Reference no: EM132264955

Moonworks Partners with Bank Rhode Island to Finance Growth

If Jim Moon’s father hadn’t installed gutter guards to keep out leaves and avoid clogs, Moonworks might not have become a reality. Jim Moon originally opened a kitchen remodeling business after he graduated from the University of Rhode Island in 1983. Ten years later, his life took a different turn when he returned home to visit his parents and listened to his father praise the new gutter guards he recently installed. Moon watched the company’s informational video and was so impressed that he decided to sell his kitchen remodeling business and start a new company, Gutter Helmet of New England.

The company, based in Woonsocket, Rhode Island, was initially a one-man operation financed by money from family and friends. The business continued to expand at a fast pace during the home-improvement boom of the 1990s and into the early 2000s, as Moon hired salespeople and installers, rented space to store equipment, and bought trucks. Preparing for future growth, Moon wanted to purchase his own building—with plenty of room for expansion—and stop paying rent. But when he approached his bank, he learned that it didn’t handle business loans smaller than $250,000. Moon immediately closed his checking account and withdrew the $40,000 he had deposited, determined to find a bank that was interested in financing his entrepreneurial activities.

He approached Bank Rhode Island, a community bank that served both consumers and businesses. Bank officials took the time to get to know Moon and his company, and dig into the financial details of his business plan. Satisfied that the company would be able to repay the debt, they approved the firm’s application for a mortgage on a commercial building Moon was ready to buy.

Every quarter, Moon and his managers would update the bank about how business was going and discuss any new plans in the works. Every year, he made sure the bank received a copy of the company’s annual financial statements. Even when the home-improvement market began to change and sales of gutter guards slowed, Moon stayed in touch with his bank to let them know what he was doing. During the economic downturn that hurt many businesses, Moon identified an opportunity to diversify beyond gutter guards and began installing replacement windows.

By the time Moon sat down to talk about borrowing money for expanding into new products and, later, new territories, the bank was very familiar with the company, its management, its repayment record, and its ability to repay new loans. Because of the working relationship between Moonworks and Bank Rhode Island, Moon’s business was able to obtain a working capital line of credit to cover current expenses, a term loan to provide initial working capital for expansion, and a new line of credit for entering another territory. Moon also agreed to personally guarantee a company loan, demonstrating his faith in the future strength of his business.

Thanks to careful financial management during both good and bad economic times, Moon’s company—renamed Moonworks in 2009—has successfully diversified into other home-improvement products and services. With annual sales topping $10 million and a workforce of nearly 100 people, plus the knowledgeable support of its banking professionals, Moonworks is poised to continue its record of sales and success in the future.footstar.png

Questions

What steps did Jim Moon take to build a relationship between his business and Bank Rhode Island?

What collateral, if any, do you think Moonworks can use as security for a future loan? Explain your answer.

Put yourself into the shoes of the banker handling the Moonworks’ account. What questions would you ask if the company asks for additional debt financing?