Experts Weigh In: Garment-Industry Veterans Weigh In On How to Move to 'Made in U.S.A'
Several finance and garment-industry veterans offered advice to Ann Kearns and Francoise Vianin in their quest to establish a new clothing factory in Manhattan.
Seth Lawrence, president of Bliss Manufacturing Ltd., which makes Indie Couture Sportswear in New York City
Made in America, may make less, but makes enough.
“The "Made In America" concept is wonderful! The obvious truth is that, in the fashion world, American goods cannot compete with overseas (China, Indonesia, Bangladesh, Pakistan, Vietnam).
“Your margin of profit as a domestic manufacturer is pathetic compared to one that makes their merchandise overseas. But making a smaller percentage can work domestically.
“This is because stores need the ‘quick turn’ of fashion merchandise to keep up with trends that pop up. Retailers are usually willing to pay a little more for quick, timely, fashionable things that they may have missed.
“Overseas lead times average around 120 to 160 days, door to door. Domestic turn can be in as little as four to six weeks. That’s a big difference when you are doing fashion pieces that are time-sensitive. Stores find it difficult to make "fashionable, trendy merchandise" overseas because the trend can be over by the time it hits the selling floor. So there is some potential to make it in America.
“And there are an abundance of foreign factory owners willing to finance companies with potential, in exchange for the work being given to their factories. Its impossible to find this kind of opportunity here in the USA.
But in Elanis’ case, as in any business, it’s impossible for a bank or private equity group to invest in an idea that has no tangible assets. Why should they put money up for new venture when the founders themselves do not have a nickel invested.
“ Today, sweat equity is not enough to a bank or an investor. They want to see a financial sacrifice by the founders. I took a second mortgage, as did my partner, to seed my first business venture. It was a lot easier to get a bank to support us when we were able to show the bank an opening statement with $250,000 of our own money on the line. Of course you don't want to broadcast to the bank that you have squeezed this opening investment from your house, since this dilutes their ability to collect on a potential bad debt down the line if you fail.“In other words, you will have to sign a personal guarantee and your assets will be diluted because you will have a mortgage and second mortgage to satisfy in the event you must liquidate your home to satisfy the bank.”
From David Mahmoud, chairman of Allegiance Capital Corp. in Dallas
Get creative, leverage your customers.
“When it comes to patriotism vs. the pocketbook, patriotism loses. Look at where America shops: Target, Walmart, Kohl’s and JC Penney. It’s naïve to think any other way. U.S. industry outsources manufacturing on the altar of cheaper prices.
“That being said, if I was trying to start this business I would get creative. You have to because banks aren’t going to touch it. They avoid risk. Also, when you’re raising capital, timing is everything and this is one of the toughest markets we’ve seen for raising money – especially for startups.
“So if you really believe that there’s a pent-up demand for goods that are made in America, raise money among the consumer base that is patriotic and your target market.
“Do something like offering stock in the company online in return for a coupon that could be applied towards merchandise. Raise $300,000 at $50 per person in exchange for a $50 coupon good for merchandise once you’re up and running.
“Get some purchase orders in. If you can get enough traction to enable a proof of concept, a more traditional investor could then get on board with and provide financing for the remaining amount needed to get you to the next level.”
Issamar Ginsberg, a Lakewood, N.J., rabbi and business consultant who Inc. Magazine named one of its Top 10 Entrepreneurs of the Year in 2005They're not asking for enough money
“Pre-recession, the lending rules were looser and banks were lending money to anyone with a heartbeat. It would have been easier then because they could have gotten the 20 percent equity investment using a variety of lending techniques like a personal loan, real estate line of credit - for way more than the value of the property they might own (like a home equity credit line that might exceed the value of their home) - or a loan against assets, which was much easier to get.
“When you are asking a bank for $1 million, and you don't have 20% down, that means you don't have $200,000 of your own equity in the deal. It's a proven fact that when you have no skin of your own in the game, you are much more likely to walk away from a business idea gone badly, than when you have your own money at stake."
“Now if they ask for $5 million, then they are coming to the bank looking to open a large business. The banker would not expect them to be able to come up with 20 percent of that in many cases. But to me,as an entrepreneur, the very fact that they are hustling so hard for a fairly small sum would be a worrying indication to a lender that they have no money at all."
“If they asked for more money, the bank would try to see how they could get ‘overrides’ - waivers from the bank higher-ups to waive certain provisions. But for a smallish loan, it’s not worth the bank’s trouble and time to work with them to get it done.”