The Automobile Film Club of America

Ralph Lucci, owner of The Automobile Film Club of America inStapleton, New York, operated a true niche market business. Lucci’sbusiness rented vintage and specialty cars for use in movies andtelevision shows filmed in the New York City area. The AutomobileFilm Club of America had been operating since 1993. Although thebusiness suffered in the aftermath of 9/11, it survived thatsetback, and Lucci was able to rebuild the company as film andtelevision production returned to New York. At its peak, thebusiness grew to 14 full-time employees who helped support the morethan 300 cars the company rented for film and televisionproductions. However, over the next few years the business facedmore challenges. The company lost the lease on the lot it used tostore the cars, and Lucci could not find a lot large enough to keephis entire inventory, forcing him to sell off many of the cars.Revenues declined, and soon the business could support only him andhis wife on the payroll. When hurricane Irene hit in 2011, thecompany took another financial hit due to damage to its propertyand lost business. However, the worst was yet to come. Whenhurricane Sandy hit in October 2012, the storm surge flooded hiscar lot and garage, completely submerging almost all of his cars insalt water. The cars and much of his equipment were a total loss.The building he used for offices and car maintenance also wasseverely damaged by the flooding. He estimated that the total losswas more than $400,000. The only insurance he carried on thebusiness was for liability, so there was no coverage for his lostproperty. Lucci, who is 60 years old, must decide whether he iswilling to use his personal assets, including his home, ascollateral and attempt to secure a business loan to restart hiscompany. Eatwhatever Jacqui Rosshandler, an Australian ex-patworking for an interior design company in New York City, wanted tostart a business and leave her corporate career. She had noticedthat a popular breath-freshening product sold in Australia was notavailable in the United States. The product was a gel cap made frommeat byproducts, but Rosshandler decided to make her product fromorganic peppermint oil and parsley seed oil. Much of the source ofbad breath is in the stomach, not the mouth, so the gel caps werevery effective. However, she knew that American consumers were usedto sucking on breath mints. She decided that she would package thegel cap with a breath mint, so consumers could suck on the mintafter swallowing the gel cap. She would market her product asEatwhatever. Rosshandler outsourced product formulation andproduction to a contract manufacturer. She hired a packagingdesigner to cre- ate a package that displayed the product in aclear and attractive way. Eatwhatever is marketed as “2 Steps toKissable Breath.” Although customers loved her product, she had adifficult time getting contracts with large retailers. She hadsuccess selling online and in specialty shops, but it was notenough to fund the growth of the company. Cash was tight. In fact,cash was so tight that she did not have enough to pay for marketingor for a new production run. Rosshandler met Arthur T. Shorin, anangel investor and former CEO in the candy industry. Shorin likedthe product and offered to invest $250,000, connect Rosshandlerwith people he knew in the industry, and give her a salary on topof the investment in the company. In return, he would take 75percent owner- ship in the business. Rosshandler could earn back 15percent of the company if revenues met certain targets. Althoughher friends urged her not to accept his terms, she was concernedthat her business would not succeed unless it got the cash andconnections Shorin offered her.

Which of the funding sources do you recommend that Ralph Lucciand Jacqui Rosshandler consider for financing their businesses?

Which sources do you recommend they not use? Why?

What can entrepreneurs do to increase the probability thatbankers will approve their loan requests?