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MONEY

Can't Get a Loan? Don't Feel Singled Out

Start-up rates continue to be off pace from before the financial collapse because money has been so tight. But take heart: Things are looking up.
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Acquiring capital is always at least an issue if not outright problem for entrepreneurs. If you've been going to the bank and finding things considerably cooler than this summer's weather, don't be surprised. According to a report from the Organization for Economic Co-operation and Development (OECD), you've got plenty of company on the boat.

According to the OECD, business start-up rates around the world are still limping since the start of the global economic crisis. Look at the patterns in Australia, a number of EU countries, the Russian Federation, and the U.S.

Some countries--Australia, Norway, and the U.K.--have seen some significant trending above others. But even there, the numbers can be deceiving. As the OECD said in a press release about the subject, "Australia and the United Kingdom are showing tentative signs of a pick-up in start-ups but this is driven by an increase in sole-proprietor self-employed businesses, which may reflect readjustment strategies to unemployment."

The OECD's take is that start-up money is hard to come by (entrepreneurs find themselves dogged by "restrictive lending conditions"). For example, the 2012 level of venture capital investments in most companies was about 60 percent of 2007 levels.

Banks have been up and down when it comes to lending to small and mid-sized business lending, but things may be moving in a better direction. According to CreditDaily, loan approvals have been up at big banks so far this year. Big banks did drop acceptances down in June. Credit unions got even tighter, having approved 44.8 percent of loans in June, down from 55.8 percent last year. But, still, the overall pace for the first half of 2013 is far better than in 2012.

With a little bit of luck, the OECD data will prove to be only backward looking and not indicative of where things are going. However, to be safe, here are a few steps to consider, in case you're looking for money:

  • See where you can bootstrap. The best type of loan is the one you can find a way to do without. Break your business out into divisions or functions. Identify which ones really need a cash influx to grow the company and whether some can either leverage existing revenues or find more efficient processes and methods. Doing this, you identify the smallest amount you will really need.
  • Consider creative financing. Whether it's getting investments from large customers, factoring receivables, getting favorable terms from partners, using peer-to-peer lending, working with an incubator, or crowdfuncing, the more you can get elsewhere, the less you need a bank.
  • Burnish operations and documentation. If you still need a loan, then make sure you have everything in order. Tighten operations as well as possible. Work on a full set of documents with a CPA to accurately put your company in the best light possible. If a loan officer doesn't have confidence in where you are taking the business, you will have to go without the bank's money.

The main point is that entrepreneurs must find ways to make things happen even when the approved paths seem closed.

Last updated: Jul 19, 2013

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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