Case Studies

The following case studies are actual loans placed by Joe Muse with client names changed to protect their privacy. With the Business Loan Scores© you should not need a broker or loan packager. The only loan requiring a loan packager would be a SBA Loan.

Falling Structures was established and incorporated in 1990 by two design engineers. At first, Bubba left his job to start the business while Billy Bob kept his job. The two had years of experience in designing steel buildings and knew many contractors in the business.

By the beginning of the second year the two felt there would be enough work for both so Billy Bob left his job. They were right and the business grew.

The following year a few customers requested that Falling Structures design and buy the steel for the projects. Bubba soon realized that he could buy the steel building components cheaper than his customers and provide them with a better service and at a better price.

Billy Bob, being the astute engineer he was, determined that the real profit in the steel building manufacturing was in the fabricated support steel that changes with each design. In fact, Billy Bob was able to contract the fabricated steel and still make a 40% margin from his sale to the contractor. The two had a meeting one night and discussed the possibility of having their own fabricating plant. They concluded it was a great idea.

Bubba, the President, met with their banker and laid out the plan. The banker did seem interested. However, after reviewing the financial statements, the bank was concerned that the tremendous growth might slow. Now they had themselves a problem. They had a great idea, very professional plans and knew the business would more than double. However, no one would step forward and work out the financing. At a dead-end, the two contacted Joe Muse.

After preparing the Business Loan Scores©, I determined there were two weaknesses. First, Falling Structures had a short history relative to the size loan needed. Second, the history available did not show repayment of the loan for all years of operation. Only the last year-end and the interim year showed repayment. The project costs were:

I placed this loan on the second try via a SBA guarantee using the Business Loan Scores© and professional package which is detailed in the Bank Loan Evaluation Process.

Cut & Cheat is a corporation established in 1982 that provides its services to the oil industry. For many years, Cut & Cheat did very well. Nevertheless, as time and technology moved forward, Cut & Cheat found that its customers needed services that the company was not certified to perform.

Mr. Torch decided if the company was going to survive, he had to upgrade the shop and hire more personnel. Mr. Torch hired a welding engineer at $100K per year. Next, new equipment had to be purchased. Then the shop personnel had to be trained and certified in new procedures. The development started in 2004 and was still going on during the first part of 2006. In addition, new shop procedures had to be tested by an independent testing company. Each test cost approximately $2,000.

The company spent thousands of dollars from current income in order to prepare its personnel for the new procedures. During the nearly 2 years of upgrading, sales were level because Cut & Cheat was still not certified for high tech services. So, what we have is a classic situation of having to spend lots of money today in order to generate greater sales in the future.

Mr. Torch’s tax preparer took advantage of all the expenditures and classified them as cost of sales. Much of the new equipment was expensed instead of capitalized. The testing fees were also expensed to cost of sales. All this should have been accounted for in Research & Development, fixed assets or something similar.

In late 2006 and continuing into 2007 all the investments and upgrading started paying off in the form of new customers and more work. In fact, new business was so strong that Cut & Cheat was struggling with working capital to finance the increased activity. Mr. Torch contacted his bank of 10 years requesting a line of credit. The bank took one look at his tax returns and said no! After all, there were 2 years of back-to-back losses and only a small profit in the past year. Therefore, the bank referred Cut & Cheat to me.

I prepared the Business Loan Scores© on Cut & Cheat. During the preparation, I noticed the amount of term debt on the balance sheet. The company had an average of $500,000 in notes payable over the 3 years with substantial debt service but kept current on all its debt in spite of the operating losses. How could this be? How does a company lose money and keep its credit crystal clear? So, I contacted Mr. Torch. After a great deal of research and analysis, I prepared the final Business Loan Scores© report and the loan to refinance the term debt was ultimately approved plus a $250,000 line of credit.

ABC Office Supply was established in 1974 and incorporated in 1979. ABC was a full service office supply store. Starting in the mid 1980’s the market changed with the entry of the large discount office supply stores like Office Depot.

Mr. Black, 100% owner of ABC, had three locations in Houston but, because of competition, had to close all but one. Still business was not strong enough to support the overheads and the payment on the real property that Mr. Black owned. Therefore, he decided to enter the used office furniture market and did well for a while.

Just as business was looking bright, the RTC/FDIC shipped $40 million of used repossessed office furniture to Houston. This caused a “glut” in the market and ABC sales were down. It took several years for this glut to clear but finally the supply and demand gap started to narrow. The past 2 years furniture sales at ABC have been growing. However, there are two principals used furniture dealers must remember to be successful. First, unlike new furniture, you cannot order inventory when you please. You must be prepared to purchase used furniture when the opportunity presents itself. Second, you should have a wide variety of selection because customers will not wait until you can find what they want. They want it now and if you do not have it, they will look elsewhere.

Since Mr. Black’s store was not intended for office furniture, space was limited. He needed more space for storage in the back of the property so that he could free up more space in the store for a more attractive display. Mr. Black approached the bank that had been financing the store property since 1998. All that was needed was $40,000 of new debt. However, Mr. Black was denied.

Fortunately, Mr. Black was referred to me. I prepared the Business Loan Scores© and the loan was placed with a local bank.