Solyndra shows more scrutiny needed for guaranteed loans
By Rocky Cintron,
Much attention has been paid in recent weeks to the bankruptcy of Solyndra, a California solar energy company that filed for bankruptcy after receiving $527 million in loan guarantees from the Department of Energy to finance construction of a new facility.
In today’s economic climate, with trillion dollar stimulus packages in play, a collapse like Solyndra’s actually seems relatively minor. Had Solyndra declared bankruptcy 10 years ago, there would no doubt have been an even larger uproar over how government officials could have made a $500 million bet on a sure loser, not to mention a catchy name like “Solar-Gate” for the scandal.
Regardless, the Solyndra debacle will no doubt swing the pendulum of scrutiny for small business loan programs in general — and green energy programs in particular — back in the other direction. Nobody wants to face the embarrassment of being in the hot seat explaining another disastrous lending decision. The simple fact is that in many cases, more scrutiny is needed. Due diligence on a $500 million loan should obviously be much more rigorous than that on a $500,000 loan.
A prudent business leader would not have invested in Solyndra. There were warning signs — like Solyndra’s overall cost structure — that its cost of goods was too high to ever make the product competitively priced, especially knowing that the Chinese were heavily invested in the market. If you are going to make half-billion dollar bets, there should be a panel that takes into consideration all aspects of the company. In fact, part of the criteria might be having a potential mentor on the panel willing to commit resources to the venture.
To me, the guaranteed loan program and Solyndra mess indicate that too much emphasis was placed on the dollars and not enough on guidance. Government sponsored programs that include a mentor-protégé arrangement provide more than just advice and resources. In some cases through banking arrangements, the mentor can assure that the protégé is “on track” with specific contracts.
Our business, Force 3, grew up as a part of the Small Business Administration’s 8(a) program, which helps small and disadvantaged businesses win federal contracts. Set asides for disadvantaged or small businesses can obviously help a company grow, but must require a game plan for long-term success post graduation. Otherwise, they wither and die when the set-asides end. Force 3 graduated from 8(a) in 1994 and recorded about $168 million in sales. Today, we are a $300 million-plus company, and haven’t received government set-aside in nearly 17 years.
What’s the connection? I don’t think anyone can credibly say that government lending or set-aside programs can be called ineffective based on Solyndra alone. But what we should be talking about — in addition to the dollars — are that increased scrutiny is needed before loans are approved and that coaching and mentoring be part of the process.
While Solyndra can rightfully be held up as an example of a hasty loan that shouldn’t have happened, my hope is that the government also looks closely at different ways it can help emerging companies succeed. Government-sponsored mentor-protégé programs work because there’s no better way to find success than to be guided by those who have been down the path before.
Rocky Cintron is chief executive of Crofton-based Force 3, which provides data center, borderless networks and cyber security services for federal agencies and companies.