Small Business Financing

"Keeping our small business finances intact is what's important these days. But how about if you have some receivables ought to be paid to you by other businesses as well."

Absolutely right! But then, we are all faced to a very tough economy today. How can we do that? How can we collect those receivables whose businesses are also dying?

As always, there are some experts who graciously can provide us with some tips. Check out this podcast -- How To Collect From Dying Elephants which I learned from this blog post -- Receivables: Hope for our Business Financing!

When Smart Answers asked several experts to weigh in on the short- and long-term impact of this week's financial free fall on small business owners, we got an earful. Here, organized by areas of concern, are some thoughts and predictions:

Banks. There were no bank failures in 2005 or 2006 and three bank failures in 2007, according to the Federal Deposit Insurance Corporation (FDIC). But so far in 2008, 11 banks have failed, and a number of additional banks are said to be teetering. What happens if your business bank fails outright or is taken over by another?

Read more on this article - Small Business Owners Deal with the Financial Crisis

Small business owners must avoid depleting their current liquidity or cash position. They must immediately deal with negative financial issues including poor or inaccurate credit reports, and resolve all business and personal tax issues. A negative credit report and/or credit score can be a "deal buster". Back taxes, liens, garnishments, multiple bounced checks all show increased risk for a lender. Borrowers should deal with recent bankruptcies by providing an explanation of why it occurred.

Check out more business financing tips from Jennifer Kilgus' article at EastSide Business Journal.

Evaluate credit worthiness prior to applying for a business loan.

Small business owners must avoid depleting their current liquidity or cash position. They must immediately deal with negative financial issues including poor or inaccurate credit reports, and resolve all business and personal tax issues. A negative credit report and/or credit score can be a "deal buster". Back taxes, liens, garnishments, multiple bounced checks all show increased risk for a lender. Borrowers should deal with recent bankruptcies by providing an explanation of why it occurred.

Check out more after the jump. Read it here.

It is one thing to know what your needs are and another to generate the cash necessary to pay one's bills on a timely basis. If you have tapped out your bank line of credit, there is an alternative known as "Factoring" that may be worth considering. Factoring, in its purest form, refers to a well-practiced method of business finance in which short-term debts (money owed to you) are purchased by a factoring company, at a discount to their face value. The balance is then immediately paid to you, thus eliminating your cash flow problem. Because the debt is owed by your customer, it is their creditworthiness, not yours, the factoring company considers in granting the loan.

You can read more about this news after the jump. Read More.

Because of the bad economy, many don't qualify for loans and venture capital - leaving business grants as one of the only bailout solutions for small businesses. The National Institute of Business Grants (NIBG) has recently launched a site at Business-Grants.com that educates entrepreneurs and business owners about business grants.

You can check out more details about this at: PRWeb.Com.

According to Arthur, over Small Biz Numbers, it helps to know Angel Investors.

A business angel is a person who provides capital from his own funds to a private business owned and operated by another person who is neither a friend nor a family member.

The typical angel is often described as a wealthy, retired, former tech entrepreneur who regularly invests in other people's start-ups. While a few angels look like this, the typical angel does not.

Most angels aren't wealthy. Estimates based on data from several sources suggest that the majority of angel investors are unaccredited investors.

Read it on and Get to know Angel Investors!

By Christi Parsons | Chicago Tribune correspondent
October 20, 2008

FAYETTEVILLE, N.C.- Democrat Barack Obama raised a staggering $150 million in September, shattering all previous fundraising records and dwarfing the amount raised by Republican presidential nominee John McCain.

Obama made campaign finance history Sunday as his campaign reported more than double his record-breaking collections of $62 million in August-on a day Obama also picked up a prized endorsement from former Secretary of State Colin Powell, once considered a possible McCain running mate.

McCain pointed out that he has the endorsement of four other former secretaries of state. Still, he described himself as the "underdog" of a very tight race, and immediately attacked Obama's decision not to accept the limits of public campaign financing and the "new flood of spending" that decision has set off. Obama raised money last month at the rate of $5 million per day.

Read more about this news on Chicago Tribune!

If you need financing to launch your small business, there are a number of ways to get those needed funds and put your dreams on a secure financial footing. But a solid, defensible business plan will be the first requirement.

Commercial banks are the most visible lenders to small business. Your business plan should include specific reasons why the loan is necessary, and a cash flow analysis to show your ability to repay the loan. The loan officer will also want assurances that the firm's management is capable of achieving these goals.

Don't expect the lending institution to provide all of your capital needs. Your banker generally wants to see at least 20 percent of your own money up front as security to guarantee the loan.

If the chances of obtaining a business loan from a commercial source appear slim, you still have several options. You can use personal assets as collateral for a personal loan rather than a business loan. If you are truly committed to your business idea, you may consider mortgaging your house. Don't take this decision lightly, however. Your family's welfare will be at risk if the business fails.

Another option is a U.S. Small Business Administration guaranteed loan, available through many banks. Keep in mind that the loan application must meet both the bank's and SBA's loan application requirements. On the other hand, the SBA can be a little more lenient about factors such as real estate value and inventory assets in the application process.

When a business consultant found no angel investor interested in funding her dream venture - $30,000 to start her small practice - she came up with a brilliant idea.

She promised her first ten clients a full refund on their fee at a follow-up consultation (six months later) provided they paid her upfront for the first visit. Temporarily at least, her problem was solved and she ended up signing quite a few clients.

The thing is that if you are new in a business and without any track record, you may find it difficult raising capital from lenders or investors. The chances of getting VC funding for such a venture are as bright as getting struck by a bolt of lightening!

An ideal place to look for capital in this case would be:

* Dipping into your own savings or borrowing against a retirement plan, life insurance policy, credit card, or the equity in your home
* A concerned friend or relative could also be of help (although they don't always make very good investors) depending upon your personal equity.

If you do decide to take this latter route, don't forget to look at www.virginmoneyus.com and www.prosper.com. Virgin Money manages business loans between relatives and friends. Save for lending you the cash, they will manage everything else, your legal documents, transfer of payments, year-end reporting etc.

If you are a little more established, you may be able to borrow from a number of other creative sources:

* You could negotiate longer credit period from your suppliers (with a good business plan or sheer perseverance). Preferably, if your customers pay you faster than you have to pay your suppliers (even by narrow margin), then you need much lesser capital
* You could try an alternative pricing structure, say a 10-20% discount to customers who pay upfront, as the woman in our first example did
* Another modified plan could be to get them to pay a 2/3 component of the fee upfront and the balance in small, easy installments over the balance six months. The fixed component would give you at least the seed capital to get started in your practice, while the working capital pours in gradually
* You could pay your suppliers in installments
* You could ask your employees to work for stock options for part of their salary
* You may lease your company assets rather than buy them
* You could barter a portion of your service, e.g., you are good at writing/business consulting/marketing or even giving business leads! while a friend is good at graphic design. You could swap those services for each other, (not to mention pitching for common clients)
* You could choose services/products that don't take too long to build
* You could take up short duration opportunities, such as dealing in designer gold jewelry during the festive season
* You could sell a portion of your business equity to another local business owner (perhaps in a complementary industry) for an instant cash infusion

If you are smart, you don't need capital. Or, you need much lesser capital than otherwise. On our blog, www.p2w2.com, we discuss similar ideas for small businesses. Be smart, be a winner.

Source: Small Business CEO

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