California Apparel News

Chain retailers’ sales have improved over the past few months, but small businesses are still reeling from an ongoing credit crunch that started in 2008, said Ilse Metchek, president of the California Fashion Association, a Los Angeles trade group.

Metchek headed a panel of financial experts during a March 3 seminar called “Financing Fashion for 2010: A Bumpy Ride!” at the recent GlobalTex trade show at the Los Angeles Convention Center.

The panel offered tips on gaining access to funds, attracting investors and buyers, and surviving rough times.

Finance professionals speaking at the event were Philippe Faraut, managing director of Financo Inc.; Gary Fineman, partner at Fineman West & Company LLP; Ron Friedman, shareholder of Stonefield Josephson LLC; and Kevin Sullivan, executive vice president of Wells Fargo Capital Finance.

According to Metchek, credit is so tight that the only companies that seem to qualify for loans are those that don’t need them. They already have good balance sheets.

Faraut said investors and buyers look for many of the same financial vital signs that bankers seek. Before investors commit money to a venture, they want to see if a business is healthy and has potential for growth.

For a business’s financial health, buyers are typically looking for gross margins of 50 percent or higher and earnings before interest, taxes, depreciation and amortization that are greater than 20 percent.

As for growth potential, buyers want to see if businesses can expand in three ways: Can the business open stores for their product? Can the business introduce new products or license new products? And does a company offer potential for developing an international business? “If they have all of these, they are well-positioned for a sale,” Faraut said.

Friedman said the path to success is tougher for many businesses today. To weather the current credit climate, businesses must be better capitalized than before.

He advised businesses to slash their overhead and only manufacture styles that are reliable sellers. However, these manufacturers can’t skimp on product quality. “Those brands who keep on doing what they do well are the ones that will survive,” he said.

Fineman noted that credit is still available for some companies. “It is possible for a company that has been around,” he said. “If a company is profitable and growing, if you put together proper statements with your credit institutions, then there is credit available.”

While the market for many small businesses is rough, Metchek said small, profitable fashion companies often can navigate through tough economic waters better than big companies. “They control their SKUs [styles],” she said, “and they are focused.”

Sullivan advised companies to be mindful of incurring too much debt. “The key is to create enough of a cushion in availability with a lender so that unforeseen events don’t create the need for a company to raise additional equity in a forced environment,” he said.—Andrew Asch