Douglas Turner got the ultimate revenge for any entrepreneur turned down for a loan: He paid $200 - at a Federal Deposit Insurance Corp. auction after the bank failed - for the desk of the banker who gave him the thumbs-down.
"I never felt better in my life," said Mr. Turner, president and founder of Cost Management Systems, a profitable northern Virginia company that updates computer systems.
"He sat on the other side of that desk and said that our business was too unstable to borrow money," Mr. Turner said, referring to a lender for the defunct National Bank of Washington. "Look where that bank is now."
Mr. Turner, one of dozens of entrepreneurs here attending a conference on small-business financing sponsored by Inc. magazine, is emblematic of disgruntled businesspeople who say their often rapidly growing, nontraditional businesses don't fit into bankers' definitions of viable enterprises.
Mr. Turner's company now has a $1 million Small Business Administration loan from Patriot National Bank in Reston, Va.
Although many of the business owners at the Inc. conference use bank credit lines or term loans, interviews with those on the verge of major growth spurts revealed that many believe bank financing can't keep up with their needs.
Instead they are turning to venture-capital funds, private investments, working-capital lines from Merrill Lynch, Small Business Administration loans, and finance companies.
A Tempe, Ariz., telemarketing company that solicits donations for nonprofit foundations is a prime example of the shift away from bank financing.
As the business expanded, the owner jumped from bank to bank seeking a higher credit limit. When the bankers were unwilling to approve his requests, he switched to a finance company that lends based on the firm's billings.
The business owner's financing strategy turns the bankers' general view - that small businesses "graduate" to banks - on its head. It also shows that entrepreneurs don't care if financing comes from a bank or a nonbank lender, as long as they get the capital to expand.
Millicorp, a LaGrange, Ga.-based carpet cleaning service that is a division of a much larger textile company, wants to expand by selling franchises. The company comptroller, Buddy Woods, said others at the conference recommended Money Store to finance people who would buy the franchises.
Daniel Maude, president and chief executive officer of Boston-based Beacon Application Services, a computer consulting firm, said frustration with bank consolidation and rigid lending standards led him to use a Merrill Lynch credit line.
"We found them to be much more flexible than the banks," Mr. Maude said. "Especially in Boston, where there are so many new people at the banks with new faces and new ideas about how things should be done."
Dwayne Walker said bankers couldn't understand his business either. He is president and chief executive officer of Seattle-based TechWave, a company founded by several former Microsoft employees to develop software for financial transactions using the Internet.
For the first year, Walker funded 90% of the company's cash needs with his personal savings. Then he then obtained $2 million from a venture- capital fund and a loan from Silicon Valley Bank, which specializes in high-tech companies.
Techwave comptroller Steven McClure described his experience shopping for traditional bank small-business loans. All the lenders asked for personal guarantees.
"You get scared to death," Mr. McClure said. "They say, 'Sign here to risk your house, sign here to risk your car, sign here to risk your kids and then, we will think about lending the money.' "
Mr. Walker said business owners will remember the banks, like Silicon Valley Bank, that work with entrepreneurs in the beginning.
"Unless Silicon Valley Bank does something really wrong, they've got my business for life," he said. "Entrepreneurs are loyal to those who are there early on."
Mr. Walker who said he expects his business to be profitable next year.
Daniel Adams, vice president of Oregon's Northridge Development, fears that he won't be able to develop a strong relationship with a bank lender because banks aren't willing to finance new business ventures.
After 20 years in residential construction, Mr. Adams joined a company that develops warehouse and distribution space for small manufacturing companies in the western states. Mr. Adams is looking for venture-capital financing.
"Our business is a little too nontraditional for the banks to be interested in," he said.