No Dough

Richard and LaJeanne Williams had big dreams for their bakery--until a bank figured their plan was just pie in the sky

A year later, the Williamses were ready to get serious about their planned expansion. They calculated that it would take $200,000 to open a second, larger Scratch Bake location.

But when they went to Bank of America with that projection, the bank hesitated, they say. They were told Scratch Bake wouldn't qualify for that much money through the Small Business Administration's loan guarantee program. Instead, the bank suggested they apply for two smaller loans of $100,000 each.

The Williamses say they were told not to worry. Since they had already qualified for the earlier, $45,000 loan, the process for the next loans wouldn't take too long.

But the process was slow. It was months before Bank of America funded the first $100,000 loan, they say. Before approving the loan, the bank required Richard Williams to take out a life insurance policy for $100,000. Loan officers also requested several revised financial statements from them, and required both of them to submit a statement of personal history, an autobiographical sketch. The Williamses jumped through hoops, and in August 1994 finally got their first $100,000.

The money was earmarked for buying equipment and paying contractors to fix up the 4,400-square-foot building on Elm Street where Scratch Bake intended to open its newest, biggest bakery. The Williamses bought huge new stoves, counters, tables, chairs, refrigerators, and mixers, all industrial in size and strength.

The first loan put the company on the verge of being able to move into its new location. But the second loan was vital if the expansion plan was to work. The second $100,000 was slated to pay for supplies for the cakes, increased staff, and the $1,000-a-month rent on the new store.

Richard Williams says that, before taking the plunge and moving, he asked Don Ford, then vice president of the commercial lending department at Bank of America, if the second loan was going to be delayed. Once the company moved its baking operations to the new location, it would need the cash infusion right away, Richard Williams says he told Ford.

"He told me to sign the [rental] contract," Richard Williams says. "The loan would be approved."

But in January 1995, when the couple submitted a formal application for the second $100,000 loan, delays began.

The bank raised questions about things the couple felt had already been resolved during the previous loan application process.

The bank shouldn't be faulted for being careful. The Williamses did not have a sterling credit history. A credit search turned up a 10-year-old car repossession against LaJeanne Williams, and more recent troubles for her husband. In 1990, Richard Williams was hit with a judgment for $46,721 sought by Cedar Ridge Properties, Scratch Bake's former landlord in Duncanville.

Cedar Ridge sued Richard Williams and Scratch Bake Bakery, claiming the bakery owed it 10 months' back rent, plus attorney fees for bringing the suit. Cedar Ridge won.

Richard Williams has an explanation for what happened. His contract with Cedar Ridge, a shopping center in Duncanville, had a noncompetition clause forbidding the landlord from renting space in the shopping center to anyone else who wanted to sell whole pies and cakes, Richard Williams says. But an Italian restaurant began to encroach on Scratch Bake's turf, in essence breaking the shopping center's contract with the bakery, he says. So, unable to negotiate a new agreement, the bakery closed up and left the shopping center, Richard Williams says.

The case should have come as no surprise to Bank of America, he adds. "It's on my credit report," he says. "And they knew about it." Richard Williams still has not paid any of the money owed Cedar Ridge Properties.

Bank representatives also questioned the Williamses about a loan they had received from the Southern Dallas Development Corporation, and why it was delinquent.

Scratch Bake was behind on the SDDC loan, Richard Williams says, because the bank's delays in funding the first $100,000 loan had forced him to take money out of his own pocket to pay company expenses.

There was also the matter of a questionable 1992 tax return. But Richard Williams says there was simply a typographical error, and that he sent the bank a corrected tax form.

The bank's questions were troubling because they seemed totally unnecessary, the Williamses say. Bank of America had already provided their company with two loans based on essentially the same information.

But still, the bank had questions and wanted more paperwork, like copies of the letters of intent the bakery had to make desserts for American Airlines, Concessions International, and others. The bank also wanted to call those clients to find out if they were guaranteeing that they would use the bakery.

While Richard Williams was offended that his letters of intent were not good enough for the bank, he gave it permission to call his customers to verify their plans to buy from Scratch Bake.

"They seemed to want to take every possible step to deny the loan," Richard Williams says. "But we could explain everything."

The explanations seemed good enough. On April 13, 1995, the loan was approved, according to a letter sent by the bank. The letter said only some routine paperwork remained.

But the loan still didn't come through.
Instead, Richard Williams was asked to submit even more paperwork. The delays and demands were particularly inexplicable, Richard Williams says, because the final $100,000 loan--like the first loan--was to be backed by a Small Business Administration guarantee. If for some reason the couple couldn't pay the loans, the SBA had agreed to pay up to 90 percent of the remaining principal, says Larry Miller, deputy director for the SBA's district office.

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