By Diane Mastrull
The Philadelphia Inquirer
WWR Article Summary (tl;dr) The assistance agency for high-potential minority entrepreneurs has made its first equity investment since its founding by the Wharton Small Business Development Center in 1989.The approved recipient of that $211,000 infusion is Pat Claybrook, 54, of Medford, who started Jidan Cleaning L.L.C. in 2010 — and has been cleaning up ever since, both literally and financially.
The Philadelphia Inquirer
Betting on a hard-driving, tough-bargaining mother of two who left the lucrative field of pharmaceutical sales to start a business in the far-less-glamorous wilds of commercial cleaning, Philadelphia’s Enterprise Center has debuted a new funding offering.
The assistance agency for high-potential minority entrepreneurs has made its first equity investment since its founding by the Wharton Small Business Development Center in 1989.
The approved recipient of that $211,000 infusion is Pat Claybrook, 54, of Medford, who started Jidan Cleaning L.L.C. in 2010 — and has been cleaning up ever since, both literally and financially.
Revenues last year were $1.6 million, up from $1 million in 2014 and $635,000 in 2013. Claybrook, president and CEO of Jidan, projects reaching $2 million in sales this year and more than doubling that in 2017.
“We’re so confident in Pat, we didn’t even think twice about it,” Christopher Chaplin, director of the Enterprise Center, said of the decision to make Jidan, with offices in Medford and Philadelphia, its maiden equity investment. The three-year deal is through the Enterprise Center’s community development and capital corporation divisions.
At least two equity investments a year are planned, Chaplin said. Funding for the first two is from a Community Economic Development division grant through the U.S. Department of Health and Human Services. Chaplin hopes to attract private funding sources in the future.
The business designated for the Enterprise Center’s second equity investment, an ice cream company approved for $150,000, has delayed plans to expand to the redevelopment project east of City Hall known as East Market. So the Enterprise Center is looking for another company in need, Chaplin said.
“Part of what’s driving it is the recognition that debt by itself wasn’t necessarily helping companies,” he said of the move into equity investing.
Since its inception, the Enterprise Center has issued 172 loans totaling $4.3 million. Equity investments typically provide larger amounts of capital and flexible repayment terms and, unlike traditional business loans, come with mentoring and other assistance.
The investor also holds an equity stake in the company, the value of which is repaid at the end of the financing term, along with interest. Default on a repayment could lead to loss of the business to the equity investor, but only if its ownership stake is more than 50 percent, Chaplin said.
The equity stake makes qualifying for such an investment less onerous than a traditional loan, he said.
With straight loans, collateral is important (it’s something many small, new companies don’t have much of), as are credit reports, where divorce or a health issue can lower scores, Chaplin said.
“With the equity, we don’t look at that stuff,” he said. “What’s important to us is trust [in the business owner] and growth in revenue.”
With Claybrook, “we had no doubts,” Chaplin said.
For the fiercely independent Claybrook — “I don’t want anyone telling me what I have to do” — relinquishing a 9.5 percent ownership stake in her business was a concept “I had to get used to.” She had not sought any outside funding for the first four years of operation.
What helped was that the Enterprise Center was a familiar entity. Claybrook had been visiting its West Philadelphia offices once a month for business coaching, and because it is a Jidan client. Last year, she learned of its equity-investment plans.
She had her own plans. They included buying Jidan’s first commercial vehicle — her staff of eight full-timers and 52 part-timers get to job sites with their own cars — and hiring a business-development coordinator and a human-resources professional.
So Claybrook applied for funding. What followed included significant back-and-forth between lawyers for Jidan and the Enterprise Center, mostly over Claybrook’s objection to contract clauses that gave the Enterprise Center any control over her business, she said.
Jidan will be regularly providing financial reports to the Enterprise Center, ensuring it has the oversight it needs to monitor its investment.
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Although it is not required, Claybrook also plans to become a paying tenant there.
Under her equity deal, Jidan received $100,000 in March, with the remaining $111,000 to be issued this fall and next. Claybrook wants to buy a second company vehicle and hire someone to market for government contracts.
Repayment is due on Oct. 1, 2018, along with 6 percent interest and 9.5 percent of whatever Jidan’s value is at that time.
“Then I want another one,” she said.
Is Equity Investment a Fit?
Calling it an answer to the need for low-risk financial services in communities that typically lack them — where minorities and low-income earners are prevalent — the Enterprise Center in West Philadelphia is now offering equity investment in small businesses. To determine whether it’s right for you, center officials offered this list of five things to know:
No collateral is required.
Personal credit checks are not necessary.
Equity investment can speed company growth.
Financial and reporting discipline are required.
Potential investors must be carefully evaluated beyond the money they are bringing to the table. Do they have credibility and contacts that will benefit your company, and the ability to mentor?