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Taking Advantage of Expanded Stimulus Packages

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In just 30 days this spring, both GM and Chrysler, two of the oldest and biggest names in American vehicle manufacturing, declared bankruptcy. Both had had significant layoffs before that move, and the credit crisis in the fall of 2008 exposed structural cracks in the industry as a whole. Ford has been closing plants and laying off workers for several years, and according to the Wall Street Journal, U.S. sales of cars overall decreased in May 2009 by nearly 37 percent compared to the same month in 2008.

The drop in sales has meant lost jobs, and rougher times in the areas where those jobs have been lost, namely Detroit. The tough times in automotive have trickled down to collision repair shops, and the city’s Greenfield Collision was hurting. But with some unexpected help from the Small Business Administration brought about by this spring’s economic stimulus efforts, owners Don Lane and Keith Robinson were able to secure their future by purchasing the building they’d leased for their shop for years.

Taking a Beating

Three years ago, times were a great deal better than they are now. Greenfield’s Detroit location was doing about $250,000 a month in business, and its Washington location was doing about $200,000. Today, Washington does between $60,000 and $70,000 less than it used to, and Detroit is off by $100,000. Lane and Robinson had to lay off two body men and one porter at the Detroit location, and although they hadn’t laid anyone off at the Washington location, the cuts weren’t over yet.

Danger = Opportunity

Times weren’t much better for the landlord who leased them the Washington location. The landlord owned about 20 buildings in the area, but some were standing empty because of the depressed economy. (The BLS found that Metropolitan Detroit had an unemployment rate of 13.6 percent in April 2009, compared to 6.9 in April 2008.) He decided to sell the Washington building, and that meant the shop might be out of a home.

“We had wanted to buy the building for 12 years, but hadn’t had the opportunity,” says Lane. “If he hadn’t sold it to us, who knows what would have happened?”

Fortunately, knowing that they wanted to buy, the landlord came to Lane and Robinson first. Their decision to try to buy the building led them smack into something most of us have only heard of in the abstract: the government effort to stimulate the economy.

In January 2009, the legislature passed the American Reinvestment and Recovery Act. The Act was “a bill to create jobs, restore economic growth and strengthen America’s middle class.” Meaning, it was an attempt to stimulate the U.S. economy, which had more or less passed out in the fall of 2008 due to the collapse of the housing market and the credit crunch.

New SBA Rules

One of the provisions of that act was $730 million for the Small Business Administration, a federal government agency established in 1953 to help entrepreneurs start and build small businesses. It does so in many ways, but the way that mattered to Greenfield Collision was its loans.

SBA used the money it got from the Act to temporarily change its rules for loans to small businesses. The SBA doesn’t loan money itself, but guarantees loans made by banks to small businesses, which often helps businesses to borrow more than they would be able to otherwise.

Lane and Robinson didn’t learn about SBA loans at the first bank they went to, because that bank saw them as a bad risk. “Our credit scores were just fine, but they took one look at the industry we were in—automotive—and said, ‘You’re not a good risk,’” Lane says.

But loan officers at the second bank, CF Bancorp, told them that the SBA guaranty criteria had been changed. Before, loans were only guaranteed at 70 percent, but temporarily—until September 10, 2010—the SBA will guarantee up to 90 percent. It is also waiving its fees, which in Lane and Robinson’s case would have been 3 percent of the principal borrowed.

Another change that went into effect in June has to do with emergency loans that SBA makes. These are loans of up to $35,000 that SBA makes directly to businesses (see Money sidebar), and they are interest-free bailouts for businesses that are having a hard time making ends meet.

Ownership Pays Off

For Greenfield, the change in SBA-guaranteed loans meant the difference between being able to buy the Washington building and not.

The two owners borrowed $463,500 from CF Bancorp in Michigan to make the purchase. Under the old rules, they would have had to pay nearly $14,000 in fees in order to borrow that much, and they would have had to guarantee 30 percent of that loan themselves. But under the new rules, they got the full loan with no fees, and they were able to borrow enough to buy the location, which had been leased to them for $5,000 a month.

The first payoff from buying the property was immediate, of course. The shop’s monthly mortgage payment for the Washington location is now just $3,000, which is saving them $24,000 yearly. But that was just the beginning. Their landlord had Lane and Robinson insure the building at a value of $900,000, but since they bought it for $500,000, they’ll be able to bring down their insurance costs significantly.

With their mortgage and insurance savings, Lane and Robinson are able to invest in their business to create efficiencies that will save even more cash down the line. For example, Greenfield has already moved to paperless payroll. The company contracted with Employees Only in Auburn, Mich., to provide a Web site that employees can use to enter and track their own payroll, and now employees get paid by direct deposit once a week rather than by check. “We’re saving a few hundred trees with each cycle, and it’s reduced our payroll costs by 25 percent,” Lane says.

Greenfield is also working with DuPont to change to waterborne paint. Before year’s end, they plan to be all waterborne all the time at both locations, which Lane says will mean cleaner air for the painters and better color matches to OEM refinishes. It also means investing in changing the air flow in the booths, and in stainless steel high-volume low-pressure paint guns and gun washers. That outlay, which will be $2,000 to $3,000 for each paint booth, is more than worth it to the two owners—but they wouldn’t have been able to do it without the savings from buying the building.

In all, the SBA loan has made a huge difference in both the present and the future for Greenfield. “Some day, we hope to open a third location,” Robinson says. “That’s a long-term goal, but when we go for it, we’ll be going back to SBA.”

Getting the Word Out

Lane and Robinson, who have worked over the years to contribute to the success of the collision industry, want to make sure that other shops know that their options are better than usual under the SBA’s current exceptional rules. The co-owners have been in the industry for more than 20 years, and during that time, they’ve been state co-chairs for I-CAR, and directors of the collision division for the Automotive Service Association. “We all do better when the collision industry is stronger,” Lane says.

Lane and Robinson are just as concerned about the economy overall as they are about the industry in particular. “If people see the options that SBA is offering, we’re hoping that they will use them and the economy will improve that way,” Lane says. “I don’t think people even know what’s available to them; we only found out about them because of what our banker told us. We did an SBA loan a long time ago, but we didn’t know that they had changed their criteria until we met with a banker.”

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