One of the immediate results of the financial collapse of 2008 was a freeze in lending for small businesses. Weeks after Lehman Bros. took the markets on a dive, I interviewed Theo Stephan, a small-business owner trying to live what she considered the American Dream.
She had started an upscale olive oil business in the middle of Santa Barbara wine country called Global Gardens. Cash flow was tight, she couldn't get a loan, and she wasn't sure she could make enough product to fill holiday orders. After our story aired, Stephan got a lot of offers of help, but it wasn't clear any of them would pan out. Still, when I followed up with her a few weeks later, she remained upbeat. "I am going to end the year on the upside, and I have two local investors willing to give me the line of credit," she said.
One of them came through.
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Bill Palladini spent years running his own businesses, mostly in food packaging. "I've been around the block" in dealing with banks and loans. Palladini was watching CNBC in 2008, when Stephan's story aired. "It caught my attention." He emailed her, and thus began what has become common in post-2008 small business lending: an angel investor risks capital on a concept that lacks the track record bank underwriting now demands.
Palladini said he realized Stephan had a great product, but she needed an infusion of cash immediately, and she didn't have substantial assets as security. Stephan told him Global Gardens needed $250,000 to stabilize operations and begin to grow. Palladini gave her an initial loan of $50,000 "only for business operations." Over time, he made two additional loans, but the total never reached $250,000.
Four years later, Stephan is still hanging on, but like so many other small businesses, the last four years have been like a looped piece of video. It's the same story played over and over. "I love what I do on a daily basis," she said, "but I've never been more stressed out financially." She said revenues have tripled, and she has become more profitable. A major retailer may carry some of her products, which would be a huge boost.
Still, "This current year, 2012, I've barely taken a salary for myself." Over the last four years she's had to decide whether to spend money on the business or pay her mortgage, and occasionally the mortgage has lost out. Now she fears the fiscal cliff. Stephan said Black Friday was slow in her community, Santa Ynez, home to wineries made famous in the film, "Sideways". She's also seeing a pullback in corporate gifts. "I'm hearing again and again, 'We're just not sure how the economy is going to play out with this looming tax situation.'"
Palladini thinks Stephan now needs to explore other avenues of financing, and she needs additional management support. He said it's very hard for people who start their own businesses to realize they can actually hurt the business "trying to be the Lone Ranger on management." Stephan agrees. "As a CEO," she said, "I realize, quite humbly, that I am not a very good one anymore! In order to grow the business and brand, I believe I would serve it best as the chief innovator, marketer and PR person."
She's been busy working on expanding the company's offerings, including what she calls the World's First Virtual Tour & Tasting Kit, and she's written a cookbook called "Olive Oil & Vinegar For Life." "It's come to a point where I am doing seven jobs daily, and I can't do any of them at 110 percent like I believe it should be done."
Will the business survive? It has so far. Will it be what she wanted? "I wanted to create a real agri-tourism facility where people could best experience, hands-on, a food culture," said Stephan. She envisioned a facility where she could host cooking classes and children's programs. "I'm not sure any of this will happen, nor grow into anything more than it is...but a girl can dream, can't she?"
"She's an incredibly committed person," said Palladini. He is getting paid back, with interest, and he has no regrets. "We saved a small business, let it grow, and saved some jobs in a small community...I'd much rather do that than give my money to some guy on Wall Street whom I don't know and I don't know what they're doing."