-
Manage your services:
Bank of America | Bank of Opportunity
Small Business Answers Center
Your Resource for All Your Small Business Needs
Want Job Security? Build It Yourself
By Kevin Salwen and Kelly K. SporsRemember the days when starting your own company was the risky play and joining the big guy was safe? After all, corporations were the "stable" choice, the kind of brand-name places that made your parents feel comfortable.
How times have changed. Over the past few years, we've learned that our knowledge-based economy is full of quick-turn transitions, ones that large firms often can't handle effectively. Nimbleness is the key.
Beyond that, of course, the latest recession forced big player after big player to slash payrolls – 10,000 jobs at Boeing, 21,000 at Caterpillar, 10,000 at Microsoft just this year alone. In fact, according to Forbes.com's Layoff Tracker, the largest 500 companies in America have cut more than 575,000 jobs since November.
The conclusion, of course, is clear: It's all risky out there. Big companies are no longer a safe haven; small companies are no longer only the bold.
But if you're thinking of making the jump into your own gig, it's an ugly time to be hunting for money. Yet many small businesses need it more desperately than ever.
The credit crunch spiraling out of last fall's financial crisis trudges on and many entrepreneurs struggle to find the capital needed to start or grow a business. Banks are slashing credit lines, or revoking them altogether. Credit card limits are shrinking. Venture capitalists and angel-investor groups are scaling way back.
What can you do?
First, be realistic about the most probable funding sources for your type of business right now. You don't want to waste precious time banging on the wrong doors. "That's always good advice, but now more than ever it's important to do an accurate self-evaluation," says Scott Shane, an entrepreneurship professor at Case Western Reserve University in Cleveland.
Do you have enough assets for collateral and a good credit rating to qualify for a loan? Do you have a business that could get up to $60 million in sales in a few years and be a viable candidate for outside investors? Do you have a way to self-finance?
To help you navigate the murky waters of the money game, here are five possible strategies for entrepreneurs seeking cash in the squeeze:
1. Hit Up Uncle Sam
Loans backed by the Small Business Administration dried up substantially in recent months due partly to lenders' inability to sell them on the secondary market. But President Obama in March pledged up to $15 billion in stimulus funds to boost SBA lending, and it appears to be working -- at least somewhat. SBA loan volume has risen more than 25% since the stimulus plan took effect, the agency said in early June.
To bolster the government's efforts, in June, the SBA unveiled a new program granting payment-deferred loans of up to $35,000 to 10,000 struggling small businesses.
Bottom line: SBA loans may once again be a go-to place for small businesses with collateral to pledge that don't qualify for bank loans elsewhere. Government-backed loans "are definitely something companies seeking debt should be looking at right now," says Bo Fishback, vice president of entrepreneurship at the Kauffman Foundation, a Kansas City, Mo., small-business research organization.
2. Find a Solo Angel
Angel-investor groups – clubs of high-worth individuals who band together to finance fledgling companies – have slowed their investments considerably since last year, according to research. But there's still hope for entrepreneurs with a killer business plan and the right personality.
With public stocks looking less reliable, many wealthy individuals are eyeing alternative investments, including small companies with high-growth potential. These solo angels, however, generally only invest in industries they know and are passionate about – or company founders they trust and admire.
How do you find them? Start by networking in your industry, talking about your business and getting introductions to others. Many times these angels are former or current business owners who want to help other entrepreneurs with good ideas succeed. "Eventually you'll start talking to people who may take a liking to your business and want to help," says Lynn-Ann Gries, chief investment officer for JumpStart Inc., a venture development fund in northeast Ohio. You might also have luck with angel networks where the members invest individually rather than as a group, she adds.
3. Stay Close to Home
While national banks were hit hard by the fallout on Wall Street, many community banks and credit unions claim it's business as usual. These local institutions tend to base their lending decisions on both personal relationships with entrepreneurs as well as a company's financial health.
Carol Kaplan, a spokeswoman for the American Bankers Association, which represents banks of all sizes, says "it's generally true" that businesses will have better luck getting financing from smaller community banks than larger ones right now due to the big banks' woes. "It's not that they're a better source," she says. "It's just a source that you're more likely to have success with right now."
Bob Davis is the founder and chief executive of Virtual Driver Interactive Inc., an Eldorado Hills, Calif., company with 14 employees that makes computer-based driving simulation programs. Early this year, Davis approached a community bank hoping to gather some investor leads in the area. He was surprised, given the tight credit environment, when the senior loan officer showed interest in lending to him instead. "I'd heard so much about banks not lending. I didn't really think a bank loan was an option."
After Mr. Davis submitted an executive summary about his business and financial statements, and had lengthy conversations about his business, the loan officer approved a $450,000 seven-year term loan.
4. Weigh the Alternatives
Banks aren't interested? Consider alternative types of loans and financing arrangements that let you pledge assets or outstanding invoices as collateral.
Some nonbank lenders, for instance, offer secured business loans backed by inventory or accounts receivable. So-called "factors," for instance, will buy accounts receivable from businesses and charge 2% to 6% of the invoice balances, depending on how long it takes the factor to collect the money. These arrangements may carry higher rates and fees than conventional bank loans, but can be easier to score in tight credit environments.
Franchisers – which often don't offer financing help to franchisees – are stepping up more often in the bad economy. Some are extending credit to new and existing franchisees or waiving standard franchise costs, such as royalties.
Also don't overlook the possibility your suppliers might be willing to lend you money, because they want your business. "If you have a restaurant that needs pizza ovens, the people who make pizza ovens might be willing to give you cash," says Prof. Shane.
5. Tap Your Ingenuity
When all is said and done, the vast majority of money that young companies spend comes from their founders' wallets.
Many tap personal savings, credit cards, severance payouts and retirement nest eggs to fund their businesses. But since many of those sources have withered, coming up with enough money requires creativity and downright thriftiness. As a result, some entrepreneurs sell personal assets (even their cars) on eBay, get customers to invest small sums in the business, enter business-plan competitions, lease equipment rather than purchasing it or hire independent contractors rather than full-time employees.
One strategy that can be a winner: Running two businesses at once, using one to generate current cash and the other as their long-term potential home run.
In 2007, Atun Rattan and Raj Anantharaman of Kansas City, Mo., started developing a Web site – Lifya.com -- where users can compare and review nursing homes. But rather than solicit angel investors or venture capitalists, they launched a side business designing Web sites for other companies and non-profits. Last year, the Web development business generated $250,000 – all which was funneled into developing their nursing home site. They expect another $250,000 from the side business this year.
"It feels good to be self-sufficient," says Mr. Rattan.
NOTICE: We collect personal information on this site. To learn more about how we use your information, see our Privacy Policy.
Official Rules | Yahoo! Answers Community Guidelines
Yahoo! does not evaluate or guarantee the accuracy of any Yahoo! Answers content. Click here for the Full Disclaimer.