August 7, 2022

You’re the Boss: The Real Reasons a Retailer Can’t Get a Loan

Charles Kuhn thought he would be able to get a $1 million loan for his bicycle shop.Laura Pedrick for The New York TimesCharles Kuhn said he would sell the building that houses his business only as a last resort.
Case Study

Our case study last week examined the efforts of a bicycle shop owner in Princeton, N.J., to secure a loan. Charles Kuhn, who runs Kopp’s Cycle, had sought $1 million to refinance the mortgage on the shop, pay down debt, and obtain working capital. Unfortunately for Mr. Kuhn, the recession has hurt both his business and, apparently, the value of his real estate, undermining its potential as loan collateral.

But the lenders and other advisers we consulted suggested that Mr. Kuhn’s inability to get a loan has more to do with how he has managed his business than the economic climate or the reluctance of bankers to make loans. “The first impression is we are trying to treat the symptom and not the cause,” said Lorraine Allen, regional director of the Small Business Development Center at the College of New Jersey in nearby Ewing. “If the banks tell us we have a problem with cash flow, we have to trace through the lines of operation to see where the challenges are and address them, and not just for the sake of the loan.” You’re The Boss readers agreed.

Some commenters took issue with Mr. Kuhn’s seeming disdain for the S.B.A.’s reporting requirements, while others faulted him for adjusting his salary to control profits. But many more readers had constructive advice for Mr. Kuhn, as did the other experts we consulted.

One commenter, Michael, of Spencer, Iowa, urged Mr. Kuhn not to cut prices on the accessories he sells. “The average consumer looks at the big thing — in this case the bike — and shops that hard,” Michael wrote, recommending that Mr. Kuhn benchmark his bicycle prices against the Web sites his customers are shopping. “Accessories, on the other hand, are where he and most retailers — including me — make more money.”

Barry Sloane, president and chief executive of Newtek Business Services in New York, agreed. “Cutting margin on all the accessories was suicide for the year. Margin pays bills,” he said. “Instead, for anyone coming in his store with a PDA or ad with a lower price he should match the price. You can accommodate break price on a case-by-case basis just for the discriminating price-sensitive shopper without changing your regular prices or margin.”

Michael suggested that Mr. Kuhn emphasize repairs — and that “his service rates should be high margin” — and other readers recommend he specifically target the customers of his online or big-box competitors, where new bikes come unassembled and often without warranties. “He should charge a fee to build a bike somebody buys on line, and offer a service package too,” wrote DD, of Los Angeles. And “if someone comes into the store with a bike that needs servicing that wasn’t bought there, then our guy should fleece the customer.”

Several readers thought that Kopp’s should become more engaged in the local community, sponsoring rides and a racing team, holding workshops and allying with livability organizations and other businesses. Ms. Allen, of the S.B.D.C., echoed this point: community groups “are like small arteries, marketing to their membership instead of in onesies or twosies,” she said. “Maybe they host the weekly ride and partner with a bank or restaurant afterwards to sponsor discounts or water or something for the ride or the experience. The partner or sponsor will also be marketing the program as well as part of their participation in the community.”

All of our outside experts thought the shop’s Web site could be improved. Ms. Allen and Jay Townley, a bicycle store consultant based in Lyndon Station, Wis., both thought the site could use more social media elements, such as videos on bicycle repair and safety. “Social media, like the Web site, can be a pain to keep current,” said Mr. Townley, “but Kopp’s has the advantage of already working with a Web service that can provide content and assistance in integrating social media into the stores Web site and marketing.” According to Mr. Townley, the Kopp’s Web site is supplied by a company that tailors Web services to independent bike stores.

Ms. Allen thought the site needs more “local flavor — pictures of local events featuring bicycles, local bike news, etc. It looks like strictly a sales catalog, but people aren’t buying that way now. They buy value, which equals price plus a sense of belonging and support, which often trumps just price.” But Mr. Sloane felt that even as a sales mechanism, the site falls short. “The pictures of all bikes are small and look the same,” he said. “There are no key words set up for organic search. The site should be arranged with an attractive catalog, call-to-action specials and a shopping cart that stands out and is easy to find.”

In an e-mail message, Mr. Kuhn, who said he was attending to his sick mother, said that he was “overwhelmed” by all of the feedback to his story: “My plan is to take all of the responses to the article and use everything I can.”

Mr. Kuhn did not address comments from some readers that he was not committed to building a business, though he did say he intended to develop a three-year plan, as Mr. Townley and several readers advised. He did, however, take exception to suggestions that he is not committed to cycling. “I have been working very hard for over 35 years full time and to question my love of bikes makes me upset,” he wrote. “My father and I worked side by side from the day I could walk until he died. We traveled to Europe and coached riders together as well as the day to day at the shop.”

As for Mr. Kopp’s immediate financing concern, several readers suggested S.B.A. loans to refinance the present debt. (One suggested breaking the refinancing into several different S.B.A. component loans for the different types of debt.) But the most common suggestion was that Mr. Kuhn simply sell the building and relocate, or lease the space back. If the building is really worth as much as he thinks, they said, he could pay off his debt and plow the rest into his retirement or back into the business — and find a bigger space for less elsewhere.

But Mr. Kuhn said that selling the building would be a last resort. And, in fact, he reported that sales have improved dramatically of late — so much so that refinancing has become less pressing. He said the shop is “increasing turnover and focusing on our most profitable areas and dropping some that are not.” Business, Mr. Kuhn concluded, is “the best in years.”

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