8. Credit cards have always been the mainstay of the small-business owner. But these days any entrepreneur who relies on his or her credit-card company for just, well, credit cards is walking around blindfolded. Some of the perks, like yet another free on-line news service for business owners, don't exactly ring our bell. What we do like, though, is the range of unsecured credit-line alternatives offered by both Visa and American Express. If bankers slam the door in your face, contact all the major credit-card suppliers to compare prices and options. As you would with a bank, make sure you'll have opportunities to increase your borrowing limit (and add on other financing sources, such as equipment leasing) as necessary, once you've proved that your company is a good customer.
If you don't really care about the credit-card part of the equation, consider a conversation with Merrill Lynch, whose portfolio of small-business credit products looks good these days. We particularly like a working-capital revolving line of credit, WCMA Reducing Revolver Loan, that's competitive with what most banks could--but wouldn't--offer many fast-growing companies.
9. On-line credit search engines are practically a dime a dozen. (OK, so we exaggerate. But so do many of them.) The best are the ones that guarantee confidentiality, don't charge an up-front fee, and can point to successful results in hooking up companies like yours with legitimate lenders. One site that we like ( www.getsmart.com) launched a business-financing section last July. It's affiliated with 17 banking and nonbanking lenders, including American Express, Heller Financial, and First Union. But don't overestimate your company's prospects--the site draws about 1,700 loan applications from small businesses each month.
Family and Friends
10. Tapping personal ties to raise cash for a company that's either too new or too small to get financing elsewhere is an age-old formula that still makes sense. But here's one risk too big to ignore in today's highly competitive capital marketplace: if you don't follow professional standards in structuring and documenting "F&F" loans or equity arrangements, your sloppiness will likely come back to haunt you.
That's because if and when your company grows to the point at which it can credibly approach banks or professional investors for funds, their lawyers will examine your corporate and capitalization structure with a fine-tooth comb. Even in the best of times, the lenders would delay the closing of any deal until errors or inconsistencies got cleaned up. In today's market that could mean you'd wind up losing opportunities altogether. Paying a lawyer now is a cheap way of avoiding problems later.
11. Asset sales to relatives or friends can offer a neat and relatively simple alternative to either loans or equity deals. Put simply, your company sells one or more assets (which could run the gamut from computer equipment to real estate) to someone you know and trust; he or she then leases those assets back to the business at a price that seems fair to both of you. Your pal gets the tax deduction and regular income stream; your company gets a onetime infusion of capital and, presumably, better leasing terms than it would have received if it had been dealing with an independent financier. Best of all, your capital structure remains clean.
Private Equity
12. Performance-oriented, flexible terms can make or break a deal in these risk-averse times, especially for a private-equity investor who is weighing the most attractive opportunities that have been around in years. One thing that can help lure investors is the so-called clawback technique. A financing deal starts off with one set of terms--your equity investor receives a certain percentage of stock in return for a specified capital investment--but those terms can shift, depending on how successful you are in meeting agreed-upon goals according to a fixed set of deadlines. "What I tell business owners all the time is 'Who cares how much stock you give away going into the deal as long as you maintain control? If you can get a good chunk of it back based upon your performance results, that's what matters," says A. Gordon Tunstall, a financing consultant and intermediary in Tampa. "Meanwhile, these kinds of terms increase the comfort level of private investors in times like these."
13. Redeemable preferred stock is another technique that can ease investors' jitters in uncertain times. A decade ago redeemable preferred stock was a way to give investors guaranteed credit status in case a company went bankrupt. Now it's used to give investors an extra bang for their buck if a company's initial public offering--and thus, the deal's payoff--gets delayed. The preferred stock may, for example, be structured so that if an IPO takes place in five years instead of two, investors will receive the full value of their original investment plus stock at exit time. It may cost you more to build techniques like these into a deal. But they can make a closing happen--and if the IPO market settles down fairly quickly and you are able to achieve your original goals for taking the company public, you won't even take a hit financially.
14. The wide world of the Internet still offers a mixed bag for the corporate seeker of capital. Once you start visiting financing Web sites (which seem to proliferate endlessly), you can find yourself in a black hole--unable to turn off the computer but also unable to come up with any cash. Still, cynical though we may be, we recommend that you check out some of the best sites, which offer business owners the chance to research a wide range of funding options. Among the sites we like is www.vfinance.com, which provides information on more than 200 venture-capital firms, as well as frequent news updates about the industry.
