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As a founder, president, and owner of an EMS company for over 20 years, there is one thing that holds true—you need money to make money, especially in the EMS world. Because we EMS companies act as the bank for their customers—meaning that we generally have to purchase, and pay for, materials before the customer pays us—supports the need to have a progressive bank on our side. I purposely use the word “progressive” because a bank can help you through the different stages of growth; they can be supportive financially as you grow your business and stick by you through the ups and downs; or, they can become your boss when you find out in the end you are actually working for them. These two different scenarios are generally dependent upon the bank’s attitude about risk and how they view risk in the EMS industry. In fact, they can view it as minimal risk one year and high risk another year. Convincing the bank that you are low risk really depends on you and how well you tell your story.
The EMS market is estimated at $500 billion, with EMS and ODMs accounting for 43% of the worldwide production. That’s a lot of opportunity and a lot of EMS companies must agree, as there are roughly 4,000 EMS companies worldwide. With this, you would think everyone was going gangbusters, making money hand-over-fist. That might be true in a good year—or even a few good years—but like everything in life, what goes up can come down. Markets can dry up, global footprints can contract, your customer base may dwindle, leaving you with a low year or two. It’s times like these when a progressive bank can help get you through the cash crunch, the restructure, or that pivot you believe is needed for your company to survive.
As with most anything, you need money to grow. You need money to get a loan. Literally, that concept is an oxymoron, but it’s true; if you don’t have the assets to pledge, or the down payment, you won’t get a loan. Starting a business is no different. I found that I needed additional backing to get bank financing. I needed someone to cosign, back a line of credit for me. Another option was to pledge my house or my business, which I would not do. This is another one of my lessons learned: always, always protect your family jewels. In my case, my home and my business were my jewels. I managed to go through 20 years of running CAMtek and never once did I pledge these two assets. This is such an important lesson; I truly hope you take note. Once you pledge either of these, you start to lose leverage with your bank. This is how you can end up working for the bank.
I always kept my home mortgage at a different bank than the one I used for business so that my business banker could not easily access my personal assets. I purposely used a different bank for all my personal needs, including personal bank accounts, CDs, money markets, and home mortgages, etc. I did, however, personally guarantee the business debts. You may ask, what’s the difference? A home is one asset that a bank can’t touch without a specific written document that clearly lists out your home as being pledged. For me, the difference matters. I didn’t know this at the time, but I found it out later during one of my down years when the bank tried to get me to pledge my house and I wouldn’t.
This same concept holds true for your company stock. In my case, I was certified as a Woman Business Enterprise which meant that I had to maintain 51% ownership and “control” of my company to keep my certification. Many of my customers were doing business with me, initially because the WBE status opened the door, but then my performance kept them loyal. Since I was listed as a WBE-certified vendor, I utilized this a few choice times with my bank, stating that if I pledge my company, then my WBE will become invalid. Now, I do believe there is some truth to this, but like I said earlier, it’s how you tell your story to the bank and it’s how they will ultimately view you as risk. In my case, it was riskier for them to strong arm me and potentially make me lose my certification, which would ultimately result in lost customers and lost revenue. This was too risky for them, so they backed down.
My Russian piano teacher, a U.S. citizen of 30+ years, once told me, “You need to always, always protect your family jewels. America is such a great country. People in America need to protect their freedoms and their land like they were jewels. If they viewed them as jewels, they would never put them at risk.”
I would think of him every time I renewed the company loans at the bank. When I signed those documents, I smiled because I did not pledge my home or my business; I protected my family jewels.
“Either write the book or sell the jewels. And I’m kinda sentimental about the jewels.” – Ava Gardner
Christine Davis is a woman leader in today's electronics industry. She founded and successfully ran an EMS company, CAMtek, for 20 years before selling to Zentech Bloomington.