AllBusiness:
When graphic artist Arnaldo Lopez, 42, launched ArtAndDesigners.com to help link artists with prospective clients, he thought he was cashing in on the Internet boom. He had already blown his big chance to get into cable television on the ground floor, and he wasn’t going to make the same mistake twice.
‘When cable TV 1st came out, I was offered a channel with my only obligation to provide programming 24 hours a day,’ he says. ‘I told the guy he was nuts. Who would pay for TV when you could watch it for free? And the rest is history.’
Anxious to become part of the dot-com world, Lopez ‘jumped into the business with both feet,’ assuming financing from the Small Business Administration (SBA) would follow.
Then came the shocker: To qualify for a $250,000 SBA loan, he had to come up with $25,000 of his own money. Lopez decided to charge $8,500 in initial expenses on his personal credit cards rather than wait until he’d saved the 10% needed to secure the SBA loan.
‘I expected to attract enough paying members to float the site while I pursued other funding,’ he says. ‘But that didn’t happen. Expenses began mounting. I owed money to the Web host, more money for the online merchant accounts, plus the Web designer.’
Lopez later approached the SBA again, hoping to persuade the agency to consider the $8,500 enough of a stake to qualify for financing. They told him that not only was there no wiggle room, but that they also frowned on funding a business with personal credit.
The future looked bleak. If Lopez abandoned the site, he’d sacrifice his entire investment. Hoping to secure financing from a different lender down the road, he charged ahead and maxed out his credit to bankroll expenses.
But as dot-coms started going belly up by the bushel, commercial lenders were unanimously disinterested.
With his debt ballooning to $20,000 and no bailout in sight, Lopez found himself in a catch-22. He couldn’t pay down his debt fast enough, and mixing personal and business funds had made him a credit untouchable. ‘I was constantly borrowing from Peter to pay Paul,’ he explains. ‘Maybe the water bill could wait while I paid the Web designer.’
It’s been a struggle, but Lopez is finally getting his debt under control. And he’s still determined to make ArtAndDesigners.com a financial success. ‘I know it’s worth it, even if I come out with a few black eyes,’ he says. ‘If you look at artists throughout history, all of them loved a challenge. I’m no different. Eventually it will be very satisfying when I can sit back and watch the business work on its own.’
Asked what advice he’d give would-be entrepreneurs to help them avoid a credit crunch, Lopez had this to offer:
* Do your research and be sure you clearly understand what it takes to get a loan;
* Wait until you have the necessary capital to launch your business. Don’t finance it entirely with high-interest credit cards;
* Keep business expenses separate from household expenses;
* Keep your credit record in good standing.
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