Struggle

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STRUGGLE/20 inches/1stjc/mark2nd

By TOM GRAY

Contributing Reporter

Menswear designer Warren Rice Jr. knows all about the frustration of a start-up business dealing with conventional lenders.

He looks to the future and sees great potential.

Banks look to the past and see no track record.

The 39-year-old Compton resident, who is trying to raise the profile of his clothing line, once got an offer from a bank for a line of credit. But the lender ended up turning him down.

“They said, ‘Well, no you haven’t been in business long enough; you don’t have a sufficient credit history,'” he recalled. It didn’t seem to matter that the bank had approached him, not the other way around.

He also has been turned down in his bid for a $1.1 million line of credit from the Los Angeles Community Development Bank, a federally financed program set up to fund inner-city businesses that have trouble getting conventional loans.

To Rice, it was much the same story.

“They’re in business only because folks like myself haven’t been funded,” he said, “and they’re giving folks like us the same criteria as the banks are.”

Citing confidentiality law, Community Development Bank Chairman Robert Kemp would not comment on Rice’s loan application or on the reasons for turning it down, other than to say “it did not meet the credit policy we operate under.”

Rice has been aided in his loan quest from the USC Business Expansion Network, a federally-funded project that helps people trying to start and grow businesses in minority communities.

Nitin Bhatt, the network’s associate director, would not talk specifically about Rice’s case, but he pointed out that the clothing business is a tough sell for most lenders.

Even established firms can get wiped out with one bad year, he said. And lending to designers to help them meet a purchase order run can be a real high-wire act. If the order is just one day late, Bhatt said, the deal is off or, if the buyer is still interested, the designer may be forced to knock 40 percent off the price.

Bhatt says his group tries to work out loan arrangements that cut lenders’ risks.

“We structure deals so that bankers might feel comfortable,” he said.

But he also says there’s life after a loan rejection, and that many of today’s great corporations were started on self-financed shoestring.

“When the constraints are there, that’s when an entrepreneur’s creativity really blossoms,” Bhatt said.

Rice has spent several years now trying for his big breakthrough.

A native of Alabama who was raised in Southern California, he said he worked 7 & #733; years in sales at Nordstrom Inc. and a year at Ralph Lauren. He went into business on his own in 1994 designing what he describes as “moderately high-end” men’s suits in the $495-to-$795 range.

It wasn’t a smooth start.

“I came to find out that the manufacturer who was supposedly backing me was in financial difficulties,” he said. The week before Rice’s first collection was to go out, the manufacturer folded.

Forced to start over, Rice says he brought out samples and got some favorable mention in the men’s fashion press as a “designer to watch.” He said he sold some clothing to Nordstrom stores and continues to sell through a store in Leimert Park.

But it takes money to put the Warren Rice label on the map, and that’s been tough to come by. Designers like him get no up-front payment on purchase orders, he said. They have to pay for the order out of their own pockets and hope that the buyer pays them on time and doesn’t cancel the order.

Rice says he has had to rely on his own resources, such as the profit-sharing plan from his Nordstrom days and income from custom tailoring work.

He looks for investor “angels,” “but that’s very difficult,” he said. “I had one person who wanted to back the business,” he said. “Then we got a huge order and he got afraid, so he backed out.”

As for lending, Rice can borrow against receivables to pay his contractors and suppliers a practice known as factoring but that option isn’t cheap.

Rice said he wanted to use about half the $1.1 million he is seeking to build a showroom in South Central Los Angeles and the other half for working capital.

That should count for something, he says, with lenders who say they want to help the inner city. He says he has pending purchase orders that could possibly bring in up to $1.5 million over the next year.

“Here I am,” he said, “a person who’s trying to establish a business here within the empowerment zone and is trying to create jobs.”

But he’s also in a high-risk business. Rice also admits to a less-than-perfect credit record but, without going into specifics, says that is largely because of misinformation he is seeking to correct.

Rice’s business still seems to be in the shoestring phase. He says it brings in about $50,000 a year, and he works mainly out of a home office.

But he doesn’t sound like a man ready to give up.

“If you’re persistent, things will fall your way,” he said. “When I think about quitting, I think about Thomas Edison. He tried about 10,000 times to invent the light bulb. Most people would stop at three.”

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