Posted tagged ‘bad credit lenders’

Funding Your Business in Today’s Ever Changing World

April 11, 2012

If your business has easy access to business capital then you have a serious advantage over your competitor. The question is how to get it.  It can be from cash flow currently generated, it can be gotten as equity but more often or not it is collateralized and as such is a debt instrument of some sort that may cross over to equity but not just now.  This type of funding is secured to many different things be it a Small Business Loan (SBA), a peer to peer lender, a small business private financier, merchant financier, a leasing company often seen in leasehold financing and finally friends and family.  Why haven’t I mentioned Angels, VC’s etcetera.  Well if this is your first go around there’s a 99% chance they won’t even speak to you.  Your preparation has to be tight and your understanding of your business plan exacting in its current and future paths all shown on highly calculated spreadsheets that show proposed performance basis believable assumptions. First can you explain your business in thirty (30) seconds or less.  If not you are not yet prepared to go in front of a venture capital/Angel investor, small business lender, even your friends and family.  So attend to that immediately.  Think this way no one is going to fund you out of their inherent niceness to their fellow man.

Often your benefactor will want first loss security and this comes in the form of your equity or in business or directly to your product or of that of your personal assets.  You said you are a risk taker now “you” will be risking not your assets because you are the voluntary stakeholder in this event, but the assets of involuntary stakeholders like your family aren’t. So think before you sign or better yet think before you decide to quit your job, invest in an idea or consider a franchise etcetera.  Business especially small businesses have quirky financial needs.  It is not like you just turn on a faucet and business pours out profitably.  There are ramp ups, market share analysis, branding of your idea or company.

In the 70’s and 80’s there was a proliferation of funding by major investment banks of multiple business concepts basis a the available tax benefits they could provide the investor  from tax pass through to their limited partners. That all for the most part ended in 1986 with the Treasury Act.

Today if you are in an Enterprise Zone and they exist in 21 states and by example there are 42 such zones in California alone you can receive major tax credits for a number of things.  Now if you seek investors you may think of forming a sub s corp. for tax purposes in any number of forms such as Limited Liability Company, or a Sub Chapter S Corporation.  These are entities that are limited in the numbers of investors they can have (35) unless they (the investor) are qualified investors (means sophisticated investors and able to bare the loss of any investment made in your entity as provided to you in writing prior to investment) and they don’t get counted into the number of investor (35) as mentioned prior.  But before you run off to do this I highly recommend, no I really highly recommend you seek the advice of a legal counsel as to the particulars in your state and what the rules both intra state and interstate are because once you step outside the state you are operating in to get investors you are now under federal fund raising guidelines. So take the extra moment for precaution. But if you do this correctly and are located in these Enterprise Zones you can pass through many of these benefits such as new hires, equipment, etc. as tax credits to those investors and thus mitigate their financial exposure in you investment.  There may be limitations and that is why I say speak to competent legal counsel before going ahead.  Remember a tax credit is a dollar for dollar reduction of taxes to be paid so it will generate some attention.  Another tactic is if you have a company who will use your product and or service they may wish to invest in your future and take advantage of such benefits because companies are seen as sophisticated investors.  So you can see there are many choices other than the more known such as Angels or VC’s.

Be prepared to explain the amount of funding your business needs and provide supporting financial data on your past (if any and tax returns also) and projected financial activity in the form of income statements, budgets and cash flow statements, among other documents.  Explain how you plan on funding your business venture in the next section, which will cover financial management.  Anytime this can be done by an acceptable third party such as an independent CPA firm that helps build creditably.

Be prepared to deal with the following questions apart from your financials:

1. Target markets –  Who are you aiming for and what needs through either products or services are you trying to satisfy? 2. Drivers of choice – What is the thing that will get these clients/consumers to choose you over the competition? (see my article on Blue Ocean thinking) 3. Core Business – what are the products and services that you must sell (core business) and what should you say about them? 4. Channels – where do you have to be seen and be available so people will know about the brand and be able to buy it when they want it?

In essence you are being asked to know your business inside out. That’s not such a bad idea after all.

Where to go you ask?

There is the U.S. Small Business Administration (SBA) as an invaluable resource for entrepreneurs. It offers several loan programs through participating local banks. For example, the Guarantee Loan Program provides loans to small business owners who cannot secure financing through other sources. While there’s no limit to the amount you may borrow, the SBA can only guarantee up to certain amount. In addition, you must provide collateral, such as your home, to support the loan. Check with your local SBA office for more information about loan programs or visit their web site at

SCORE is also a great small business resource you should seek out for advice as to how to reach the many avenues discussed above and can be found in most cities just by looking it up on the internet. But if looking remember the 5 C’s of lending for small business loans are Character, Cash Flow, Collateral, Capitalization and Conditions. The 5 C’s are the underlying principals behind lending and if you are not able to meet them that’s when it gets sticky.  There are bad credit business loans, there are collateral based business loans, there is merchant financing basis your cash receivables, but all these are expensive and quite frankly all place your business in harms way if anything goes wrong.  Because you are a business you are not out in the market as a consumer and as such will be viewed and classified as a commercial entity and not subject to the consumer protections often afforded to those who seek credit personally. So think fast but act slowly when taking this leap and of all things “to thy own self be true” when assessing your chances, your credit and your business plan.

A healthy business credit profile will allow you to keep good open lines of credit with vendors, easily establish new accounts, and obtain more business funding for future expansions and business growth. Investors are more apt to deal with businesses that have a healthy business credit profile as it gives them an extra layer of security knowing that their finances are stable.   Just like with personal credit, your business credit profile will be supported by credit bureaus. Dun & Bradstreet is the main bureau that will be tracking and providing your business credit score. In some cases, your personal credit score can be tied to your business, so it’s important to discuss this matter with your Cash Flow Experts program mentor to determine the benefit or harm this may bring.

Register your company with the business credit bureaus.  These are Dunn and Bradstreet,   Experian Business, Business Credit and Equifax Business.  If you do not have the time to build your business credit score and you need funds right away, there are a few different small business loan programs that you can take advantage of.   These loan programs are going to have higher interest rates but offer cash very quickly into your business. Regardless of the type of financing you obtain for your small business, one constant remains true at all times—there will be interest.   So don’t live beyond your personal means.

For more information contact  or call 619 550 1198 for a free consultation.