whether it’s in interest or a fee,” said Quest CEO Steve Fox. “We structure it based on individual transaction needs.”

StoneBrook’s Kasten said he typically does not seek out startup companies, but he isn’t opposed to investing in the right opportunity.

“I’d say the biggest eligibility requirement probably would be the talent and the preparedness of the particular manager or management group,” he said. “We are ultimately going to win when the company wins.”

Kasten said StoneBrook was formed because he saw a gap in funding opportunities for mid-size companies, an opening Quest Capital Alliance also is trying to fill.

“What we felt was that we’re in such an entrepreneurial market here, there were a lot of opportunities that were under the radar screed of the larger private equity firms out of St. Louis or Kansas City,” Fox said. “We work with businesses that typically either can’t get traditional financing or need some additional equity to get traditional financing.”

Exploring other options

Kent Harlan, a CPA and owner of Ozarks Capital Funding, focuses on accounts receivable financing, equipment leasing and asset-based lending to help businesses gain access to funds.

“They might discover that equipment leasing might be a good idea for them, or factoring, if they’ve got a decent pool of receivables, factoring might be a good way to generate some working capital,” he said.

Finding Help

For small businesses, finding the correct form of financing individual circumstances can be tricky.

But once it’s found, applying and being approved also can prove challenging, particularly without help.

Missouri State University’s Small Business Development Center helps established and new businesses through one-on-one consultations, seminars and training courses.

Topics include financing, marketing and human resources.

“We are helping the economic development of the community where the business exists by creating jobs, increasing sales and helping businesses obtain funding,” said SBDC Director Jane Cargill.

SBDC offers its consultation services free of charge to small businesses. There are fees for the classes, generally $99 for a three-hour seminar.

A calendar of upcoming classes is available at www.sbdc.missouristate.edu.