A list of some of the best sources for financing. Includes information about bank loans, nonbank creditors, private and public equity sources, and international finance.
How to Finance Anything
Despite the tumultuous and unpredictable state of today's capital markets, entrepreneurs still have plenty of ways to raise funds for their companies. Here are 20 that offer particular promise in the current economic climate. Some represent new marketplace solutions to the perennial financing problems of business owners; others offer new twists on time-tested strategies or financing tools. But don't get us wrong--we're not suggesting that you overlook traditional financing strategies, such as approaching angel investors or proposing financing deals to your customers or suppliers.
Bank Loans
1. SBA Express was launched last fall in yet another effort to lessen the paperwork hassles attached to applying for a Small Business Administration-backed loan. Bank-qualified business owners can borrow up to $150,000 without going through the standard SBA application process and are guaranteed a loan decision within 36 hours. Since the loans are guaranteed by the government agency only at 50% of their face value, many of the 500 or so eligible "preferred" lenders (which include commercial banks and other financing institutions with good track records on their other SBA loans) have yet to sign on. To track down active lenders in your area, contact your SBA district office, or visit the agency's Web site.
2. Community banks, the antithesis of all those huge financial institutions that are merging and acquiring themselves into the deal-making stratosphere, offer the best (and maybe the only) chance for many small or young companies to start building a banking relationship. While the small banks may have fewer products than the giants do, their advantage to entrepreneurs is their flexibility. To locate possible lenders in your region, contact the Independent Bankers Association of America, which can provide leads to more than 5,000 community banks. You can visit the association's Web site, call the group at 800-422-8439, or reach it by E-mail.
3. The (self)chosen few is the way we like to think of that select group of national banks that do more than just talk about their interest in backing start-up companies. Their loan officers are out there--even in today's chilly credit climate--aggressively launching new products and actually approving deals. Silicon Valley Bank perennially crops up on this list; so, increasingly, do Chase and Fleet Bank. (One caveat: companies with less than big-scale growth plans need not apply.)
To tell if a big bank belongs to this limited group, look for new products that demonstrate a commitment to today's credit challenges. At Fleet Bank, one program worth noticing is Small Ticket Leasing, which allows business owners to finance anywhere from $5,000 to $250,000 worth of equipment at competitive rates. For companies that qualify, the bank will preapprove a leasing line of credit up to $50,000, even before any equipment has been purchased.
4. Asset-backed borrowing may be the only game in town for many entrepreneurial companies, as long as bankers keep buzzing about the need for "credit-risk premiums," a "flight to quality," and other euphemisms for reducing their risk. If that is the way your company must go, so be it. But don't think in narrow terms. An asset-backed loan can be anything from a home-equity line of credit or an SBA deal backed up by your kids' college-savings account, to those pricey, but ever-handy, transactions tied to accounts receivable, contracts, or inventory. A very good source of information is GE Capital's Guide to Asset Based Lending. (Call 800-572-1838 to obtain a free copy.) You may want to skip the 6-page sales pitch about the company's various business lines, but the 19-page glossary is a must-read.
5. Microloans, which typically range in size from hundreds of dollars to the low six figures, make so much sense for start-ups and struggling small companies that it's practically un-American to say anything bad about them. The barrage of good publicity about this financing strategy includes a recent SBA study showing that microloan activity was up by 27% for the period June 1996 through June 1997.
We recommend considering this early-stage option if a small infusion of capital could make a difference to your venture's cash flow or growth-related activities. However, reports from the field suggest that microlending activity is slowing down. "Microlenders have been bailing out on us left and right," is the blunt assessment of Hedy Ratner, copresident of the Women's Business Development Center, in Chicago. It should probably come as no surprise that some lenders regard microloans as too small to be worth the effort.
6. Third-party loan guarantees typically require that a relative or close friend cosign a credit-line agreement when a company's credit history (or that of its owner) leaves something to be desired. But with personal indebtedness significantly on the rise, entrepreneurs may have trouble finding among their nearest and dearest someone who is both willing to cosign and is also deemed creditworthy by prospective bankers.
A new breed of financing intermediary has stepped forward that will consider cosigning your corporate credit line for the right price (either a fixed fee or a percentage of the face value of the loan). Since these guarantors will be liable for any borrowing you can't repay, expect a close evaluation of your financial credentials. Still, their standards are probably more lax than a banker's. For contacts within this relatively new profession, network through your accounting, legal, or financial advisers.
Nonbank Creditors
7. Venture leasing, a trend that's been around for much of the decade, has become a hot ticket among fast-growth companies. It is generally available to companies that have already been granted institutional funds (or are in the midst of closing a deal with a venture capitalist or a similar type of financier).
The advantage to the lessees is that they don't have to raise more capital for equipment (or tie up venture funds to pay for equipment, rather than growth activities). But it isn't cheap. Venture-leasing deals typically require payments of 100% of principal, plus 8% to 12% in interest charges over a 24-month to 60-month lease horizon (plus the lessor gets the equipment when the lease period ends). Prediction: if demand stays up, expect rates to increase. Still, venture leasing is cheaper than giving away more equity, particularly in today's tight capital market. For leads to the small group of leasing firms and banks that are aggressively servicing this market, network through your accounting firm and local financing intermediaries.
