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By creatively using assets accumulated over
the last 25 years and a business loan fund capitalized by socially
responsible investors,
CAP Services
recently assisted a single mother of two to move closer to her goal of
owning the business where she worked.
In August 2004, Tom Judge of Hangers
Cleaners approached CAP Services about the possibility of CAP purchasing
Hangers’ retail operation and selling individual stores and the cleaning
equipment to low-income individuals enrolled in its Self-Employment
Program. Tom had recently bought out his partners in the central
Wisconsin Hangers operations and had decided to concentrate on
commercial accounts, especially hospitals and clinics. After a series
of discussions and consideration of a number of options, CAP decided
instead to help one of Hanger’s long-time employees, the processing
plant manager, purchase the business.
Deb Nass had worked for Hangers (and its
predecessor Judges) for 16 years and had tried to purchase the business
in early 2004. But as is the case with many service businesses, the
local lender and SBA had been unwilling to finance the majority of the
purchase price, which reflected the actual value of the business less
the value of the hard assets. For example, national statistics report
the value of a dry cleaning business is typically determined by the
value of its hard assets (property and equipment) plus 75-100% of its
annual sales. Yet neither the lender nor SBA was willing to loan any
money toward this cost without a pledge of additional collateral equal
to that amount. As a single mother of two, Nass owned a home and a car,
but both had loans against them and she had few additional assets.
After meeting with Nass to determine her
continued interest and preparing a business plan, CAP put together a
unique financial package to enable Nass to achieve her dream. Using its
Lease-Purchase Program as a model, CAP purchased the business from Tom
Judge and is selling it to Nass over a ten year period. CAP financed
the purchase through a loan from M&I Bank using other property it owned
as collateral. CAP’s lending arm, Community Assets for People, then
made a loan to Tradition Cleaners (as the new business is called), to
purchase equipment and renovate its new location into a processing
plant. In an effort to keep space costs to a minimum, CAP leased
Tradition Cleaners space in one of its business incubators in Stevens
Point.
In addition to having the opportunity to
purchase the business, Nass is experiencing significant savings as a
result of purchasing the business through CAP. For example, CAP was
able to obtain a fixed rate loan for five years with no downpayment from
M&I because of its access to other collateral. The loan from Community
Assets for People for equipment and renovations also had a fixed-rate
for five years at an interest rate 2-3% lower than conventional rates.
This amounts to thousands of dollars in savings every year.
Tradition Cleaners has an ambitious business
plan that calls for increasing the size of their business by 25% over
the next three years. As a result, their new processing plant was
designed to handle double the current volume of laundry. Nass is hoping
to use the increased business to improve wages and fringe benefits for
her employees.
This is CAP’s fifth lease-purchase project
in Portage County. Other companies that have enrolled in CAP’s program
include American Governor, Emmons-Napp, Gamber-Johnson, and Golden
County Foods.
CAP’s program is unique in the state. It
uses CAP’s status as a non-profit community development corporation to
provide favorable-term financing for expanding value-added businesses
that commit to creating/maintaining full-time living wage jobs in
central Wisconsin.
The program is part of CAP’s overall
strategy of catalyzing economic development and assisting businesses
that create wealth for the community, rather than assisting businesses
that “strip” the wealth out of a community.
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