Back in 2004, while he was still a graduate student at MIT, Bryan Schmid and a couple of his friends entered a design contest on something of a whim. The competition – between MIT and West Point – asked entrants to come up with a device that would help soldiers in Afghanistan move quickly in and out of deep wells and caves.
At the time, Schmid recalled, “We were students, and we just thought this was so cool.” They collaborated on the Atlas Power Ascender, a device the size of a small shoebox that can lift a person or heavy piece of equipment up a rope.
He didn’t really anticipate outside interest in their product, and he certainly couldn’t predict that competition would sow the seeds for Atlas Devices, the international business where he’s now president.
Schmid suddenly had orders to fill, but had no previous operating history or working capital, so like many young entrepreneurs before him, he turned to the Small Business Administration (SBA) for financing.
Daniel Andrew Schofield-Bodt is another. He started a small tour company – now Trademark Tours – during a summer break while he was a student at Harvard. He gave all the tours himself for the first few years, but as he built his business, he realized he needed to hire a few more employees.
Tourism is a very seasonal business, he said, and he wanted a line of credit to smooth out his cash flow year-round, so he also worked with the SBA to secure the financing he needed to hire an operations manager for his private tour division.
SBA-backed financing has long been a go-to plan for entrepreneurs who, for whatever reason, might be considered just a little bit too risky for a more traditional loan.
And Joseph Bator, Eastern Bank senior vice president and director of business banking, said Eastern Bank, which is the No. 1 SBA lender in Massachusetts, has recently seen a good deal of recent college graduates turn to SBA options for help getting their businesses off the ground.
“It runs the gamut. We once helped a small business owner who, while in college, was offering student trips and decided to make it full-time when they got out of college,” he said. “We also see people coming out dental school who come to us for financing when they want to open up their practice.”
“More recent grads start businesses here than probably most other places,” he added.
“Conventionally, a bank looks for collateral or industry experience. They’re looking for a good business plan,” said SBA Massachusetts District Director Robert Nelson. “A young entrepreneur is probably not going to have a lot of cash or a lot of collateral, and they might not have a tremendous amount of industry experience.”
And despite the success stories of startups using cash from venture capital, both Schmid and Schofield-Bodt said that SBA financing was a much more attractive option than raising VC or equity.
“Since we had the orders in hand, we felt that the tradeoff of giving up equity for defined and known revenue was too costly,” Schmid said.
Loaned Out
Of course, any discussion of young entrepreneurs would be remiss without some mention of how this ties into the current debate over student loan debt, which by most estimates tops $1 trillion nationally.
Bator and Nelson are both quick to clarify that SBA funding is no panacea for would-be entrepreneurs who let their student loans spiral out-of-control.
“When you have student debt, that’s an obligation, and we’re going to need to know that you’ll be able to pay your student debt as well as your business debt,” Bator said.
Or in other words, you still have to have your own house if you’re going to ask the SBA for help starting your business.
Schofield-Bodt said that when he talks to other aspiring young entrepreneurs, he does recommend investigating the SBA as a resource – but with a caveat.
“When I talk to students, I tell them, you’ve really got to get your money into these smaller, regional banks where someone is going to get to know you,” he said.
The owner of Trademark Tours said his first introduction to the SBA came while he was still banking at Bank of America.
“But I remember feeling like I was on my own with it. I got all this paperwork and my business wasn’t really developed enough. I just knew I wasn’t going to impress anybody, and I kind of just gave up on it,” he said. “The thing with Eastern that felt different was that this bank had something invested in whether I got my line of credit.”
Email: lalix@thewarrengroup.com
