Built Oregon -Oregon's Entrepreneurial Digital Magazine

Tag - Capital

Treading the access to capital waters: A Q&A with Noah Brockman, Oregon SBDC Network, Capital Access Team Lead


Noah Brockman is the Oregon SBDC Network, Capital Access Team Lead. In this role, he has engaged founders and companies of all industries and sizes and amassed a great deal of insights into how capital flows through the various channels. We had the chance to talk with Noah about the work the Capital Access Team (CAT) does around the state and also some of the challenges and opportunities in Oregon.

Give us a brief overview of the CAT program here in Oregon –

The Oregon Small Business Development Center Network’s Capital Access Team (CAT) got started five years ago as a business advising “special team” dedicated to working with SBDC clients on getting their projects funded. Since then, over 5 years the CAT program has grown into 4 regional teams which have engaged over 600 small businesses. The resulting impact has been to fund 175 (30%) of those businesses projects, worth over $78M in capital.

How did the CAT team help the other 70% – companies that did not end up receiving funding?

The client process the CAT team has developed enables us to engage a wide variety of companies. But the process does take time to complete, and there is a commitment needed by the company founders. About 36% of the 600 small businesses who inquired about CAT assistance over the past 5 years finished the entire CAT process. Of those clients who completed that process, about 75% on average get their projects funded.

For those who do not end up getting funding, a myriad of reasons can play a role including: (1) they changed their mind about doing the project which eliminated the need for funding; (2) they found funding elsewhere without having to work through our process; (3) they didn’t finish the work; (4) or they finished the process and are still in the process of seeking funds.

Talk about the statewide presence your team has, and how you help companies in every corner of the state. That seems like a daunting task given you have only 4 advisors listed on the website.

To grow the program and expand our capacity in 2012, we recruited three of our other SBDC colleagues from around the state with a special knack for getting deals funded to lead regional CAT teams made up of other SBDC Business Advisors focused on funding. We then hosted a statewide SBDC CAT training to share tools, exchange best practices and divide the state into four “CAT regions”.

This regional model has allowed the CAT program to provide advisory resources throughout the state, with each regional team supporting 4-5 SBDCs, in addition to the client referrals we receive from state and regional economic development partners, lenders, investor groups, etc.

Does every state have a CAT?

While each state has its own SBDC state network and any SBDC can assist small business with access to capital, from what I understand through Mark Gregory, our Oregon SBDC Network State Director, there are only a few (maybe 2 or 3) other SBDC state networks that have organized teams of specialized advisors working on capital access. That said, it’s probably fair to say that the Oregon SBDC Network has been an innovator within the American SBDC Network with its CAT program.

What’s something that people might not know about the SBDC CAT?

We are one of few different “special teams” of highly specialized Business Advisors operating within the Oregon Small Business Development Center Network. Our state Network has been operating in Oregon since 1983. The Network currently has 19 Small Business Development Centers, hosted by Community Colleges and Universities around the state.

The Oregon SBDC Network is funded in part federally by the SBA, by the state via Business Oregon, and locally by our host institutions. Our mission is to facilitate economic development from the ground up, meaning we work with entrepreneurs starting or growing a business by providing business advising and entrepreneurial training programs.

In 2015, the Oregon SBDC Network worked with more than 5,200 individual client companies, provided more than 24,000 hours of business advising, helped with the creation of 981 jobs, and aided clients to gain access to $62.1M of capital.

Talk about how the CAT engagement process looks for new businesses/founders, and provided ongoing support for the businesses you have already helped.

We work with a wide array of founders and companies from rural to urban. In order to keep everyone in the funnel and moving on the same path, we ask folks to complete our online “new client readiness assessment” at BizCenterCAT.org. The assessment provides us some basic info about the business and their project, from which we do an initial 40 minute call to review the assessment together and fill in some gaps.

The primary objective of the assessment form and phone call is to figure out where they are at in their process, what’s left for them to complete to be ready for funding, and ensuring they have a solid business plan and financial projections with cash flow. In order to fill in some of those gaps, we provide them templates to work off of, but also engage on a personal level to talk through a finance strategy that makes sense for their particular project.

Once they have their business plan and projections squared away, we work with them to be ‘funding ready’. But like during the initial engagement process, we work closely and collaboratively to develop a finance strategy or source of funds that might be a good fit. Since the funding landscape is pretty broad, this is an essential part of the process.

From there we provide coaching on how to pitch to lenders and investors, and if necessary help to get them connected with funders by way of introductions. We are a resource as needed through the funding process for our clients, and celebrate together at the close of a successful funding raise. Throughout the process, we get to know the entrepreneurs well and usually have a sense as to whether or not they might benefit from additional small business management education offered through one of the SBDCs, or another small business technical service provider. We stay in touch as the business grows and continue to be of service as needed.

I think many times when people think “Capital”, by default they think money, but isn’t there’s some “Human Capital” you put to work for your clients too?

While access to capital is a core component of what we do, getting founders and businesses to the stage where that makes sense involves engaging personally on various levels. Business planning, feasibility, market research, financial analysis, thinking through different finance strategies, and connecting clients with different sources of capital are all key cogs in what we do at CAT.

Does the SBDC CAT program charge clients for services?

Up to this point we have not charged for our services, and while this is such a benefit to early stage companies, I suspect the 60-70% of the folks we talk to who don’t complete the CAT process is based on not having some skin in the game.

We are evaluating the idea of charging a nominal fee for CAT client engagements that will enable us to add access to customized training on financial literacy. By adding a condensed training curriculum, our clients will be better prepared to seek funding and hopefully the program will have an even bigger impact.

Everyone always talks about the challenges around access to capital, but that can mean different things for businesses in certain industries and regions – what are some of the biggest challenges and opportunities around access to capital here in Oregon?

That’s the same question that the Oregon Capital Scan, published by the Lundquist College of Business at UofO (guided by Business Oregon) attempts to explore every two years. The most recent report is due out later this year.

Nonetheless, here are a few thoughts on current challenges and opportunities:

CHALLENGE: (1) Getting a new business less than 2yrs old funded when the founders may or may not have credit issues, have limited personal assets, limited sales, and the business has limited business assets that provide inadequate collateral coverage for a loan.

OPPORTUNITY: (1) Thanks to Oregon’s new Oregon Intrastate Offering rules, small businesses registered in Oregon have a new avenue to raise up to $250,000 of unsecured debt or equity from other Oregon residents investing up to $2,500 each. The rules allow business owners to essentially write their own deal terms, as long as they make sense for the business and investors dig it. This is one new way to raise capital in Oregon for projects that before, would probably not get funded, except perhaps by way of friends and family or accredited investors. To be clear, I’m not saying this is for everyone, but in some cases it’s a good fit and we’re excited to have this as new tool in the small business finance “toolbox”.

CHALLENGE: (2) Helping those newer fledgling small manufacturing businesses operating in Oregon’s maker economy (anyone that makes or produces any kind of stuff), that have yet to obtain (a) expansion capital to increase production capacity or (b) working capital required to fulfill big purchase orders. Sometimes these folks will be paying on an existing start-up loan and have limited personal or business assets, often making it hard for them to qualify for expansion capital or working capital lines of credit even as their business grows.

OPPORTUNITY: (2) (a) Expansion capital to buy equipment or hire employees to increase production capacity is critical to growing a small manufacturing business. One pilot program that was well-suited to meet this need was introduced by Governor Kate Brown and Business Oregon in Q3 of 2015, and seed funded with $250K called the “Small Manufacturing Business Expansion Program“. This program provided micro-loans up to $50K (for up to 50% of the actual project cost) to existing businesses (minimum 2yrs) seeking expansion capital to assist with a building purchase, construction or renovation costs, equipment purchases and employee training. In some cases, the loans were forgivable if jobs were created and retained over a period of time. As you can imagine, it was a popular program and it didn’t take long to blow through the $250K. I’d like to see this program funded again and with another zero, such that $2.5 Million would be earmarked to help Oregon’s small manufacturers “grow our own”.

OPPORTUNITY: (2) (b) Oregon’s small manufacturers also desperately need access to working capital for big purchase order fulfillment. We see this all the time with food entrepreneurs that get picked up by distributors. What’s needed is a seasonal working capital line of credit product designed for newer businesses just to cover production costs (labor and materials) needed to produce and fulfill big production orders. While there are a few Purchase Order Factoring companies out there that do this, it is often expensive money to borrow. A seasonal working capital line of credit program could be setup to cover only the working capital required for purchase orders on an as-needed basis. The problems with this kind of funding are: (1) the collateral for the loan is inventory and receivable that have yet to be produced, making it extremely risky to lenders; (2) newer businesses without much of a track record are higher risk than a manufacturer with a longer track record; (3) and sometimes customers cancel purchase orders. While those are definitely inherent challenges, there’s some room here for non-traditional lenders to step-up and create a program with lender protections in place to address the need without businesses having to resort to a high interest merchant cash advance kind of program.

CHALLENGE: (3) For many Oregon small businesses, it’s hard to know what types of capital are available and how to best access them. This in fact was one of the take-aways from the 2014 Oregon Capital Scan. I imagine that when small business owners apply for traditional capital and get denied, they may not know what else to do and then become part of that group of frustrated entrepreneurs that say “there’s no access to capital in today’s economy”.

OPPORTUNITY: (3) Sometimes it is the case that a company just can’t get funded while the business works to clean up its balance sheet or improve their personal credit situation. However, from what we’ve seen, the problem is oftentimes a combination of the business not being ready to make a capital request and also not knowing the best sources of capital to pursue for their project – so they go a traditional route and sometimes get denied. In other words, by being ready for seeking funding and having a solid business plan and projections with cashflow and then working with an expert on crafting a finance strategy that fits their project and their situation, the results can be much more positive. As I mentioned earlier, those clients that complete the readiness process we take them through have a much greater chance of eventually getting funded. Oregon has lots of business technical service providers across the state that receive funding to help “grow our own” local economy. I’d say the real opportunities lie with those entrepreneurs savvy enough to seek out assistance on the aspects of business management where they have gaps.

What are some of the biggest gaps you see in capital these days – whether it’s around debt for consumer companies or in say rural areas in Oregon?

While I don’t claim to be an expert on the needs of rural Oregon, I understand from colleagues who spend a great deal of time learning the needs of entrepreneurs in rural Oregon, that gaining access to the same talent and resources we have in the metro areas is something that folks talk about not being equal. I also understand that folks are looking at ways to create more access to metro area talent and resources through the use of technology – I hope it works out. I can also imagine that in rural areas there truly are less local sources of capital, and if a local request for capital is denied, that entrepreneur really needs to be resourceful enough to look outside the pond at other options or know where to get assistance.

Discuss how you help clients make the tough decisions around their business and financing, providing advice that may sometimes not be what they want to hear but with your support, is the right advice to give.

It’s always interesting to work with folks on their finance strategy, since the results are not always what we expect up front and tend to evolve as we take them through the process. For instance, a company may be able to whittle down a bank loan request by asking their existing vendors to partner with them and extend vendor terms for an initial inventory fill for a new store opening. While this may not often be considered as a traditional capital source like a bank loan or angel money, vendor terms can be a huge help to get an expansion off the ground when a business has already proven itself to its vendors, and they are willing to do it.

It seems like capital is about outreach to these entrepreneurs, gaining awareness/insights into the companies, and having relationships with funding sources – can you chat a bit about how the CAT builds the relationships at each of those steps since we know how important those relationships are from a support/mentor standpoint.

CAT clients find us many different ways. Some find us on their own or meet us at an event, however the majority are referred to us by word of mouth, both “internally” from within the Oregon SBDC Network, or “externally” from an economic development partner, past clients, or directly from lenders or investor groups – all folks we nurture relationships with.

But no matter how they end up contacting the CAT, the engagement process is the same. Starting with our initial new client call, we ask a ton of questions to gather info about the client and their project to assess if we can assist them and determine any next steps if they decide to move forward with us. As we go deeper in the work together, we narrow down the finance strategy for the project. This narrowing down on the strategy many times allows us to unearth potential ways our network can help, which was evident during a recent client meeting. After learning that the client intended to export and do business in Canada, we were able to suggest they consider leveraging the SBA International Trade finance programs for working capital to support inventory purchases, which lowered the overall amount of equity they were considering raising – helping them keep more ownership in the company.

Working on access to capital requires maintaining awareness about what types of capital are out there, matching sources with uses, knowing when to use special programs earmarked for certain types of projects as appropriate, and nurturing relationships with lenders and investors. To maintain awareness of what’s changing in the landscape, for years we have hosted monthly professional development calls for our SBDC colleagues across the state, featuring guest presenters with updates on new and existing programs from different facets of Oregon’s capital landscape. These calls are a great opportunity to connect with those program leads as well as give us insights on the types of projects they can fund. In addition to the calls, we host networking events regionally to get to know local funders and we often co-host educational workshops around the state for clients, often combined with lender round table discussions hosted by SBA.

What do you enjoy most about your position on the CAT?

It’s a blast working with some of Oregon’s most innovative and talented entrepreneurs.  The best part is watching client projects get funded and knowing that our work is helping Oregon grow a sustainable local economy.

On a daily basis, it’s a combination of working in the office, meeting onsite with clients, representing the Oregon SBDC Network at events, participating on panel discussions, meeting with community partners, and facilitating aspects of this SBDC program like professional development, event planning, marketing, communications and strategic planning.

I’m really fortunate to work with great people across the state including our clients, SBDC colleagues, EcDev partners, lenders, investors, groups, etc.

For more information on the SBDC Capital Access Team, please visit http://www.bizcenter.org/services/capital-access-team/capital-access-team