Crain’s Chicago Business – April 14, 2003
By Lisa Bertagnoli
Kareem Muhammad wants to be the next Ralph Lauren. He’d like to expand Illanoyze, his line of moderately priced sportswear, into a collection of evening dresses, perhaps even home fashions. The only drawback? Mr. Muhammad needs about $100,000 before he can even begin to dream that dream. Since launching Illanoyze five years ago, Mr. Muhammad and his six partners have financed the company on their own, each chipping in a set amount each month. They also funnel any profits from sales, which last year amounted to $10,000, back into the business.While the month-to-month financing has worked thus far, it’s not enough to push Illanoyze to the next level. For that, the company will need a bank loan, and Mr. Muhammad says that¹s not something the company will attempt until all the partners have their financial ducks in a row. “Not everyone in the company has A-1 credit,” says Mr. Muhammad, adding that the partners are working to rectify thee situation. When they do, he believes, Illanoyze will apear more credible to bankers. As Mr. Muhammad is learning, banks and other lending institutions set a much higher bar for fashion designers than more traditional business owners. The hurdle is a lack of collateral. “Designers like to pledge clothing as collateral, but it’s not enough to support a loan because the liquidation value is fairly low,” says Joseph Crump, a vice-president in the business banking department at Chicago-based ShoreBank. Meanwhile, minority designers have an even steeper path to financing. Herbert VanStephens, an African-American who has been designing women¹s wear for 26 years under the label Herbert VanStephens Chicago, blames financing woes on the culture of fashion. “In fashion, you¹re a taste purveyor, and America feels, in all honesty, that minorities are not cut out for that,” says the Chicago-based Mr. VanStephens. “It all boils around culture and prestige and high living.” Mr. VanStephens¹ parents funded his business and he¹s been self-financed every since. He¹s now seeking a backer for the $50,000 of $100,000 that, he says, would “wonderfully see me through the next year.” Fashion-industry experts agree that it¹s more difficult for minorities to find financing, but not necessarily for cultural reasons. “I would be a fool if I said it¹s not more difficult for minorities, including women,” says Marsha Brenner, executive director of the Apparel Industry Board Inc, a Chicago trade group for the garment industry. Still, other factors weigh heavily when entrepreneurs with an interest in fashion seek capital. The intangibility of fashion vexes would-be lenders, says F. Leroy Pacheco, president and CEO of Accion Chicago, a Chicago-based microlender that has helped seven designers obtain loans over the past 10 years. In terms of risk, Mr. Pacheco lumps designers into the same category as artists or musicians. “They¹re creative people; that¹s the problem,” Mr. Pacheco says. “They design what they think people will like and hope people will buy it.” In January, the Apparel Board launched a program through which designers can obtain bank loan using purchase orders as collateral. However, the program is not specifically tailored to minorities, Ms. Brenner says. “We never do anything based on ethnicity,” she says. Neither is the program particularly good for nascent designers. Because it uses purchase loans as collateral, designers must have already sold clothing to stores to qualify. When banks and loan programs fail them, minority designers look for alternative ways to fuel their blossoming businesses. Some, like Messrs. Muhammad and VanStephens, are self-financed. Others rely on steady sales to private clients. Still others turn to friends and family. When Tonette Navarro and her partner, Manuela Capiak, graduated from the design program at Columbia College Chicago last June, they begged their relatives not for baubles, but for cash. Ms. Navarro, who is Filipino, used her graduation gifts to buy a sewing machine and a serger, a machine that binds the edge of fabric to prevent ravelling. “I made sure I spent the money on something tangible that would carry me through a few years,” she says. The capital investment also helped Ms. Navarro create a line of clothing she displayed at private shows last year. Ms. Navarro and Ms. Capiak conserve their money by buying their own clothes at thrift shops, eating lots of tofu and otherwise living frugally. Yet all the thriftiness in the world won¹t net them the $600,000 they say is needed to design and market a complete line. That amount will have to come from a bank, a step Ms. Navarro won¹t take for some time. “I’m trying to be smart about my approach,” she says. “I have to have a proven track record, something viable to present and a really good business plan. That’s what I’m working on now.”James de Colón, a Hispanic designer who has beend in business for six years, relies on loyal client base to finance his work. “That’s how I’ve built up my finances,” he says.But earlier this year, Mr. de Colón found another source of financing. R. G. Crew, a Chicago-based company that makes transparent athletic shoes covers, chose Mr. de Colón to design coortdinating rain gear and backpacks.In April, thanks to financing from R. G. Crew, Mr. de Colón opened a boutique, de Colón Designs & Co., in Chicago’s Beverly neighborhood. It cost about $44,000 to open, he says.Now, in addition to selling his own work, Mr. de Colón hopes to help fellow designers, among them Ms. Navarro, by selling their designs on consignment.Mr. Muhammad, whose sportswear is sold in seven Chicago-area boutiques, agrees retail exposure will go far toward persuading a bank to approve a loan for Illanoyze. So will a solid business plan, which he and his partners are in the process of drafting. Still, he expects the financing battle to be tough, though not insurmountable.
“I¹m not sure there¹s ever a situation where minorities have an advantage in this country,” Mr. Muhammad says. “But business people are business people, and if they can see enough green, they¹ll overlook our blackness real quick.”
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