Fixed Wireless Business

Vendor Financing for the WISP Industry

WISP owners are using home equity and credit card loans to finance customer premise equipment and new access points. One group of investors think they can charge lower than credit card rates and still make a profit while participating in the great American wireless buildout.

by Alex Goldman ISP-Planet Managing Editor [September 27, 2004]

A group of WISP industry entrepreneurs is working with a technology finance expert to lend money to WISPs. This is a big story because there is no financing at all available to WISPs right now.

Hal Hayden, the financial expert at Prescott, Ariz.-based Agility Solutions Corp. says that traditional sources of finance are closed to WISPs. "The key, therefore, is a private fund for funding WISPs. But people offering financing in the market are not successful at approving loans to WISPs, or at selling paper to secondary sources of funds like GE Capital and Citicorp."

That's because traditional vendors of cash have placed WISPs on a "no loan" list. "They've red flagged WISPs," explains Hayden. "There are three reasons:

1. WISPs are considered an ISP, and they're not lending to ISPs.
2. WISPs are part of the telecoms business, and they're not lending to telecoms.
3. WISPs are early stage companies, and they're not lending to early stage companies."

Thus, Agility has raised cash directly from investors, promising a relatively high rate of return to individuals and institutions. The company also has the advantage of a better understanding of the WISP industry than, say, Citicorp. The company's other two co-founders (besides Hayden) are WISP entrepreneurs: Bill MacNamara of Payson, Ariz.-based Canyon Broadband and formerly of Big Sky Internet and Robert Bratter of Canyon Broadband. Mark Davis of Commspeed provides further advice to Agility.

MacNamara says that many people understand the opportunity offered by the WISP business, but are too optimistic. They make the initial investment, but then need more money to grow. "But we found WISPs run out of capital after the first year of rapid growth. I've heard this again and again at trade shows and in industry chat rooms."

Initial capital can come from friends or family, creating personal tensions. It can come from a home equity loan. Some WISPs even borrow at ruinous interest rates by maxing out credit cards.

When WISPs raise initial capital and spend it, they buy a large amount of equipment that they cannot deploy immediately. Having 100 radios sitting in the office, but only two employees for deployment, means those radios will be idle, tying up capital, notes MacNamara.

WISPs are desperate, says MacNamara. "We looked at one company and saw they had a line of credit. We asked how they'd secured it and the WISP owner said their family had given $100,000 to the bank. Frankly, the back was lending these people back their own money."

Due diligence due WISPs
Agility can do better, with better due diligence. "What we do when we get engaged with a customer, is that we send them a customer survey to find the demographics of the market they're in, and the growth potential," MacNamara explains. "That gives us an idea of what we're starting with. In a traditional finance relationship, you look at just a few points, but the WISP industry doesn't pass those tests well at all. We look at who the operators are, what cash they have put in. Mark and I go through the business plan and decide if the information we've been provided is good information and if the business plan is executable."

Even with all of that research, the company is hedging its bets—because it cannot secure them. WISP equipment depreciates fast, but the IRS doesn't allow depreciation faster than five years, while most WISP equipment is replaced before the five years are up. "Sometimes, we require guarantees for deals, or several months of payments up front, " explains Hayden. "We may require 10 percent of the amount we'll fund as a security deposit (but that's still less than a bank or other lender would require)."

Go to page two: Millions to lend