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Background and History
In 2007, 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 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 2010, 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. 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,
and they 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. 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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