Commercial bank loans, at today's favorable interest rates, are a popular choice for companies on the Hispanic Business 500 seeking to expand, according to a survey of entrepreneurs on the exclusive directory.
Data from the Hispanic Business 500 indicate the two types of finance used most often by large Hispanic-owned firms are commercial bank loans and personal savings, with 63.8 percent of companies saying they utilized these financing tools. Among companies in the $5 million to $20 million revenue range, 61.7 percent use commercial loans, with that percentage increasing steadily with the companies' size: 71.9 percent of companies with annual revenues of $100 million to $300 million employ commercial loans.
Once companies cross the $300 million revenue threshold, their likelihood of using alternate forms of finance jumps dramatically. The percentage of companies in this revenue range that are accessing commercial bank loans drops nearly 20 points to 53.3 percent. And while, overall, only 3.0 percent of companies on the Hispanic Business 500 have used venture capital and only 2.6 percent have tried private equity, among these large companies 13.3 percent have used venture capital and private placement.
"Accessing capital is obviously easier when you are successful with a proven track record," says Jorge Perez, CEO of The Related Group of Florida, a company that has accessed venture capital. "We have numerous groups who have, or would, provide us with capital needed for any given transaction."
Mr. Perez estimates that last year, his company – a real estate developer that ranks No. 3 on the Hispanic Business 500 with revenues of $1.08 billion – accessed more than $1 billion in debt and equity for real estate projects. Twenty-year relationships with Lehman Bros., Prudential, and City National Bank facilitate the process.
A closer look at Hispanic Business 500 companies using equity investments reveals many are auto dealers. Lou Sobh, CEO of Lou Sobh Automotive, No. 10 on the list with revenues of $497 million, says that programs offered by General Motors and Ford help minority entrepreneurs buy dealerships. Typically, auto manufacturers will loan 85 percent to 90 percent of a dealership's purchase price to an entrepreneur. But that still means the entrepreneur must provide 10 percent to 15 percent of the price, which runs into the millions of dollars. "There might be venture capital because of the need for an equity portion of the deal," says John Thomas, an analyst at the National Association of Auto Dealers.
After the purchase, many auto franchise agreements limit the role of equity in financing. "I could not sell stock in my corporation without approval of the manufacturers – that's part of the franchise agreement," says Mr. Sobh, who has not used venture capital. "But the agreement doesn't restrict where you get your money from."
The car industry runs on debt provided by either banks or the finance arms of the manufacturers. Mr. Thomas explains that dealers use loans to buy their inventory – the cars on the lot, often called the dealer's "floor plan" – from car manufacturers. Also, most customers who buy cars require loans. And if the dealer wants to expand facilities, develop nearby land, or buy a new dealership, banks provide the money. "Banks are involved in every angle of the business," says Mr. Thomas. "The banks all want your business," Mr. Sobh confirms. "Everyone wants your floor plan – that's pretty much a gravy business."
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