West Omaha cupcake shop clears crucial loan hurdle

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Posted: Tuesday, March 26, 2013 12:00 am

She was too scared to call, so Sarah Alsup enlisted her 12-year-old son to phone a would-be competitor and ask: How many cupcakes do you sell a day?

Sisters Alsup and Rachael Henderson were in the early stages of figuring out the details of their business plan for their planned bakery, Mockingbird Cupcakes. They knew how many cupcakes they would need to sell to make a profit — at least 300 per day on average.

They didn't know if that was realistic. Calls to two other shops found one sold 250 to 300 a day, and the other, 100 to 300. That wouldn't be enough.

So they wanted to call what they thought would be the biggest volume cupcake shop in town, Jones Bros. at Aksarben Village. Sarah had her son call and pretend he needed to know for a school project. An employee told him the shop bakes about 800 cupcakes a day.

A Business from Scratch

Sunday: The dream

Monday: The message

Today: The loan

Wednesday: The shop

Thursday: The staff

Friday: The family

The sisters laugh when they think about it now, knowing it wasn't exactly the best way to conduct market research. But at the time, it was what they needed to hear to move forward with their plans. Most of their business planning since has taken a more traditional path with help from the Nebraska Business Development Center at the University of Nebraska at Omaha.

Mockingbird is “one of our success stories” because it secured a commercial loan and has opened, said Aretha Prodjinotho, director of the center.

The center, funded by UNO and the federal Small Business Administration, helps potential business owners develop a business plan, define their target market and business goals, compare their projections to industry standards, conduct a cash-flow analysis, structure their company operations and prepare to request a loan.

Its free services are available for startup businesses like Mockingbird and for established businesses looking to expand or evaluate where they could improve.

“A lot of people have a skill that they're good at that they want to build their business around, but they don't understand the business part of it,” Prodjinotho said. “They are probably really good at baking — that's their niche — but do they understand how to estimate the cost of good sold?”

Preparing to ask a bank for a loan is one of the biggest things business owners need help with. A business plan is a necessity, and “it has to be done in a certain format,” Prodjinotho said.

Some entrepreneurs meet with a counselor only to realize they're not ready. “We give them an eye-opener.”

Many businesses the center has worked with lately are what Prodjinotho calls “lifestyle businesses,” like coffee shops, boutiques and bakeries.

But people shouldn't assume that means Mockingbird is a novelty business for two former stay-at-home mothers, Alsup and Henderson said. They are in it to make money, or it wouldn't be worthwhile to leave home in the dark to be at work baking by 4 a.m.

For them, the goal is to each eventually take home $50,000 annually, and to get there they determined they would need to sell 500 cupcakes a day on weekdays and 800 a day on weekends, including large orders for special events. Each $3 cupcake costs about 80 cents to make and, after paying for rent, utilities and staff wages, less than 50 cents is left.

Working with their contractor, the sisters figured out their costs to build out a retail shop equipped with an industrial kitchen and the necessary fixtures to meet city requirements. They factored in equipment, supplies and start-up capital to operate the business while sales grow.

Finally they came up with a loan amount of $126,000, with each sister contributing an additional $10,000.

It took applications at four banks to get the money.

With the first, they went down a long path of paperwork before being denied the loan. The second said, “I'm sorry, I just can't take the risk.”

The third banker seemed critical of their decision to start a business, asking who would take care of their children. “They're going to want to know where their mother is,” he told them.

Mark Olson

Finally, they went to business banking officer Mark Olson at Security National Bank. Olson said he looks at the “five C's” when evaluating a loan request. Character refers to the applicants' personal finance history including credit score. Capacity is the projected cash flow and the business' ability to repay the loan. Conditions are the macroeconomic forces at work in the market the business will operate in. Capital is the money the borrowers can put up. And collateral is the assets used to secure the loan.

“They hit a lot of the boxes we look for,” Olson said.

He said the women's family support system, several months of running the business from their home and willingness to apply for SBA loan backing all worked in their favor. The SBA provides a guarantee and, if a business fails, helps with collection of the funds.

In the first quarter of fiscal 2013, the SBA approved 100 loans worth a total of $32.2 million in Nebraska, a rate the agency said closely matches the pre-recession rate. Forty percent of those loans were for new businesses. Nationwide, SBA lending in 2013 is ahead of the pace of 2012.

Access to capital is still a problem for women as demonstrated by results from several surveys, according to the National Association of Women Business Owners, which says SBA loans like the one the sisters took out are one of the primary sources of capital for women entrepreneurs.

Find the latest in local business and development, from who's saying
what to what's going in at that corner,
in the Money Talks blog.

One challenge is an SBA requirement in some circumstances for the borrower to have a life insurance policy as collateral. Neither of the women had a life insurance policy, and Henderson's proved more difficult and expensive to obtain given her health history as a breast cancer survivor.

Another obstacle was the need for a second loan when the sisters made changes to their original construction plans, including adding a glass vestibule designed to keep the wind out. A small personal loan using a family vehicle as collateral took care of that.

After working with them for weeks to put together the loan package and seeing all the effort and thought the sisters put in, Olson attended Mockingbird's grand opening event with his family, buying a dozen mini cupcakes to support his clients.

“I was very happy to see the turnout they had.”

Contact the writer: 402-444-1336, barbara.soderlin@owh.com

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