How do you fund a fiber mill?

Someone sent a good question to Craig's email about how we managed to afford putting up the mill.  I covered some of this briefly at the beginning of the blog but it is a good question and worth going over (yup, I am an ex-teacher!).

Just some reminder:  Craig and I are business partners.  Not life partners.  Not spouses (to each other).  Not relatives.  Just friends.  With common interests.  With common goals.

I left my last real job 2.5 years ago.  I needed a break, went back to school for a while and was heading towards owning my own business.  I love working with fiber but it was not something I felt was a viable profession for me

Craig left the health care field 4-5 years ago and has been focusing on managing the alpaca farm and shop that he and Bill own. 

Through a weird twist of fate, a mill we used unfortunately closed.  Initially, I was looking at investing in it but it was not a good fit (too far away to be really involved and they were not looking for real involvement!).  Craig and I decided that starting a new mill at 84 Alpacas was a good fit.  So we started researching equipment and buildings.  There was not a good building available on the farm with the space needed. 

We decided to purchase equipment from Stonehedge Fiber Milling Equipment in Michigan.  We took a trip up there (very northern lower penninsula), working in the mill for a few days, and decided we like their equipment.  We had seen other equipment but this was our choice.   If you really want to know the number, for set of equipment, sans washing system (which we are doing ourselves), it is about $130,000.  This includes a tumbler, picker, carder, pin drafter (refurbished), spinner/plyer, needle felter, coner, skeiner, splicer, and rug yarn maker.  They are not all from one place. 

There is a 3-4 month lead time on getting ordered equipment, so we ordered around the end of July / beginning of August.  Keep in mind we had to put 1/2 down and we did not have a loan or anything.  My big part was finances.  I knew it was very possible the entire project would be funded by me as opposed to loans.  So putting down the deposit really locked me in one way or another!

Ok.  Not the normal way to do business!  And based on the advice from the lawyers, we are actually two (well, three) separate companies:  1)  Barb Kearns-Jones Fiber Equipment, 2) 84 Alpacas Fiber Mill, LLC (the actual operating mill) and 3) 84 Alpacas at Linwood Farms, LLC.  Company 1 owns the equipment and the building, company 2 lease the equipment and the building from company 1 and company 3 owns the property and leases land to company 2.  Confused?  You are not alone! 

I wrote two business plans (for companies 1 and 2) and started loan shopping.  The real loan was for company 1, the leasing company.  There was no chance anyone was going to give me a loan, even with almost no debt, a credit score of 820 and a fairly healthy Schwab account.  We heard a lot of reasons for no - SBA will not give loans to leasing companies (which I have since heard is not true exactly); I was paying for a building that was not on my land; come back when you are successful and then we can talk (oh, really??). 

The only way we could get a loan was a secured loan (1 for 1 value collateral).  Schwab will let you use some stock and mutual fund accounts as secured collateral but only if you have a balance of $1 million plus.  I was a little shy.  Then we went the route of a single premium whole life insurance policy but it was a rushed effort and it fell through.

So this is being completely funded the way most small businesses are (and as many of you know):  through personal financing.  Luckily, it did not require putting my house or Craig and Bill's farm up as collateral.  Everyone will still eat, go to college (which my girls are pleased about!!) and live the lifestyles they are accustomed to.  We are lucky.  It also means that we are not locked into loan payments, which is very good for a start up.  It means the mill will be paying lease payments to BKJ Fiber Equipment and 84 Alpacas but they are understanding folks and if the first payment or two are late, well no hard feelings and no interest or late fees. 

For those of you thinking starting a mill of  your own is a good idea, it is.  There is business a plenty out there.  The funding is a different issue though.  If you own your property and are not too maxed out, you may be able to get a loan, maybe even from SBA (my personal opinion, which does not necessarily reflect the opinions of any of the three companies listed above,  is they talk alot about helping small businesses but do next to nothing for really and truly small business). 

The other option is to get someone you know who is interested in owning a leasing company to purchase the equipment and lease it to you.  This puts your expenses at about $1000 - 1400 a month depending on the interest rate over a 10 year period as opposed to $130,000 up front.

Chuck and Deb McDermott at Stonehedge Fiber Mill and Stonehedge Fiber Milling Equipment have been an invaluable resource for us.  Their website http://www.fibermillingequipment.com/ goes into fairly detailed start up and operating costs based on their experience (go to Business Planning and then Monthly Expenses).  We will be providing similar  information on our site once we have a better idea of what it really costs to get up and running (I wonder what that first electric bill will look like...) 

The new building, well, we are not done adding up the costs.  Let's just estimate and say another $90,000 or so for the building and utilities.  I can detail that more later.  If you own a farm and a pre-existing space (we were told a minimum 1000 square feet to start a mill) you may need to update your electric (we have three 220 machines and the rest are 110) and deal with water issues (we are not able to tap into city sewer so holding tanks it is), so costs would possibly be less. 

And that is probably more than you wanted or needed to know!