ACCG Fosters Firms Via Funding Diversity

If the American dream is a two-car garage and a white picket fence, then one means to that end must surely be to own and operate one’s own business.

That’s what Sam Walls, chief operating officer of the Arkansas Capital Corp. Group, hopes to facilitate every day.

Walls heads up the state’s largest provider of U.S. Small Business Administration loans and a statewide provider of venture capital. He is an outspoken champion of the Arkansas businessperson.

Under his leadership, since 1989, the ACCG has provided $203.9 million in capital to businesses in Arkansas and surrounding states, a dollar figure the group claims inspired another $282.7 million in investments from other sources during the same period.

Of the 377 SBA loans made in fiscal 2003 to Arkansas borrowers, ACCG made 54. They were worth $30.7 million, or about a third of the $90.77 million made in the state that year, more than any other single lender.

Last year, SBA offices in some surrounding states stacked up like this: Mississippi made 523 loans worth about $132 million; Oklahoma made 691 loans worth about $130 million; Louisiana made 475 loans worth about $116 million; Missouri’s combined districts, which includes part of Kansas, made 1,779 loans valued at $300.4 million; and Texas made 5,515 loans worth $1.3 billion.

Not-so New Guy

Of the Arkansas loans, ACCG made $5.64 million in Northwest Arkansas in fiscal 2003, up 184.5 percent from the $1.98 million it made in 2002, ranking it the third largest SBA lender in Northwest Arkansas, according to a recent list compiled by the Northwest Arkansas Business Journal (see chart).

“Not only are we trying to compete with other states but we are — unfortunately in too many categories — trying to catch up,” Walls said. “We’re not going to be able to compete, let alone catch up, if we don’t get in a hurry.”

With that in mind, Walls recognized some of his own character traits in Tim McFarland, and solicited him to join the Fayetteville office of the ACCG.

McFarland has been doing private advisory work from his hometown of Harrison. He’s become known around the state for his work as the chairman for the Arkansas Venture Forum and Accelerate Arkansas — two private-sector, volunteer organizations whose aim it is to move Arkansas toward knowledge-based, high-wage jobs. He assisted ACCG directly and indirectly through Accelerate and the Forum, but nothing was formal until July.

McFarland doesn’t have a title with the nonprofit, but said he is “here to market and help facilitate all of the companies of Arkansas Capital.” He joined Jack Otten, vice president of ACCG and lending officer of the Fayetteville office.

The two plan to relocate the office across the street from its current spot in the University of Arkansas’ Genesis Technology Incubator into an 800-SF space in the Innovation Center as soon as that building is complete, probably in late September.

McFarland said, as the national economy continues to change, Arkansas will have less opportunity to bring in manufacturers to drive the state’s economy. Instead, his aim is to foster a supportive environment for home-grown entrepreneurs.

McFarland has gained a reputation in the last couple of years as an advocate for Arkansas entrepreneurs. He was a commercial lender with Merchants National Bank in Fort Smith by the age of 26.

“I’ve always liked helping businesses get to the next level,” he said.

McFarland was in banking around Arkansas for a time before landing in Scottsdale, Ariz., as president of the Pinnacle Group, a diversified holding company in that city. He returned to Harrison in 2001 and recently moved to Fayetteville. Walls convinced him to make his work with ACCG more formal, he said.

Many times entrepreneurs have good ideas and are technology-savvy, McFarland said, but might be lacking certain business qualities. He likes to sit and visit with them and help develop solid business strategies.

“I feel for these young guys,” McFarland said. “They’re choking on their toothpaste [in the morning].”

504 Loan Program

From the outside looking in, the Arkansas Capital Corp. Group is a mishmash of interrelated companies that perform similar tasks. But the basic operation of the group is to provide capital through SBA lending and speculative venture capital, investment tax credits to investors and entrepreneurial development through education.

Perhaps one of the most significant and timely products the group points to is the 504 program — long-term fixed rate financing for major fixed assets such as land and buildings, which it offers through its Arkansas Certified Development Corp.

So far this year, ACDC has provided $10.5 million in long-term, fixed rate financing for 22 expansion projects in the state.

Backed by the SBA, ACDC can offer a fixed 10-year rate as low as 6 percent for up to 40 percent of a loan. With the threat of interest rates climbing back from their record lows, Otten and McFarland are eager to get the word out about the 504 program.

Fifty percent of a typical 504 loan is secured by a private-sector lender. A junior lien is held by an SBA certified development company, such as ACDC, of up to 40 percent of the project, leaving 10 percent in equity to be picked up by the business or owner.

Phillip Knight, executive vice president in charge of SBA lending at Arkansas National Bank in Bentonville, said traditional lending requires the business to put down 20 to 25 percent and has a floating rate of 1.5 to 2.5 percent above the prime, which was 4.25 percent as of August 10.

Doug and Beverly Breitling used a 504 loan to purchase Arsenic and Old Lace, a bed and breakfast in Eureka Springs. The semiretired couple lived in Charleston, S.C., and had been actively looking for a B&B.

They tried conventional lending, but banks wanted too much money down, Doug Breitling said. In his instance, where the business is so closely tied to the building in which it operates, a 504 loan made perfect sense.

Breitling declined to say how much he borrowed, but he said the bank portion of his loan is currently at 6.5 percent interest and the SBA portion is fixed for 20 years at 6.25 percent interest.

It’s not a significant savings at the moment, but as rates hike skyward, he said the average rate will help keep his costs in line.

Brett Mills, optometrist and owner of Eyedentity Optical Gallery in Rogers’ Village on the Creeks, used ACDC to borrow money for another reason.

Mills had enough capital to do the build-out of his ultramodern 2,200-SF boutique, but ran short when it came to working capital and inventory of his pricey eyewear.

Conventional bankers looked at his business model and were timid, whereas Otten understood and appreciated the approach, Mills said. It allowed him “to do the exact opposite” of what every other optometrist had ever done.

“We are totally nonpolitical … it’s just about getting results,” Walls said. “We’re businesspeople.”

(Gwen Moritz and Jeffery Wood contributed to this article.)

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