I had the brilliant idea of trying to have a brilliant idea during the worst possible time in the last 50 years to have a brilliant idea. This is normal for me: chose to quite my job during a time when everyone was holding onto their jobs for dear life and decide to start a business during the biggest lending contraction the world has ever seen. Never mind that this business also happened to be in industry blacklisted by the current economy. Just mention the word “kitchen” to a bank and the doors are immediately shut. Even better when you have the word kitchen in the very name of your business!
Kitchen Incubator was a quick launch for me. I was new to Houston, fresh from the New York City restaurant scene and looking for a pastry internship. As I perused the ads on Craigslist and local forums, a trend appeared – people in Houston, in Texas in general, were desperately searching for kitchen rental space. A bit of googling later and I stumbled up The Kitchen Space, a shared-use kitchen in Austin that was just starting construction. I found Kitchen Chicago, a successful shared kitchen that was started by a former investment banker like me! Several hours of google later I had dug up a list of at least 20 such kitchens in existence or in the works across the country.
A potential business that would combine my passion for the food industry with my background in business development was far too alluring. I was hooked. I threw up the website and the survey. I filed for LLC in Texas and submitted all of the business and tax forms. All in a day’s work. Then I began to work on the business plan…
It did not phase me that by the time the business plan was ready all sources of potential financing for the business had dried up. Maybe things would take a little longer, but I was not about to let this go. At this point I had already fallen too in love with my concept and put too much into the business plan to let a tiny, petty thing like a global economic collapse stand in my way. Obviously.
The solution seemed easy. I would simply call every SBA lender with an office in Houston and try to convince them to meet with me. Then I would unleash my compelling business plan upon them. I would also hit up the major micro-lending organizations in Texas as well as mezzanine firms that worked with SBA loans. The SBA publishes a handy guide on their website with a list of all the approved lender banks and their SBA loan volume for the past few months. The report showed that the banks were still lending!
Just not to start-ups.
And that is exactly what they told me when I called them too. That is, if I actually managed to speak to a real person, which, most often, I did not. If, by some chance, I guessed the secret code to speak with a business banker and convince them of my idea, any attempts to move beyond them to the actual decision-makers were dead ends. The true beauty of the SBA loan process lies in the inevitable bureaucracy so elemental to government sponsored programs. While each bank that is an approved SBA lender has a designated SBA liaison in charge of processing all SBA loans, these persons never actually encounter the people applying for loans. The customer relations aspect is done at the business banker level on the branch floor. As a result, you not only have to sell your concept to the banker, but you have to convince him (and trust him) to turn around and sell it to the SBA liaison who will, in turn, sell it to the actual underwriters. The key problem is that no matter how strong your sales pitch or how much conviction your business banker leaves the floor with, it will not make him a good salesmen or buy him any clout with those further up the ladder. Alas, a smoothly disempowering process that only a government program could put in place is begun.
As an example, our initial meetings with one large bank went better than expected. The business banker loved me and believed in the concept. All I had to do was speak with the SBA contact to confirm and it would all go smoothly! Weeks of sporadic contact with the SBA liaison followed. Somehow, she was always traveling. She would not meet in person. E-mails went unanswered. She managed to take two vacations in a six-week period. Her initial e-mail simply stated their start-up loan requirements: strong business plan, 2-years projections, at least 50% capitalized, no financing of working capital, no restaurants. I responded that we met all of the requirements and explained how our business model is nothing like a restaurant’s (no competition, no heavy fixed costs, no inventory, etc.) She promised to go over the business plan and discuss with me. When I finally tracked her down over a month later, I received only a quick e-mail response “I forwarded materials to the team and they are not looking at restaurants right now.” End of discussion. The business banker was apologetic but helpless. I had said the “K” word and that was that, restaurant or not.
It took several months of hounding the banks with e-mails and phone calls before I realized that it was going to take some serious networking to get any of these banks to entertain this project. A banker needs to hear you drop the name of a trusted source before a trigger goes off in their head tagging that business as legitimate. I found two great sources for facilitating name-dropping: SBDC and SCORE. As soon as the initial contacts were made and won over, names were dropped and I was in the door.
Then, just as discussions with bankers began to reveal genuine financing potential, a magical fairy appeared in my in-box. The fairy was from my CNN Money RSS feed and she told me (cue magic fairy-dust bursting from computer screen) exactly why I had waited six months past my original planned opening date to get even close to securing financing. She spoke of an Economic Recovery Act that would not only restart the lending flow but would also eliminate fees and increase guarantees!
Fate and financing fairies speak in mysterious ways.
Soon we would have more than a few willing banks to take on our SBA application. They were not exactly “fighting” over the project as my SCORE advisor said they would be, but they were listening and the doors were open.
The best part? I soon learned the SBA loan would be easy money compared to a seemingly simple grant application with Houston’s Downtown Development District……..

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