When Gary Murray started Sylvest Management Systems Corp. 10 years ago, he had nine months of personal savings and a contract from the U.S. Department of Navy. What he didn’t have was the working capital required to purchase equipment from 18 different vendors.
Information technology was still a new industry in the ’80s, and while most bankers understood hard assets like real estate, they were still cautious, says Murray. “We not only had to convince customers that information resource management was going to be a commodity, but it was also a difficult time to try to educate lenders,” adds David Boyer, president and CEO of TROY Systems Inc. in Fairfax, Virginia.
But Murray and Boyer were just the kind of clients Signet Bank in Falls Church, Virginia, was looking for. After 20 years of successful banking relationships with government contractors, in 1987, Signet created the Government and Technology Group to focus exclusively on contractors. Minority-owned businesses participating in or graduates of the SBA 8(a) program now represent approximately 40% of Signet’s client base.
Managed by Senior Vice President Bill Nalls, the program’s primary financing product is a line of credit that provides entrepreneurs with working capital based on government contracts. Credit is tied to a company’s current assets, primarily accounts receivables.
When Murray first met with the bank, he did not have all of the receivables required, but Nalls “really helped me to work the financial aspects of it to make the loan happen,” says Murray, who initially had a line of credit for $500,000.
In addition to the required receivables, a client must have a track record of operations, a reliable accounting system and a reasonable amount of capital. Once a line of credit is issued, Signet relies on the company to provide regular reports on receivables and financial progress.
“When I met with Bill, I provided information about my strategic plan, references and about $50,000 I borrowed from family members,” recalls Boyer, who received a $350,000 line of credit. He had also just won a five-year, $5 million Navy contract, “so it was a real easy fix.”
“In receipt financing, the money goes straight to the bank and I draw down on the line of credit,” adds Boyer, “so it’s a minimal risk for everybody.”
Signet has also launched a Contract Finance Program for those with spotty credit histories or no track record. Managed by Seth Carter, the program targets companies that have experienced financial difficulties, with a goal of transitioning them to conventional banking status within a year or two. Created in 1995 as an alternative to more costly private financing companies, the program now has 25 lending relationships, the majority of which are with 8(a) or minority-owned companies. The average line of credit is $750,000. When approaching the bank, be prepared to explain all credit problems and possible solutions.
Carter does turn down , entrepreneurs who are declaring bankruptcy and advises those with contracts that won’t start for three or four months to come back. Contracts confirmed by the bank must be accompanied by a