The invitation applies even to bankers, who made the Andrewses feel decidedly unwelcome when the couple sought a loan to start the business, called McGonigel's Mucky Duck. "They are welcome, and I will take their money - but nobody will believe that bankers are my favorite people," said 37-year-old Teresa. The frustration and disappointment the Andrewses felt as they searched for financing is typical of many new businesses. But the Andrewses' story also is one of perseverance, of friends and family members pitching in and of financing a business using - among other things - credit cards. McGonigel's shows the seat-of-the-pants route many fledgling companies face in the absence of bank credit. McGonigel's opened June 1 in the Kirby Drive area. Although the owners had to scale back their original plans, August's sales bettered June's by 50 percent, and the pub already is close to breaking even. The Andrewses hope to double monthly sales by the end of the year. The opening highlighted an effort that began in January 1989, when the Andrewses left their jobs at the Red Lion, another Houston restaurant and pub, after a dozen years. They spent the next six moths forming financial projections, analyzing the competition and gathering other information for a detailed business plan. Back then, the Andrewses had confidence they could get a bank loan. They had extensive experience managing a restaurant, outstanding personal credit and about $30,000 in Individual Retirement Account funds they were willing to cash in if necessary. Surely, even if they couldn't find private investors to chip in, banks would agree to lend them the $70,000 or so they needed to open doors. Wrong. After calling about 40 lenders, Rusty located only three who agreed to meet with him, and they all declined to approve a loan to start the business. "You tell them you want to open a restaurant, and that's the end of it," 40-year-old- Rusty said. "They are just not going to talk to you" Teresa said she at first doubted that Rusty was trying hard enough. They knew that the Small Business Administration will guarantee up to 90 percent of the amount of a small-business bank loan, provided the entrepreneurs contribute about 30 percent of the total amount. She didn't fully realize that despite federal guarantees, banks seldom lend to start-up businesses. And, in the case of restaurants - an industry prone to high failure rates - the chances are virtually nil unless the owners bring armloads of their own money to the table. Most banks said they require 100 percent of the loan amount in collateral in the form of stocks, bonds or cash before they will consider lending to a start-up-, Rusty said. "When you translate that, it is: Put $100,000 in our bank, and we'll loan it back to you." With the prospects of a bank loan fading, family members and friends came through as if Mcgonigel's was more a barn raising than a new business. Teresa's sister, Mary McGonigel, helped compose the business plan. Rusty's mother gave them $10,000 for personal expenses, enabling them to make their house payments and pay private-school tuition for their 13-year-old son through October. A friend at a local savings and loan offered to contact potential investor and lenders. Even a lawyer helped them incorporate at no charge. Nevertheless, the Andrewses were forced to lower their expectations. Originally, they projected a need for $180,000 to purchase and renovate a building inside Loop 610 with about 4,000 square feet. The money also would provide a financial cushion for the first six months of operation. For months, they went "duck hunting" - as their son, Micheal, called it - scouring inner-Loop neighborhoods for just the right location. They finally decided to lease property instead of buying, greatly lowering the amount of money needed. On St. Patrick's Day, they found a 3,000-square-foot building for lease at 2425 Norfolk. Although 25 percent smaller than planned, the location was in an ideal neighborhood to attract McGonigel's target market, the Montrose-area arts crowd and yuppies in their 30's and 40's. The Andrewses needed funds fast if they were to pay rent, a security deposit and other expenses. \ One of their longtime buddies, Rick Ryberg, the owner of a country store in Carlsbad, Calif., earlier had agreed to help out. "We called Rick and we said 'Rick, we found it,' and he said, 'You can count on me for $25,000.' We knew then that with that and our IRAs we could just squeeze by," Teresa said. Ryberg took out a personal loan on which the Andrewses have taken over payments. The Andrews' signed the lease April 1, despite doubts about whether they could fund necessary inprovements with what little money they had. "We became carpenters," Rusty said. Rusty's brother Mahlon, a futon maker in Austin, volunteered his skills, friends helped level walls and painted, and those who couldn't work brought by food and drinks during the six weeks McGonigel's took shape. . In the end, the Andrewses winged it for about $80,000. They jumped at a chance to get a second Discover credit card, and they used those cards to pay everything from bar stools to door locks. The bill came to about $6,500. They used two MasterCards to pay for another $6,500 worth of paint, shelving, carpet tacks, picture frames and countless other supplies from Home Depot. An Optima card paid for $2,000 in office equipment. Teresa's sister offered a $7,500 line of credit that came with an American Express Platinum card. The money went for a walk-in cooler. The Andrewses figure they saved about $4,000 on the installation of a lighting system by buying their own supplies and hiring a moonlighting electrician, who relied on a schematic of the entire electrical system drawn by an engineer friend of the couple. "Everything we did, we did under projections," said Rusty. "The only thing new we bought was the cash register." Carpentry costs, liquor and other municipal licenses and fees were mostly paid for by cashing in nearly $10,000 of IRAs, despite early withdrawal penalties and the objections of their accountant. They received a small financial cushion when a friend and his wife offered $15,000 in lines of credit from two credit cards. "As they need funds and working capital they can just look at us as the banker," said the friend, who asked not to be identified. In July, with the rent and light bills due, the Andrewses were forced to borrow $2,500 of the amount. After McGonigel's opened, one bank finally came through with a loan of $5,000. National Commerce Bank, which handles the account of the Red Lion and is familiar with the Andrewses, agreed to the loan after the Andrewses cashed in $10,000 worth of IRAs deposited in the bank. The bank loan went for a sound system and working capital. But the bank balked at the Andrewses' request for a larger loan. From a management and character standpoint, I don't think you can beat them, but that's not enough," said Richard Dyer, president of National Commerce Bank. While they originally projected hiring 20 workers, the scaled-back McGonigel's has gotten by so far without hiring anyone. Plans for a seven-day workweek and a full lunch and dinner menu were scrapped in favor of six-day service and a limited sandwich menu. The Andrewses' teen-age son serves as food service manager, making sandwiches and happy hour fare in a toaster oven in the unfinished kitchen. "On busy nights, our friends help us out behind the bar. They're making drinks, making sandwiches, going out for ice," Teresa said. "They're wonderful friends, and we couldn't do without them." Even musical performers have gotten into the act. On opening night, folk musicians Shake Russell, Dana Cooper and Jack Saunders donated the $1,900 they earned from cover charges to help the young business. After three months of operations, the Andrewses are finally ready to think about paying themselves salaries in the next month or two, hire a staff and buy a dolly to move cases of beer. They also want to buy a used meat slicer so they can avoid the added expense of having a Randall's supermarket cut sandwich meats. They hope to add an outdoor patio and install kitchen equipment eventually. "We have a lot of wants," Rusty said. Most of them will have to wait. The Andrewses know they are teetering on the edge of being undercapitalized and, without a line of credit from a bank to fall back on, they must manage their finances ever so carefully. Paying off credit card bills with high interest rates is just one of the financial challenges they face. "I never thought it would be easy to get a bank loan, but I did think it would be possible," Teresa said. "If that makes us naïve, that's what we were then." |
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