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Background and History
In 2000, John and Linda Smith formed The Widget Store ("Widget"), a widget
manufacturing company. The company is a value added manufacturer of widgets and
widget supplies serving approximately 250 customers in the North Texas area. Sales
for the first full year of operations (2001) were $250,000, and the company made a small
profit.
As Widget grew, the company moved out of the Smiths' garage into a small lease
space. Within two (2) years, company sales had grown to $500,000, and the firm
employed 10 people. By 2004, The Widget Store had sales of $1,250,000 and net income
of $34,224. Ownership of the company was as follows:
|
Owner |
Percentage |
| John R. Smith |
50% |
| Linda M. Smith |
50% |
| Total |
100% |
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New Company Facilities
The company had outgrown its current facilities and decided to purchase a piece of land on
which to build a new facility. To locate the land, the Smiths called David Kline
with Kline & Associates, a local commercial real estate
company. David met with the Smiths to review the company's space requirements,
project budget and identify areas where the company desired to relocate. With this
information in hand, Kline & Associates located several tracts of land which met the company's
requirements.
The Widget Store chose a 0.5 acre tract of land in eastern Plano, Texas, which was
convenient to both the company's customers and suppliers. Kline &
Associates negotiated a
contract to purchase the land for a total of $100,000, subject to satisfactory
financing. As a part of the sales price, the seller agreed to carry a second lien
note in the amount of $40,000, which would be subordinated to the SBA loan. The
Smiths would make a 10% down payment based on the total project cost.
The Smiths and their architect completed plans for the new facility in 30 days.
After obtaining several bids from local contractors, a construction budget of $273,000 was
finalized. With the land cost of $100,000, and a 10% construction contingency of
$27,000, the total project cost was estimated at $400,000. Kline
& Associates assisted
the company in obtaining a final plat through the City of Plano.Additional Expansion Needs
As a part of the company's expansion, The Widget Store needed to purchase new equipment to
automate several facets of its production line. This equipment would cost $100,000.
In addition, the company's increased manufacturing capacity would necessitate
increasing raw material inventory by approximately $40,000. The company's existing
equipment would have to be moved to the new facility. The Smiths had obtained a bid
for the move, estimated at $34,000. Lastly, application and closing cost were
estimated at $26,000, producing a total project cost of $600,000.
The SBA Loan
With a total budget of $600,000, Widget needed financing in the amount of approximately
$500,000. Like prudent businesspeople, the Smiths wanted to obtain the best possible
terms with the minimum down payment and time required from the company. The
company's CPA had recently attended a SBA seminar presented by Centinel Financial
Corporation. The Smiths contacted Ed Holmes
with Centinel and the process began.
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