"The banks all want your business. Everyone wants your floor plan – that's pretty much a gravy business," says Lou Sobh, CEO, Lou Sobh Automotive. Even companies that use private-equity financing depend heavily on banks. Mr. Perez says The Related Group usually puts up 15 percent to 20 percent of the money for every construction deal, with lenders putting up the rest. "Our equity is either funded by our own capital, others' capital, or a mezzanine loan," he says. "We are very fortunate to have a number of financial institutions who are behind us to meet our growth needs." The low interest rates of recent years help make a strong case for debt financing. "I have not used any venture capital in my business. I believe there are adequate amounts of capital available through conventional financing, which is more favorable to entrepreneurs," says Mike Shaw, CEO of Colorado-based Mike Shaw Automotive, No. 18 on the Hispanic Business 500 with revenues of $219 million.
Mr. Perez calls debt financing "attractive in today's market." Much of The Related Group's projects are condos in South Florida, and with the market booming, the future value looms large. With loans, "you are not required to give up a percentage of the deal as is required when you access venture capital," Mr. Perez explains.
Still, private equity is more attractive to some CEOs, including John Zamora, who last year went hunting for investors to help grow his company, Graphic Press, which he started in 2000. "We were capital intensive, growing at a fast rate," he recalls. "We needed additional working capital to continue to support the company's rapid growth and improve vendor payments."
Mr. Zamora's search led to Luis Nogales, president of Nogales Investors, a private-equity firm that specializes in the Hispanic middle market. After negotiations, Nogales Investors put money into Graphic Press, "but he didn't take an equity stake," says Mr. Zamora. "On a return-on-investment basis, he made a five-year deal. It just shows there are many ways to structure a deal."
Non-financial factors played a significant role in the final decision. While the money helped pay down expensive debt and stabilize cash flow, most of the heavy financing had occurred three years earlier at start-up. In commercial printing, the presses represent a company's main hard assets, with price tags of between $3 million and $11 million. To fund the start-up, Mr. Zamora and a partner put up the initial working capital and incurred $35 million in debt to purchase equipment.
But the CEO doesn't measure his relationship with Mr. Nogales only in dollars. "His belief in our company goes back into the market," Mr. Zamora says. "He introduced us to a lot of people, so we use his network of relationships with bankers, suppliers, and customers."
Graphic Press had revenues of $51 million last year to rank No. 101 on the Hispanic Business 500. Despite the success, "until [Mr.] Nogales came in, I felt all alone," Mr. Zamora says. "Now I have someone supporting me, other than myself."
In addition to debt and private equity, entrepreneurs have another method to raise money – going public. Currently, eight companies on the Hispanic Business 500 trade on public exchanges. And that number will increase next year: Brightstar Corp., the No. 1 company with revenues of $1.3 billion, has announced plans for an initial public offering.
But for many companies, an IPO presents as many obstacles as rewards. "Yes, we have been approached about going public," admits Mr. Perez at The Related Group. "It is our belief that if we did go public, it would limit our ability to make quick decisions. In order to be successful in our business, you must be able to make quick decisions."
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