How to Use IndieGoGo to Fund Your Innovation

This crowdfunding site is rivaling Kickstarter as a place for entrepreneurs to get a funding boost—and create a built-in fan base.

When Ian Gaffney and Samantha Abrams were looking to expand their upstate New York organic, raw, and vegan snack food company, they turned to an unlikely source for business advice: Gaffney’s brother’s rock band.

The band, the Makepeace Brothers, had just successfully paid for the recording of their latest album using IndieGoGo, the crowdfunding site that lets users raise money for projects—and that means anything from a rock album to an art projects to cancer research. Gaffney said the site, which now manages 22,000 campaigns across 159 countries, was a good fit for their small company, Emmy’s Organics.

“We were kind of like, ‘Wow, we have this big project we want to take on, we don’t have the cash flow to do it.’ We thought we would give this IndieGoGo a shot,” he says.

Within a month, the campaign raised more than its $15,000 goal, giving Emmy’s the capital to redesign its logo, create new packaging, and launch new branding.

IndieGoGo is attracting more and more entrepreneurs for its rate structure, which charges only 4 percent for successful campaign, while rival Kickstarter charges 5 percent. And unlike Kickstarter, users get to keep most of the money raised even if they don’t reach the goal (with a 9 percent charge for unsuccessful campaigns).

Here’s how to best use the service to fund your big innovation—and how to create a built-in fan base you can’t get with traditional venture capital funding.

Using IndieGoGo to Fund Your Innovation: Be Strategic

Picking the appropriate length of time and monetary goal for your campaign is trickier and more scientific than most people think, founder and CEO Slava Rubin says. The key is to be pragmatic.

“No goal is too small, no goal is too big. It’s whatever is realistic,” he says.

The deadline for the fundraising has to be set for between one and 120 days, but, for whatever reason, the site sees the best results at campaigns that are about 60 or 70 days long, he says.

“You should be doing a campaign that you can be active for during the entire duration of the campaign,” he says. “If you have lag time or down time in campaign, you will actually have negative results.”

Emmy’s was able to reach its goal quickly by focusing its campaign to just 30 days, and by being clear about exactly what the money would be used for, Gaffney says.

Barry Beagen, project director and leader of the Cornell team using IndieGoGo to fund construction of a school in South Africa, found worldwide supporters through the site. But Beagen recommends breaking your project up into smaller goals if you’re unsure you will be able to fund the entire thing.

Dig Deeper: 6 Cool Crowdsourcing Business Tools


Using IndieGoGo to Fund Your Innovation: Make a Good Video Pitch

When you’re trying to sell people on your project, IndieGoGo can be a little like Internet dating, says Sally Hodgson, a producer who used the site for several projects including getting the film Sound It Out to SXSW this year.

“Once you put a face to a project, it gives people reassurance that there’s somebody behind this that has the passion and the energy to make it,” she says. “If you were going to go on an online dating site and didn’t put a photo up, no one’s going to contact you.”

There’s evidence to back that up: Rubin says campaigns with a video component raise 122 percent more money. The best videos are personal, tell a story, and explain why the money is needed and what you plan to do with the funds, he says.  It should be more than just an ad or a trailer.

“People want to see you having fun with whatever you’re manifesting,” Gaffney says. “People want to be inspired by it.”

You should also the site’s Vimeo tools to tweak and update the video throughout the campaign. Brian Lamb, co-founder of Satarii, makers of the Star Accessory, a product that makes mobile cameras follow your every move, found this helpful when the project started to get press and other technical details changed.
“We were able to evolve our marketing materials essentially live as we progressed,” he says.

How to Use IndieGoGo to fund your Innovation: Choose Good Perks

Your fans are giving to you—and it’s expected for you to give something back. Rewards for donating are extremely common among successful Kickstarter and IndieGoGo projects.

But you might not want to offer anything of great monetary value that will eat into your fundraising success. The best perks are something intimate to the project, and often something that doesn’t have a dollar value at all. Hodgson’s film offered people who donated at the $150 level the chance to meet the record store owner who was the subject of the film.

“It’s really personal and it gives another level of involvement for people,” she says.
Rubin says popular perks include backstage passes, personalized notes, or unreleased products.
“Not your run-of-the-mill thing you can buy on the shelf anyway,” he says.

Satarii even used the perks to further its research: Some contributors got to test prototypes of the Star Accessory.

“The most valuable thing for us is to build a community of followers to start to extract market data,” co-founder Vlad Tetelbaum says.

Dig Deeper: How to Start a Customer Rewards Program

Using IndieGoGo to Fund Your Innovation: Spread the Word

Once you’ve got your campaign page set up, now you need to make sure the world knows about it. IndieGoGo makes it easy to share the campaigns via Twitter and Facebook, in addition to providing a widget so followers can post it on their own blogs.

The site uses a custom algorithm to determine the “GoGo Factor,” which helps decide which campaigns get promoted on the homepage, on the site’s blog, or in media mentions. The factor takes into account funding, comments, shares and other campaign activity.

“Everybody has equal opportunity,” Rubin says. “Not everybody has equal results. The more they earn it the more they earn from IndieGoGo.”

The site’s metrics and analytic tools let you keep track of where your traffic is coming from and how much traction the campaign is getting.

“It’s so easily viral,” Beagen says.

Veterans of the site say the key to building momentum is to start by raising money from your inner circle: friends, family, coworkers, and other early supporters. Rubin says about 30 to 40 percent of funding comes from a project’s inner circle before “stranger” money comes in.

Tetelbaum says that, after being turned down by venture capital firm after venture capital firm, the first thing they did with their IndieGoGo campaign was appeal to their families for support over the holidays. The families responded with several thousand dollars in pledges.

“It’s hard to get someone who doesn’t know you to use campaign,” he says. “We spent a bunch of time with friends and family to basically build that support.”

Dig Deeper: 5 Secrets of Highly Effective Twitter Users

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The Importance of Your Business Financial Statements

by Karlene Sinclair-Robinson

The topic of financial records or statements has always created some anxiety for entrepreneurs. For those individuals thinking of jumping into the world of business ownership, this can be a daunting part on the path to entrepreneurial success. Not knowing the importance and meaning behind each financial document can certainly set anyone up for failure. It is critical that you understand and address the reason and need for each financial document that is applicable to your business.

This topic is not going away. Not addressing the financial position of your business is like traveling without a GPS system in today’s financial world.

If you do not know what your ‘Profit and Loss’ Statement or ‘Break-Even’ point is, how do you expect to operate at a profit and be successful? This is like traveling blind. Your business cannot succeed if you are afraid to face this very important piece that is the heart and lifeline of your business.

During a monitoring period on said topic, the result concluded that many business owners and individuals who were considering starting a new business were failing to see the importance of these documents. Here are some recent Google searches on business financial statements or reports:

“why financial statements are important to small business”

“why are financial statements important for small business owners”

“why are financial reports important”

“why are financial records important to a business”

After reviewing the above internet searches, I thought back to many of the startup business owners I had interacted with over the years. I came to the conclusion that quite a few did not realize or understand the need for having current and accurate financial records. Often, many did not know what a ‘Balance Sheet’ looked like nor had ever used a ‘Cash Flow Statement’.

Types of Financial Statements or Records

When applying for financing for any number of reasons many business owners, start-ups included, do not respond to the request for the necessary financial records. These documents would assist in mitigating a financing source’s aversion to risk. The issue of not having proper financial records in place actually creates an issue in that the financier cannot complete their process and will not be able to approve your loan request.

Below are a few of the financial statements, or reports, you should have. If you have a need for an in-depth consultation, please contact your CPA or local area Small Business Development Center, Women’s Business Centers or  SCORE office nearest you..

1. Income Statement – This statement documents the income coming into your business and should identify the difference sources paying you.
2. Cash Flow Projections – A Cash Flow Projection statement is a document that identifies in advance what you expect your business will do during a particular period, e.g.: one year layout of expenses per month.
3. Cash Flow Statement – The Cash Flow statement is an ongoing document that you should use to track your month to month expenses.
4. Balance Sheet – The Balance Sheet lets you know what your assets and your liabilities are, and how they compare to each other. This statement also calculates your net worth.
5. Profit and Loss –    The Profit and Loss statement summaries the company’s revenues and expenses  and compares them on year to year basis.
6. Break-Even Analysis – The business’ break-even analysis determines the minimum amount of revenue the company must have in order to continue operations.

Conclusion
The importance of these documents to all businesses is vital. It is critical to note that many businesses are currently operating without properly documenting the money coming in and going out of the business. In order for any business to succeed, the health of the financial records must be in good standing.  If knowledge is the issue, there are many local area organizations that offer business related courses for a minimal fee. Get the assistance you need. This will help you and your business stay compliant with the IRS while learning the proper art of financial record-keeping.

Peer-To-Peer Lending and Your Small Business

By Karlene Sinclair-Robinson

Before the internet, before computers, before the stock market, businesses still needed money. Terms like ‘Barter’, ‘Partner’, or even ‘Susu’ were a critical part of the financial vernacular. With the advent of the internet, so much has changed. Here is one such major change – “Peer-to-Peer Lending”. This form of financing has drastically changed and improved because of the internet. Due to its supercharged online growth, this is now a term you must know.

What is Peer-to-Peer Lending?

Peer-to-peer lending is an online form of financing that is helping small business owners, students and individuals alike through internet sites. This financing method has different names, all depending on which continent you are on. In other parts of the world, there are off-line versions of peer community lending. Some of the names associated with this form of financing are “Partner”, “Susu”, “Tanda” or even “Rotating Savings Fund”. These types of micro financing programs are occurring in many third world countries.

Today, however, these financing methods are no longer a third world way of accessing capital. Developed countries are now seeing a major shift towards these types of non-traditional financing. The big difference with these funding options in undeveloped countries is that they do not occur online, while peer-to-peer lending is now a big internet phenomenon in developed countries like the U.S., U.K. and Australia.

What is driving this financing explosion? There are many factors affecting financing. This not just at a local, regional or national level; it is now a worldwide issue much like we have seen with financial meltdowns across the globe. Just take a look at the news, read the financial sections, or listen to borrowers talk about their dilemma in accessing capital, whether for personal or business use. With these economic issues across the globe, more individuals are starting their own businesses. This is a significant contributor to an increased interest in peer-to-peer lending, especially when borrowers do not qualify for traditional forms of financing but still feel they have what it takes to start their own businesses.

Another major factor is migration. Migration plays an important role in the widespread use of these micro financing methods. With migration, individuals might not have the necessary credit background to buy a house, car or start a business so they must look outside the traditional ways of accessing capital.

How it Works

In the United States, peer-to-peer lending is creating avenues for many that cannot qualify for traditional bank loans. Students can use this money to pay down their student loans or get started with college. Home owners can use these funds to do much needed repairs around their homes or consolidate their credit card debts, while entrepreneurs can use this funding option to start or expand their businesses.

In order to access a loan through one of these sites, you must have decent credit, that is, a minimum credit score of 620. Just a few short years ago, your credit score could have been 520. This change is due to the number of defaults these lending sites have experienced in the last year or so by low credit score borrowers. To get the fully funded amount, you must present your situation, need and repayment plan in a detailed way that the lenders can identify with very quickly.

These sites have a systematic approach, so you should not get lost in process. Once you have submitted your information to the site of your choice, you will know very quickly whether or not you qualify for funding. Once that has been determined, the lenders can then bid the amount they feel comfortable lending you. These amounts could be as low as US $25 per lender to as high as they feel comfortable with. The highest I have seen to date is $2,000 from one individual lender. In order to get the full amount you need, multiple lenders will fund you. This could be any number of lenders, as long as the amount they commit to tallies to the amount you are seeking. There is a timeline to fund the full amount depending on the site you use. If lenders find your request unacceptable, then you will not get the loan. You must be fully funded at 100% to get the funds in your account.

Getting approved for such a loan can be faster and easier than trying to get a bank loan. For example, if you are a start up business owner and you need a small amount, say $10,000, but you do not have any collateral nor the credit score that fits the banking structure, you can apply to one of these sites. It is possible that you could apply and get the loan. One important part in this process is that you can be funded very quickly. Some borrowers have been funded in as short a period as four days.

A Small Business Solution

Many small business owners find themselves at a crossroad when it comes to financing their business. This segment is a vital part of any business no matter how big or small they are. When the business owner cannot successfully facilitate their financing needs, this can complicate things during survival periods or even future business growth. Through economical hardships or periods of growth, many entrepreneurs often cannot access the capital necessary to keep them afloat. When these entrepreneurs cannot meet payroll, pay their taxes, purchase new equipment, access to capital is a vital part to their staying power. If their cash flow is a problem, these entrepreneurs will not be able to hire employees; furthermore, they might have to lay off staff.

With the banking sector’s tight lending requirements, there has been an increased demand for access to capital for small businesses in the non-traditional market, such as Factoring, Purchase Order Financing, Asset Based Loans, etc. Entrepreneurs must look elsewhere to finance their business when they cannot qualify for traditional bank loans. They must get creative. Peer-to-peer lending is one way to do so. It allows small business owners access to the much-needed cash they must have in order to survive.

Peer-to-Peer Lending Sites

To date, online sites such as Prosper.com and LendingClub.com have both surpassed US$250+ million in peer-to-peer financing transactions. That is more than a quarter of a billion dollars each! What makes this financing concept so unique is that the maximum loan amount is US$25,000 for Prosper and US$35,000 for Lending Club. With more than 1.1 million members, Prosper has become a leading source of these microloans. Lending Club has not disclosed its membership numbers at this time. Another site to note is Kiva.org. Check them out and see what fits your needs.

After checking them out, I would like you to consider the ‘RISK’ involved. Would you lend to you? Is this the right funding option for you? These lenders are ordinary individuals who have chosen to help others. They might be despondent with their banks or other investment sources, and prefer this venue to invest their funds elsewhere. Alternately, you could become a lender. If you have disposable funds that you would like to use in such a process, check them out before you decide to commit yourself and your money.

One important fact to note is that the U.S. government has taken notice. The U.S. Securities and Exchange Commission (SEC) did an investigation of Prosper. This was considered a “quiet period” when they could not lend and no new members could join the site. To date, Prosper has been allowed to continue their operations. I am sure Lending Club had their same share of SEC investigation as they are in the top tier of peer-to-peer lending sites.

If you feel this is for you, check them out. This financing methodology has loaned out over US $500M through two sites in the past five years and is still on the rise. Peer-to-peer lending has grown tremendously, especially in the small business sector in the last 12 months. Do your own research and make a sound decision as to whether peer-to-peer lending is a good fit for you or your business financing needs.

Diversifying Your Small Business – Part 2

In part one of Diversifying Your Small Business I addressed the factors that impact your business’s need for change. The “Why” and “How to” factors driving this need for change were covered in detail. Finally, it was made clear that because of the ever evolving trends in business, business owners must get on board or fail in their endeavors.

In the second part to this diversification concept, I will address in more detail some of the areas business owners need to work on in order to meet these growing demands. Without addressing these key areas of business development, the cost to your business includes losses in both your customer base and income level.

Your Small Business as It Is Today

You might currently be operating your small business with negative cash flow or you might only be breaking even. If so, you might not notice the new demands on your business because you are not following the changing trends or regulatory enactments. You might be too busy just trying to stay afloat and think you cannot come up for air. Being the head cook and bottle washer of your company does not leave you with enough time to keep up with much else. Effectively accomplishing the necessary changes as listed below will allow you to develop and grow your business.

1. Business Plan – Operating your business on the basis of a business plan that was written 5 or even 10 years ago is not acceptable. If you have not looked at the plan in a long time, then now is the time to go back to the drawing board. If you do not have a business plan, I would recommend you consider getting one done now. Writing a new business plan or revising an old one will get you to think about the areas in your business that are coming up short. Remember, the business plan is your road map to business success.

2. Cash Flow Management – Managing your business’s cash flow is the life force of your business. You might think you have great products or services, but if your customers are not buying, then how great are they? Without paying customers, you are maintaining an expensive hobby. Addressing your operating expenses can also improve the net cash flow. Review your monthly Cash Flow Projections and determine what you would like to be making over a given period of time. Then compare the projected figures to what is actually happening on a weekly or monthly basis. If the numbers are far off, then this exercise should give you some ideas as to where your business model needs adjusting.

3. Payments – Understanding the term “Time Value of Money” is vital. This concept affects your bottom-line. When cash is not flowing into your bank account, you cannot cover your operating expenses or increase that rainy day fund. Implementing strategies such as early pay discounts can help. With more businesses taking longer to pay their outstanding invoices, using financing options such as Factoring (the sale of your outstanding accounts receivables-invoices) can alleviate disaster and save your business. We can agree that it is better to have your money today than having to wait 30, 60, or even 90 days to get paid. Think of the ramifications of not acting quickly and no money coming in.

4. Pricing – This is an area where many small business owners fail. The price points of 10 years ago are not applicable today. There is an art to pricing your products and services. You must flow with the changes affecting your business. Wanting to get customers in the door by being the cheapest on the block is not necessarily the most successful way to go. Being the most expensive can also deter your growth. If your products and services cost of goods figures are too high, this will negatively impact your cash flow balance. So be sure you are pricing your products and services to meet your needs.

5. Customer Retention – Knowing the heart of your customers might not always be easy to figure out. Identifying ways to keep your customers coming back is important to the longevity of your business. Use creative strategies to thank your customers, remembering important dates such as when they first became customer, their wedding anniversaries, or birthdays. If they took a long vacation consider sending them a welcome back card. Send them a handwritten “Thank You” note directly from you stating how much you appreciate them. Doing this will make your customers feel valued and it will make you feel good in the process.

6. Products or Services – This is probably the most important section of all 6 topics. Why? Do you currently offer only services or just products? If you are a business owner providing only services, you had better seriously start thinking of ways to implement a product division to your business. On the other hand, the same goes for those businesses only providing products. You are losing out on sales/income by only targeting one aspect and not both. When you have multiple ways of getting paid, this just makes sense.

Remember the term, “Multiple Streams of Income”? This is how you implement and start building on your income streams. Figure out how you can improve your business cash flow and start taking the necessary actions that can make the difference between success and failure.

When considering the diversification of your business, be sure to look at your strengths, weakness, opportunities, and threats, (S.W.O.T.) and address them head on. Do not allow the fear of change to paralyze you from taking your small business to the next level.

The 7 Biggest Financial Mistakes Businesses Make

Running a business should earn you an honorary degree given all you will learn, says Brian Hamilton, co-founder and CEO of Sageworks.

By Brian Hamilton

We live and we learn. In the time it’s taken me to build two companies, I have learned and more importantly, lived, these mistakes. I hope these pieces of advice can help both aspiring and existing entrepreneurs succeed in starting and running their own businesses. Here are the CliffNotes, the mistakes you should hear now and avoid.

1. Hiring in advance of revenue. There is a common expression: “Don’t count your money until it is in the bank.” There is great wisdom in this. Many times in business, we receive contracts or the promise of revenue. However, there is a major difference between having revenue and almost having it. Until revenue actually hits the bank account, you don’t have it, and you must overcome the tendency to be optimistic and hire too many people before the revenue is real. This one principle or mistake could be its own manifesto.

2. Borrowing money when you don’t really need it, but when the bank is willing to lend it. Just because a bank is willing to lend you money does not mean you should accept it. The bank is in business to collect interest and not to optimize your financial performance. Sometimes these two goals meet somewhere near the middle, but it is not as often as you might think. It’s not that bankers seek to take advantage of business people; it’s only that their objectives and yours are very different. In general, borrow as much as you need to grow your business. The problem with credit is not that there is too little available; it is that people get too much of it. Borrowing money adds a huge burden to your business, a stress that can often cascade into your personal life.

3. Not paying payroll taxes on time. I have known few businesspeople who have completely avoided this mistake, but it always creates unnecessary anxiety. When you pay employees, you collect a portion of their money on behalf of the government. Essentially, you are a collection agent. This is a tremendous liability and responsibility for employers that did not exist years ago when employees had to deduct their own taxes and pay them to the government. Alas, these days are over. When you hire an employee, you are also agreeing to help them pay their personal taxes, a major responsibility. Here is how this problem crops up. The employer cuts payroll checks but does not immediately set-aside the payroll liability in an operating account that is separate from the account they use to pay other operating expenses. The funds are mingled, and the person running the business has an inflated view of his or her cash balance. It is not that the employer is being dishonest or intentionally withholding the tax revenue; they lose track of the liability. Later, employers try to play catch-up, but because there is almost never as much cash available as you would like in a privately-held company, the taxes accrue and problems start severe penalties and interest. One solution is to keep two, separate accounts: one for regular operating expenses and the other for payroll taxes. Another solution is to simply use a payroll service that will give the liability its due attention.

4. Pricing too low. Unless you are Walmart or are trying to be (and have a real hope of achieving this), it is almost always better to sell fewer units at higher prices than to sell more units at lower prices. High prices protect your margins and also enhance your brand. Even 5-10 percent price increases can make a significant difference to the bottom line. I believe that, at any given time, 20-30 percent of businesses in a given market cannot possibly make a profit at their current prices—they are simply too low. In a way, these businesses have set themselves up unknowingly as nonprofit organizations. Conduct deep industry research on pricing, and then price at or near the market average—maybe even a little above it. When people start a business, they tend to price low to differentiate their offer. Instead, spend time and develop a real product or service differentiator so you can command higher prices. If you price low at the start and then later have to charge more as your operating costs grow (which they always do), you will offend and lose many of your early customers who think the increase is unfair. Price for decent margins, build and protect a real brand, and maintain your customers to build your franchise.

5. Permitting accounts receivable. Unless there is a good reason, you should not offer credit terms to customers. When you offer credit, you are now a bank and a service or product provider rather than just a service or product provider. It is rare that businesses fail because of profitability (most entrepreneurs know they need revenues to exceed costs); more often businesses fail because they cannot collect receivables and manage cash. Offer credit only when you must do so, and many businesses don’t need to. This goes against commonly accepted practices, but I have seen so many businesses fail due to poor cash flow management that I flinch every time I see smaller businesses offering credit. I realize that everyone reading this will think they need to offer credit to customers, but probably only 25 percent really need to. There is an old inventory management maxim: “Inventory kills.” This is wrong; it should be: “Inventory hurts, but accounts receivable really kill.”

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Factoring Your Small Business Receivables

By Karlene Sinclair-Robinson

Over the years I have asked business owners, “What do you know of Factoring?” Many times the answer is “I have never heard of it”. For those who answered, “I know little about it”, this is for you, too. Factoring your small business receivables is when you sell your invoices. This is considered the sale of an asset at a discount.

This notion of sales has been around for ages. In today’s market, this not-traditional form of financing is keeping many businesses both large and small afloat. Understanding this concept of business financing can take some time. If your business operates without invoicing your clients and waiting to get paid, then this is not for you. For those businesses who allow their clients to pay them on terms, such as pay 30 days, then this could be for you.

Traditionally, most small business owners will go to their banks when they need to access capital. With today’s tight lending due to credit constraints, many of these small businesses are not able to get the necessary capital they need. Banks are unable to finance these business owners’ requests based on a number of reasons. Many will say banks are not lending but that is not really the case. It is the case that many entrepreneurs cannot qualify for traditional bank financing.

This is where factoring as a financing option can play a major role in your small business. If you are a government contractor or doing business-to-business transactions, this is one type of financing that can be beneficial to the growth or survival of your business.

Business Growth – During periods of explosive growth, businesses cannot sustain this increased demand for products and/or services without some outside help. Banks are often not able to facilitate such rapid growth. Here are some growth issues that factoring could solve:

o Increased Payroll
o Larger Purchase Orders
o Increased Production
o Opening New Markets

Business Survival – Surviving through down-times is important as your staying power will be tested. Being a savvy business owner will get you through these tough times. You can come out ahead if you identify these obstacles and the solutions to solving them:

o Pay Taxes
o Unexpected Expenses
o Payroll
o Credit Rating

Factoring your small business receivables gets money into your bank account in less time than it takes to wait 30, 60, or 90 days to get paid. Understanding the “Time Value of Money” will keep you in business. The sale of your invoices allows you to receive money much earlier than the time it takes your clients to pay their bills. On the other hand, your clients pay the invoices at the 30, 60 or more days.

With this financing concept, there are three (3) important factors to consider:

Creditworthy Clients – In order to make this financing option work for you, you must be doing business-to-business or business-to-government transactions. It is all about “Who is Guaranteeing Payment”. If your clients have good paying habits, even if your credit and company’s business credit is not high, it is vital that you are doing business with creditworthy clients.

The Advance – Is the initial upfront amount you receive from the funder. When you sell your business invoices (receivables) the financing source will advance this portion of the invoices. The advance rate could be as low as 60% to as high as 90% of the face value of invoice. This range is based on a number of factors but primarily the industry type plays a big role here.

The Reserve – Is the balance after the payout of the Advance. The financing source will await payment from your clients based on the factoring process. Once your client pays, the financing source will subtract their fees. They will then transfer to you the balance.

With the above information, determine if this non-traditional form of financing will work for you. If it is, do take advantage of factoring your invoices. Before you eliminate Factoring as a financing option, learn all you can, then you can make a sound decision.

Diversifying Your Small Business – Part 1

By Karlene Sinclair-Robinson

Many entrepreneurs learned early on that diversifying their business was a key strategy to their success. Their current success hinged strongly on how well they were able to adapt and change with the shifting tide of the business world and what their clients demanded of them. Without diversification, many businesses can and will go bust.

Why Diversification Is an Important Factor to Consider in Today’s Business Arena

In today’s business arena, such things as personal development, consumer demands, technological and medical advancements, and many other changes are the driving forces behind the need for diversification. Without this concept of changing with the tide, many business owners will be left behind. The need to understand, and act on, what the industry advancements and the demands are is critical. This will determine your business success or failure. Finding solutions to the growing needs of our population and economy is a vital part of how well business owners can grow their business.

Knowing that these changes are required, a business owner cannot allow inflexible attitudes to immobilize them and keep them from using the path of diversification to move their business in the direction that is being demanded of them. Understanding the strengths and weaknesses of the business model can help to impact the necessary changes. This will allow business owners to seize the opportunities presented to them based on the changing needs of the economy and their customer’s buying power.

How to Implement the Concept of Diversification

Implementation of the diversification concept is based on the business, type of industry, current economical changes, customer demands, and the business owner’s ability to change with the tide. Addressing each area of change is vital to this principle of diversifying your small business.

* The Business – Diversifying any business today can be a daunting task. How you achieve this measure of change is important but successfully achieving this change is vital. Your success is dependent on the implementation strategies set forth to move the business in the right direction. You must adapt and change or the business will not succeed or be as successful as it could be.

* Type of Industry – The industry type for your small business is important to this concept of change. Identifying the changes within your industry will help your business if you can define a methodology to implement the changes. Take a look at the health care sector as an example. The Health Care Reform Act of 2010 has certainly brought about many changes to how businesses within this sector operate. If they do not adapt to these changes, many businesses end up closing their doors based on compliance issues, income redistribution, and their own inability to adapt and implement these changes.

* Current Economical Changes – Changes in the economy affect every business on a local, regional, national, and sometimes on a global level. Just think of dropping a stone into the ocean and watching the ripple effects. These changes bring about more demands for new products or services. Sometimes these changes encourage new industries or eliminate unadaptable businesses.

* Customer Demands – With the ‘Baby Boomer’ effects, and the coming age of the ‘Echo Boomers’, the demands being levied on businesses for new products and services has grown to an all time high. When a business or an industry cannot handle the demands or changes, this brings about a negative conclusion. Understanding market demands and shifts in the customer’s purchasing habits, will allow for growth in many sectors.

* Business Owner’s Ability to Change – If you are not willing to provide the products or services your clients need, they will go elsewhere. When you do not listen to your customers, they will know it. They decide where they spend their money and what they are willing to spend it on, regardless of the price point.

Diversifying your business does not mean you completely change your model. Being successful in today’s market indicates that you listened to your customers and took action. If you are unable or unwilling to adapt, it will impact your bottom-line.

This is a wake-up call to those small business owners who believe their customers will always buy what they have to sell. This is not the case. Start listening to your customers and implement the changes necessary to keep your business at its optimum cash flow level.

Why Small Companies Are Taking Longer to Pay

Small business owners are taking longer to pay their bills.

Five major industries are seeing their average accounts-payable days rising, according to a new study from the Raleigh-based small-business research firm Sageworks. Taking an average 40 days to make a payment, manufacturing firms are delaying the most, while real-estate businesses, which were at 10 days in 2009, are now at nearly 20 days. For retailers, it took 24 days to pay last year, but now it’s more like 34 days.

Although the latest survey of small-business economic trends from the National Federation of Independent Business showed growing pessimism among entrepreneurs, the explanation that hard times are causing companies’ accounts payables to creep might not be entirely accurate.

So what’s behind the uptick in accounts-payable days? And is this trend good news or bad? Here are a few theories on what could be driving longer payment cycles:

Client payment slowdown. Major corporations that have small businesses as subcontractors are paying slower. Giant companies are sitting on a big wad of cash right now, and they’re not letting go of it easily. If clients take longer to pay, small businesses, which often function check to check, tend to pay their vendors slowly, too.

READ MORE…

SBA Patriot Express Loans Top $633 Million

Release Date: June 29, 2011

WASHINGTON – In just four years the U.S. Small Business Administration’s Patriot Express Pilot Loan Guarantee Initiative has provided more than $633 million in SBA-guaranteed loans to 7,650 veterans to start or expand their small businesses.

Patriot Express, a pilot loan product, with streamlined paperwork, and based on the agency’s SBA Express program, offers an enhanced guaranty and interest rate on loans to small businesses owned by veterans, reservists and their spouses.

“As Independence Day arrives it is only natural for us to reflect on America’s veterans – men and women who have the leadership skills and experience to become successful entrepreneurs and small business owners,” said SBA Administrator Karen Mills. “The impact of this program the last four years has meant thousands of veterans and their families have had the resources to pursue their dreams as entrepreneurs, and at the same time create jobs and drive economic growth at a critical time for our country.”

Patriot Express was launched June 28, 2007, to expand upon the more than $1 billion in loans SBA guarantees annually for veteran-owned businesses across all its loan programs. SBA also offers counseling assistance and procurement support each year to more than 200,000 veterans, service-disabled veterans, reservists and members of the National Guard and their spouses.

Patriot Express loans are offered by SBA’s network of participating lenders nationwide and feature one of SBA’s fastest turnaround times for loan approvals. Patriot Express loans are available for up to $500,000.

The Patriot Express loan can be used for most business purposes, including start-up, expansion, equipment purchases, working capital, inventory or business-occupied real-estate purchases. Local SBA district offices can provide lists of Patriot Express lenders in their areas. Details on the initiative can be found at www.sba.gov/patriotexpress.

To learn more about additional opportunities for veterans available through the SBA, please visit the website at www.sba.gov/vets.

SBA Export Business Planner – A Must Have For Your Export Business

Free Online Tool from SBA Helps Small Businesses Develop an Export Business Plan

Release Date: June 7, 2011

WASHINGTON – Small businesses interested in starting or expanding sales of their goods and services overseas have access to a new, free online tool that will gauge their readiness to export and help them develop an export business plan.

The Export Business Planner, developed by the U.S. Small Business Administration, offers a ready-made, customizable and easily accessible document that can be updated and referenced continuously as the business grows.

The Planner, located at www.sba.gov/exportbusinessplanner, allows users to:

* Determine their export readiness
* Learn about training and counseling opportunities
* Complete worksheets for global market research
* Obtain financing information and options
* Customize export marketing plans, and
* Access resources for exporters

“Creating jobs through exporting is one of the nation’s top economic priorities, as the President indicated when he launched the National Export Initiative,” said SBA Administrator Karen G. Mills. “Giving exporters the tools to do their part in this effort is essential. The new Export Business Planner is one such tool and will serve businesses in the critical process of planning for their success.”

The Planner is a PDF file that can be easily downloaded, accessed, customized, and updated every time you use it. It features an extensive compilation of export research and information, including quick links to websites, video profiles, training podcasts, trade statistics, contact information to counseling resources such as SCORE and SBDCs, a list of current SBA lenders and much more.

The tool is organized in comprehensive chapters that are cross-linked and indexed for efficiency and easy access to related topics.

The chapters include:

* Introduction to Exporting
* Training and Counseling
* Getting Started: Creating an Export Business Plan
* Developing your Marketing plan
* Financing your Export Venture
* Accounting Worksheets: Costing, Financial Forecasting and Product Pricing
* Utilizing Technology for successful Exporting
* Your New Marketing Plan: Summary, Timeline
* Updates, Transportation and Documentation

A special, very useful feature of the Planner is the customizable worksheets, which provide templates for developing your export business plan, conducting business assessments and foreign market research, creating your marketing plan, costing and sale projections, goal setting and much more.

# # #

For more information about all of the SBA’s programs for small businesses, call the SBA Answer Desk at 1-800 U ASK SBA or TDD 704-344-6640, or visit the SBA’s Web site at http://www.sba.gov.

5 Things Business Owners Must Consider During Growth or Survival Periods

By Karlene Sinclair-Robinson

Growing a business in today’s market is all about survival of the fittest. Surviving through the uphill battles of being an entrepreneur is critical. Surviving through the growth stages of the business is just as vital as when your business is in a negative cash flow period or downhill mode.

How you survive through these stages will determine whether your business will be around or close for good. It is important to define ways to deal with the ups and downs in business. You must defining key strategies to stay afloat through.

Here are five (5) things to consider when faced with either survival or growth periods and you need access to capital to finance for your business:

1. Who are your clients?

It is important that your client base is clearly defined. If you have clients in all three sectors—business-to-business (B2B), business-to-government (B2G) contracting opportunities, and business-to-consumer (B2C)—you must understand the dynamics of each sector and the significance of how these dynamics affect your access to capital, especially in the non-traditional lending arena of alternative financing.

2. Who is guaranteeing payment?

It is important to understand the payment methods your clients might use to pay you. Whether you receive payments from the government, a business, or a consumer, this information will dictate the type of financing your small business can use for future growth or for the survival of your business.

3. How do you receive payments for goods and/or services?

Each business owner determines what methods of payment are acceptable for their business. Payment methods could include cash, checks, direct deposits, credit card payments, and online credit card payments using sites such as PayPal or AlertPay. You may also invoice your clients and allow them terms, such as 30 days, to pay. These payment methods will dictate how your small business can access working capital and what financing source is best suited for your business.

4. What are your payment terms?

Business owners often give their clients specific terms to pay their invoices. This method is primarily used when invoicing clients against services they have used or products they have received. The average payment term is 30 days but this does not mean your clients will pay during this time period. When your clients cannot pay your invoice within the terms you have agreed upon, you are holding a paper that is not worth much. In this situation, you will need to revise your payment terms or obtain financing to help your business stay afloat until your clients pay the money they owe you.

5. Why have traditional bank lenders turned you down?

It is important to understand why your bank turned you down for a business loan or line of credit. Being a bankable customer is always the goal, but you might not always be considered as one. To regain the status of being bankable, you will need to fix a number of things first. In the interim, you will have to select non-traditional (alternative) financing options. These financing options should be used to get you back on track, and alternative financing sources will work with you and your bank if you are a good fit.

Remember, it is about staying in business, providing great goods and/or services, and employing individuals who will give your business an outstanding reputation. Do not be afraid to diversify your business, if that is what you need to do to survive. Sometimes staying on the same path is not the best approach. You might have to adjust the route you are taking to achieve the business success you desire.

Why Micro Loans Could Be The Answer to Many Small Business Owners Financing Needs

By Karlene Sinclair-Robinson

Small business owners, if you have never considered accessing a Micro Loan, you might want to take a look at this viable financing option. Some of you might think that these types of loans are used only in Third World countries. Perhaps you have heard of lending sites such as Kiva.org, which primarily finances individuals living in countries other than the United States who are starting their own businesses.

Micro Loan financing is one of the best small business financing options available in today’s tight lending climate. This type of financing has been around for many years. Micro Lenders have finance entrepreneurs to the tune of billions of dollars worldwide. There are many other financing options available, but this type of financing has survived the recent financial storm and continues to grow exponentially.

To know if a Micro Loan is a good fit for you, first, determine if a small loan amount is adequate for your business. Next, consider the criteria you must meet to be approved for a Micro Loan. There are many types of Micro Lenders and they all have different processes in place to either approve or decline your loan request

The answers to the questions below will help to determine if a Micro Loan is right for you:

* Why should I use a Micro Loan? Large numbers of Micro Loan requests have continued to be approved since the financial crisis hit in 2008. Prior to the economic downturn, lenders would typically take two to three weeks to approve a loan request. Since 2010, traditional loan approvals have taken as long as ten (10) weeks or more. Many Micro Loans are now being approved in six (6) to eight (8) weeks. This time-line is, of course, based on factors that must be taken into consideration on a per client basis.

* Where do I access a Micro Loan? These loans are available through local, regional, national, and international sources. These sources have their own guidelines for approving loans. Some of these lenders are privately held “for-profit” companies, while others are “nonprofit” or “not-for-profit” organizations.

* What do I need to access a Micro Loan? The lender will require such documents as your credit report, itemized “Use of Funds” list, cash flow statements, bank statements, and any other document the lender deems necessary for them to feel comfortable in approving your loan request.

* How do I qualify for a Micro Loan? You will qualify for a loan based on the requirements of the Micro Loan lender you use. These lenders will request enough documentation, collateral, and other information to make them comfortable with the risk they are taking to loan you money.

* Does my type of business fit this loan option? Each Micro Loan lender sets their industry specific requirements. You’ll need to determine if the source you’re working with will finance your type of business. If you don’t know your industry category, check the NAICS codes system (North American Industry Classification System) at http://www.census.gov/eos/www/naics/.

Many of you may have tried unsuccessfully to get loans from traditional financing sources such as banks. Perhaps your lender did not explain clearly why you failed to qualify for a business loan. Maybe you did not prepare well for traditional financing. For example, if your credit score was too low, or you didn’t have sufficient collateral to offset the risk associated with the loan amount you requested.

If this is the case, a Micro Loan could potentially improve your financial situation. This loan option is a great way to get your business moving quickly. You can access this type of financing based on a number of factors.

Micro Loan Factors to Consider:

* Start-ups (less than 2 years in business) – $15,000 to $25,000 loans available

* Seasoned businesses (more than 2 years in business) – $35,000 to $50,000 loans available

* Loans use available collateral such as equipment, vehicle(s), jewelry, etc.

* Loan approval time-line – 6weeks to 10weeks or more (per lender)

* Some lenders lend nationwide, while others finance regionally or locally

* Types of industries – All types included with restrictions in the construction and medical industries

If Micro-Loan financing fits your small business needs, then by all means use it to grow your business or help stabilize it. Remember, it’s a loan option you can use and reuse in shorter periods of time when compared to repaying a loan for a larger amount. Be sure to prepare effectively for this or any other financing option so you can qualify and get the working capital you need.

If you don’t know where to look for Micro Loan sources, check with your local Small Business Development Center, Women’s Business Center, Small Business Technical Center, local Chamber of Commerce, or via this website’s Contact Page.

5 Reasons Why Your Website is Important to Financing Your Small Business

By Karlene Sinclair-Robinson

Today’s small business owners have so much to do when engaging their customers. Staying hyper-focused on bringing in new customers is important. It is also important when courting a financing source, whether traditional or nontraditional. When you are in need of financing, especially if you are a start-up or small business owner, your financing source will become a vital part of your business. What a lender requires is just as important as the needs of your customers. You want customers to buy your products or services, or both. You also need the lender to finance the survival or future growth of your business.

Here are five (5) important reasons to have a website:

1. Online Presence – Having an online presence gives potential lenders or investors and customers immediate access to your business. They also have the opportunity to see how you present your business in the marketplace. It is important for them to read pertinent information that enables them to make decisions that will benefit them firsthand. This information will help them determine how you view your products and/or services, and how you value your customers or anyone else who interacts with you.

2. Tells Your Story – Your website provides the information others need to make a decision regarding purchasing your products and/or services or financing your business. Your “About Us or About Me” page can be a deciding factor as to whether or not someone wants to do business with you. This page should give some professional background on you and your team, as well as the history of your business. This vital information will make your customers and potential lenders feel more confident about doing business with you. Please bear in mind that having a website is not, and never will be, the sole deciding factor in whether or not you receive the financing you need. It is a lot more intricate than that.

3. Business Awareness – Being on the internet makes it easy for potential customers and lenders to learn about you. They can research your products and/or services without having to call you or meet you in person. Having a clear description of your business and how you operate is a necessary part of making your website both user-friendly and content rich.

4. Contact Options – Lenders and customers must have a way to contact you. When they have various ways of contacting you, it makes them feel more secure about doing business with you. Remember, the web site is not for you, although it is about you and your business. It is for those individuals who prefer to visit your web site prior to contacting you, or even for those who might just want to send you feedback about your products and/or services. You never know, they might have a customer referral for you during the hours your business is closed and want to get information over to you as soon as possible. Do not hesitate to make it easier for people to contact you online.

5. Levels the Playing Field – In today’s internet-savvy world, billions of people are online daily, and most businesses have a website. You might think your start-up or small business does not need one. You might want to check what your competitors are doing. Most likely, they will have a website. Potential lenders will look at your competitors’ websites to help them understand your industry, and to determine what makes your business different or better than your competitors.

If your internet presence needs improvement, start working on it now. If you had a website, but it is no longer up and running, get it back on track. I am not suggesting that having a web site will make you a ton of money or get you the financing you need, but it levels the playing field for you when others are conducting research prior to doing business with you. I am sure you would not want your competitors to be the only ones getting this type of online exposure. Having a online web presence is definitely an advantage in the competitive world of business today.

Growing Your Small Business with Non-Traditional Financing

By Karlene Sinclair-Robinson

Small business owners are always seeking ways to grow their business. Whether you are going after business-to-business (B2B) clients, business-to-government (B2G) contracting opportunities, or business-to-consumer customers (B2C), growing your business is the foremost thing on your mind.

It is all about growing your business to the next level and beyond. How you do this takes a multipronged approach. One such approach has to be diversification in how you operate your business and how your received payment for goods or services rendered. Understanding how diversification will play an important role whether you are going through survival or growth mode.

Getting a new contract or increasing business-to-consumer clientele will shift the dynamics of your company. It is important that you continuously work your business and marketing plans to fit your business model. If you do not work these plans, you can find yourself in jeopardy of failing.

Here are some questions to consider:

* Are you effectively working your business and marketing plans?
* Can your small business support an influx of new business?
* Do you have the staff to cover the increase in services and/or product delivery?
* Can your business maintain the growth potential over a sustained period of time?
* Are you financially set up for this great opportunity?
* Do you know how you will access working capital to maintain this growth period?
* If you are not financially sound, how will you finance this growth potential?

All of the questions listed above are vitally important, even if your small business is struggling to survive. If your business has taken a hit, such as low sales or tax issues, you seriously need to know your business financing options. You also need to know how to access these non-traditional financing, otherwise referred to as alternative financing, and when to do so. Remember, timing is an important factor in all that you do.

Accessing non-traditional financing is similar to accessing traditional or institutional financing with some variables. For example, how much time do you need to obtain funds, what are your decision-making options, and what changes need to be made to achieve desirable solutions for all parties are important things to consider.

The types of non-traditional financing vary in methodology from Micro Loans, Factoring, Equipment-Lease Financing, Asset-Based Lending, Purchase-Order Financing, and even Peer-to-Peer Lending. These options may be available to you depending on the type of financing best suited for your small business, and the actual source used to finance your business.

Growing any business can and will take a lot of work. Gaining access to the necessary resources your business needs, is important at all levels of operation. Having a mindset for success and thinking “Outside the Box” when needed, is vital to the survival or growth of your business.

What Are Recourse and Non-Recourse Loans?

By Karlene Sinclair-Robinson

Understanding the difference between a “Recourse” and “Non-Recourse” loan is vital to every entrepreneur. Whether you are seeking financing or not, it is important to know what these terms mean and how they apply to you, the business owner. It is widely acknowledged that if you don’t understand them, it can be very costly. This information just might come in handy in the future.

Merriam-Webster’s Dictionary defines these two words as:

“Recourse Loans” – The right to exact payment from a party secondarily liable, where the first party has failed to pay.

“Non-Recourse Loans” - being or based on an agreement in which the lender has no right of recourse to the borrower’s assets beyond stated limits.

Based on the above definitions, it is understood that “Recourse” gives the lender more guarantee that they will be repaid. They can go after any party or guarantor who signed the agreement or contract. “Non-Recourse” gets you, the borrower, off the hook for repaying the loan, in case you reach the point of being unable to pay and can clearly show evidence of this.

In most traditional financing options (bank loans), Recourse is always in place. In the non-traditional or alternative financing options (private lenders), the funder determines the use of “Recourse” vs “Non-Recourse”. This is so as the private lender sets their own guidelines based on their experience and what they feel is important to them.

Recourse and Non-Recourse loans vary based on the type of financing needed and where you get the funding. They also work with the assets you have pledged in obtaining the loan. Assets such as real estate, machinery or equipment make great collateral. When the lender determines that the collateral is good enough for them, they will use a maximum loan-to-value (LTV) ratio to be able to lend you a set amount. This is all based on the value of the asset or assets you bring to the table.

You will often find in the real estate market that Non-Recourse is more widely used in the private lending sector than in the traditional forms of financing such as a bank loan. This does not mean it applies to all real estate financing transaction. This boils down to the agreement you signed. Due to the changes in the real estate financing and other private lending areas, lenders are changing the use of “Recourse” vs. “Non-Recourse” and the way they process the borrower.

These changes affect the types of documents now needed to process a loan request. More lenders are using “Recourse”, as they have been left with too many unpaid loans. With this, borrowers now have to present documents such as identification and legal status, Social Security number, on the personal side, and much more, even if you are using your company as the borrower.

What this all boils down to is this, if you receive a “Recourse” loan, the lender has every right to use all applicable methods to gain repayment. Actions the lender can take includes suing you, which then leads to judgments, and liens being levied against you. This can be on both personal and business assets. This will also affect your personal credit regardless of the loan being for your business. For the “Non-recourse” loan, you do not have the same problem as the collateral used will stand on its own. If you cannot pay it back, the lender simply takes control of the collateral pledged. They will not have the option to take you to court for the unpaid balance.

Remember, this is now the “Recourse” world of financing vs. the “Non-Recourse”.

Documentation 101 for Factoring Transactions

by Peter Pirri

The four essential documents needed to review and understand a possible accounts receivable factoring transaction are (1) an Application (2) Accounts Receivable Aging Report (3) Sample Invoice (4) Articles of Organization. The aforementioned are essential but not required in all cases. However, the more information that is documented in the beginning, the easier it becomes later on to close a transaction.

The Application

A properly completed application, signed by the client, indicates intention. In any business deal or contract there must be a sense of intention. A client’s willingness to factor can be identified in the way an application is filled out. If items or questions are left blank or a signature is not obtained, the factor may not consider the level of intention or interest expressed by the client to be significant.

In addition, the application should always indicate the type of business the client is involved in, information that provides the factor with an idea of the amount of risk involved in the transaction and what documents would be required to fully understand the products and services the client is offering its customers. As a broker, you are also presenting the deal to the factor to procure the best rates possible for the client.

Accounts Receivable Aging Report

A current accounts receivable aging report is a critical document. It provides valuable information and identifies whom the client is selling to, how much is owed, and how quickly the receivables are paid. The accounts receivable aging report should be sorted by date and customer. Other reports such as “open invoice detail” and “trial balances” are not as informative. A factor or funding company wants to see what is available for purchase immediately. The accounts receivable aging report can also identify problems such are collection issues, bad debt, retainage, and deposits that are not apparent on the invoices.

Sample Invoice

A sample invoice provided to the factor for due diligence should be an invoice that the client has previously sent to a customer that they would like considered for a factoring relationship. The invoice will display the trade name, the terms of payment, the account debtor, the party in receipt of the merchandise, and delivery details. When funding sources purchase invoices, they “step into the shoes of the client,” and they want to be sure that their titles to the invoices are unencumbered and their rights to receive payments in a timely fashion can be effectively enforced. It is not helpful to the funding sources if clients submit “blank” invoices to be reviewed.

The Articles of Organization

The Articles of Organization identify the legal entity that owns the invoices and the state in which they are filed. Also, it identifies the owners or managing members. This information is very important when it comes time to file the appropriate UCC Financing Statement. From a legal perspective, it’s important to remember that corporations or limited liability companies own all rights, title, and interests in the accounts receivable and individuals own the corporation or company. If a UCC Financing Statement is not filed with the appropriate state agency, including the correct organizational identification number, the financing statement may be rejected, and the funding source will not have a first security interest in all the accounts receivable for several more days or weeks until it is fully corrected.

Once the client enters into a contract with the factor and invoices are assigned or sold to the funding source for factoring by the client’s authorized representative, additional documents may be required: purchase orders, confirmation of delivery, and any type of contract or agreement between the account debtor and client. One may inquire, “Why are these things important? The invoices are the only documents with a quantifiable value.” The reason for the increased vigilance in the factoring business is the risk of a client generating a fraudulent invoice or an invoice that is not an accurate reflection of the agreement with the account debtor. The funding source must become comfortable with the transaction and be sure that goods and services were properly delivered and that payment will be made in a timely fashion, usually within 90 days of the invoice date.

To restate, invoices must represent goods and services that have been delivered. Invoices that represent partial shipments or agreements for future service are not acceptable for factoring because this dramatically reduces the account debtor’s willingness to pay. Why would anyone pay for something he hasn’t received? As a consumer, you wouldn’t pay for jeans at Target and then pick them up the next day! Funding sources must feel comfortable that the invoice represents a final sale.

Business Loan Fundamentals: What Small Business Owners Need to Know

Small Business owners seeking capital to grow their business or just to survive through the economic downturn are at their wits’ end. Money to these businesses is not flowing as freely as in years gone by. Here is one business fundamental to consider.

Accessing capital for your business can be a daunting task. If you are a start-up business owner, this is even more so. Small business owners who are considering accessing capital are sometimes not sure what to do or where to go. This is understandable.

The news media showcases small businesses’ inability in securing the financing they need to grow their business or just to survive. In some instances, entrepreneurs are getting funded but not at the level or the amount they really wanted. These business owners have to make adjustments to their plans in order to fit what they can qualify for.

One thing to note is being prepared prior to seeking outside capital, otherwise called OPM (Other People’s Money). This is even more important now than ever before. Knowing what the lender’s requirements are is very important. Banking institutions must follow strict Federal guidelines. Private investors or alternative financing sources have their own guidelines and requirements. Being aware of these requirements is important to the smooth processing of your loan or financing request.

When applying for any type of financing, you must present the applicable documents the lender requires. If you are buying a house or car, you would have to submit all applicable documents the lender required. This is the same process when accessing capital for your business. Without the lender’s required list of documents being received and reviewed, you will not be able to successfully access the loan or financing option you so badly need.

If you do not have a specific document or documents, you need to submit a written explanation with a legitimate reason for not having the necessary paperwork. There are some documents you must have, no matter what the circumstances. Without the mandatory required documentation, the lender is at risk of losing their money if they were to take a chance on you. If the lender is a lending institute governed by the Federal Deposit Insurance Corporation (FDIC), they will not be able to work around any mandatory documents not being submitted.

When all is said and done, it’s not about how great you think your idea or business is. It is about the lender and their risk tolerance. What it boils down to is the business being viable for the lender to make the decision to lend you their money. They must feel you have the capabilities to repay the loan.

So, if you want their money, it is simple, provide the required information and documents to expedite your financing request. Show them that you are responsible and that you take them seriously. And most of all, do not waste their time if you know you do not have the information they need.

Here is a checklist of items that might be applicable to your loan request:

* Loan/Lender Application
* Business License/Certifications
* Business Overview
* Business Plan
* Resumes
* Personal Financial Statement
* Personal Credit Report
* Personal Income Tax Returns
* Business Credit Report
* Business Income Tax Returns
* Business Lease
* Business Insurance
* Financial Statements including Cash Flow Statement, Balance Sheet, Profit and Loss
* Bank Statements
* Merchant Statements
* Current Accounts Receivable Aging Report
* Current Accounts Payable Aging Report
* Payroll Tax Form 941
* Property Ownership Documentation
* Partnership Agreements
* Identification
* Any loans such as commercial property mortgage documentation
* All applicable authorizations including release of information, landlord, references

Remember, the above list of documents does not apply to all financing options, so be aware of what is specifically required by the lender you selected. The lender has the right to ask for any documents they believe will assist them in making a decision one way or other. Be sure you understand what the lender is looking for. If you do not know, have them explain exactly what it is they need. It makes for a smooth process. Let’s not waste your time or the lender’s time; be prepared.

The Small Business Grant Misnomer

By Karlene Sinclair-Robinson

Understanding the difference between a “Recourse” and “Non-Recourse” loan is vital to every entrepreneur. Whether you are seeking financing or not, it is important to know what these terms mean and how they apply to you, the business owner. It is widely acknowledged that if you don’t understand them, it can be very costly. This information just might come in handy in the future.

Merriam-Webster’s Dictionary defines these two words as:

“Recourse Loans” – The right to exact payment from a party secondarily liable, where the first party has failed to pay.

“Non-Recourse Loans” - being or based on an agreement in which the lender has no right of recourse to the borrower’s assets beyond stated limits.

Based on the above definitions, it is understood that “Recourse” gives the lender more guarantee that they will be repaid. They can go after any party or guarantor who signed the agreement or contract. “Non-Recourse” gets you, the borrower, off the hook for repaying the loan, in case you reach the point of being unable to pay and can clearly show evidence of this.

In most traditional financing options (bank loans), Recourse is always in place. In the non-traditional or alternative financing options (private lenders), the funder determines the use of “Recourse” vs “Non-Recourse”. This is so as the private lender sets their own guidelines based on their experience and what they feel is important to them.

Recourse and Non-Recourse loans vary based on the type of financing needed and where you get the funding. They also work with the assets you have pledged in obtaining the loan. Assets such as real estate, machinery or equipment make great collateral. When the lender determines that the collateral is good enough for them, they will use a maximum loan-to-value (LTV) ratio to be able to lend you a set amount. This is all based on the value of the asset or assets you bring to the table.

You will often find in the real estate market that Non-Recourse is more widely used in the private lending sector than in the traditional forms of financing such as a bank loan. This does not mean it applies to all real estate financing transaction. This boils down to the agreement you signed. Due to the changes in the real estate financing and other private lending areas, lenders are changing the use of “Recourse” vs. “Non-Recourse” and the way they process the borrower.

These changes affect the types of documents now needed to process a loan request. More lenders are using “Recourse”, as they have been left with too many unpaid loans. With this, borrowers now have to present documents such as identification and legal status, Social Security number, on the personal side, and much more, even if you are using your company as the borrower.

What this all boils down to is this, if you receive a “Recourse” loan, the lender has every right to use all applicable methods to gain repayment. Actions the lender can take includes suing you, which then leads to judgments, and liens being levied against you. This can be on both personal and business assets. This will also affect your personal credit regardless of the loan being for your business. For the “Non-recourse” loan, you do not have the same problem as the collateral used will stand on its own. If you cannot pay it back, the lender simply takes control of the collateral pledged. They will not have the option to take you to court for the unpaid balance.

Remember, this is now the “Recourse” world of financing vs. the “Non-Recourse”.

5 Things Every Startup Business Owner Must Know

Since most start-ups are small, minority, women or veteran owned businesses, they tend not to know as much from an alternative financial perspective as larger entities. This is not to say that they do not know anything, but in most cases that we have seen, these business owners most times do not know these alternative financial sources exist or are afraid to use these options.

And so, listed below are just some of the things start-up companies need to be aware of when seeking alternative financing.

1. Business Foundation

As a new business owner, did you make the decision to operate as a Sole Proprietor, or did you choose to incorporate your entity? If you did incorporate, great! More financial opportunities are available to you. As an incorporated entity, financial institutions and alternative funding sources are more apted to possibly providing financial assistance. As a LLC, INC, LP, CORP, and so on, you show the funder that you understand the full ramifications of being an incorporated entity as oppose to being a Sole Proprietorship. As a Sole Proprietor, you are a greater risk to an alternative funding source.

Depending on your business module, this will help to identify whether you are a fit or not for these funders. Presently, there are fewer alternative funders financing Sole Proprietors each day, due to the high risk factors of tax evasion, fraudulent transactions, and so on. Not to say that Sole Proprietors cannot get this type of financing, it just means that there is a limit to the number of funding sources available to assist you in your time of need.

2. Locating Alternative Financing

Start-up business owners most times know only their banks as their primary source to get a loan or line of credit. Their alternative source(s) most times tend to be family or friends. Who knows, this could be something that can make or break a family or friendship when hard times hit a start-up company. Who do you turn to when you have run out of options? Alternative funding sources are available throughout the United States, and all have their own specialized area of expertise. There are funding sources for almost all areas of business, and as alternative financial experts, they make the deals happen.

They have the knowledge and the money to help take your business to the next level. How do you find them, you might ask? Ask questions within your business community, banking sector, and so on. You can also seek out financial consultants but better yet, the kind of cash flow consultant who have direct access to these types of funding sources who can put you with the right source from the get go. Understanding how your business operates, where you are presently, who your clients are, what your plans are, and so on, makes it easier to determine how a cash flow consultant will be able to assist you.

3. Understanding how Alternative Financing can help your business

Yes! It is great to know where to find the money to help your business but do you really understand how it can help you? Did you know that if you opted for an alternative financing option, it could possibly have saved your start-up entity from being a part of that 80% who go out of business within the first (1st) year? Did you know that understanding alternative financing could mean the difference between being able to bid on a contract and possibly winning it? Did you know that understanding these options could mean the difference between keeping and losing your employees (a business most-valuable asset)? Did you know that utilizing these options could help to make you a more bankable entity in the eyes of the banks within a short period of time?

Understanding what this can do for your business is a must. Develop a plan of action as to what type of financial services you might need, when you might need it and learn all you can about those solutions. If you are in the real estate, construction, medical, transportation, security and so on, learn what the funding sources are looking for in a company like yours, in order for them to be able to better help you.

4. Risk Assessment from a Funder’s Perspective

Assessing risk from a funder’s perspective is simple. If the funder lends you money (say Hard Money), advance you funds in the form of Factoring, Purchase Order financing and others, who stands to loose the most? The funders, of course, but remember they know how to analyze their risk level, and so they will not go into a zone that is 100% risk to them. Someone has to be responsibly for the payment of that debt, however it is structured.

Since more cases of fraud are occurring daily, funding sources are also getting more sophisticated in being able to determine if a prospect is legit or not. Going back to (1) Business Structure, funders will look at your structure and the type of business you are involved in to determine if you are at a higher risk level than others. On the other hand, if you are seeking 100% financing in the commercial arena, you are barking up the wrong tree. Most commercial funders will not do 100% financing. It is just not happening especially now, whether on a small or large scale. Depending on the funder, and how your business/project is laid out, you might just get what you are asking for, if you know what you are doing!

5. Decision Making

This is the single most important element to actually obtaining financing. After learning all you can about a particular alternative financial product, you have to weigh the pros and cons of how it will affect your business.

Questions to ask yourself: what will this do for my business in the next few months, years? How will this help? What other alternatives do I have? What are the requirements? Will they be as stringent as the banks? What do I have to do to get started? How will I be treated and what does the process entails? How long will it take to get the funding? What will it cost? Do I get to talk with the funding source directly? And so on….

After figuring out what your business actually needs, you then need to make a decision. This decision will help shape your business one way or the other. Take a sheet of paper, divide it into two columns. On one side, list five (5) positive things that come to mind in seeking funding, then do the same on the other side, but this time list the five (5) negative things instead. Then measure for yourself what both columns bring to the table. Does column one (1) outweigh column two (2) or not? This will help you figure out what you need to do. A word of caution though, business owners who procrastinate in making a decision about the usage of alternative financing, result in unfavorable situations for themselves, and sometimes are not able to obtain funding due to mitigating factors beyond a funders’ capabilities.

It is my hope that as a new business owner, you will make informed decisions to enhance the building and sustainability of your business.

6 Questions You Should Ask A Lender Before Applying For A Loan

by Karlene Sinclair-Robinson

Many small business owners today are finding that qualifying for bank financing is not easy. Even if you are using non-traditional lenders, these are important things to know before approaching them. Having great credit scores and tangible assets does not necessarily mean you can get the loan amount you need.

Traditional lenders must follow strict guidelines in their lending procedures that small business owners might not be aware of. As for non-traditional lenders, they have also tightened up their lending guidelines. It is important to know what questions these lenders might and can ask. The questions below will assist you, the business owner in knowing what the lenders are looking for before you complete their application.

Here are six questions to consider:

1. What is the minimum credit score they require?

Be sure to check your credit report and get your credit score prior to asking this question. This will let the small business owner know immediately if they can qualify for the lender’s loan based on their credit score and report. When you review your credit report, you can tell if there are any discrepancies you might want to tackle before going to the lender. It is useless to know what the lender requires when you do not know what is on your credit report.

2. What is the minimum or maximum amount the lender will finance?

It is important to know the maximum or minimum loan amount the lender will finance. If you are seeking a large loan and that lender does not lend at that level, you would have wasted your time filling out their application. So be very mindful of the amount they will or will not finance.

3. Do they accept applicants with bankruptcy on their credit?

You must find this out if you have ever filed for bankruptcy or thinking of doing so. It is important to know this before approaching a lender for financing. In most instances, you cannot get funded. Some will only accept you after a seven (7) to ten (10) year period have passed depending on the type of bankruptcy chapter you filed. Some non-traditional lenders will not finance you if you have had a bankruptcy less than three (3) years old. Be sure to ask this question before going forward.

4. Do they require a business plan?

In most instances, they will require a Business Plan and an Executive Summary before they will even look at your application. The list of documents they will require should tell you immediately what they are looking for, so be sure to ask for this before you do anything else. Find out what are the mandatory requirements on their list of documents. So, if you do not have all of the mandatory items, you will know that you cannot go further.

5. What is the minimum number of years in business the lender require?

For startup enterprises, which are less than two (2) years old, banking institutions cannot finance you. If you receive a loan from a bank it means that you personally received that loan and it was not based on your business. The banks need to have past historical data on your company for at least two (2) years or more, and as a startup, you cannot provide that information. You can receive a loan through some micro or other non-traditional lenders who have a minimum of one (1) year in business. This is not the case for all lenders, so know your source before you waste your time and theirs. It is very important to know the answer to this question.

6. Does the lender finance your industry type?

This is a vital question every business owner must ask. If the lender does not finance your industry type, you do not want to waste your time and theirs by completing their application. Some banking and non-traditional funders finance specific industries. For example, if your small business is in the medical or construction field, you would not want to be applying to a lender who finances agricultural clients only. So, it is imperative to know what the lender’s specialty is.

There are many more questions you can ask, just remember, all lenders, whether traditional (banking and other institutional lenders) or non-traditional (alternative funders, private lenders, angel investors, etc.), all have their own niche markets. In order to make the funding process easier for all, know your lenders before approaching them for a loan.

How Small Businesses Can Boost Profits

Focus on technology, cost-cutting, and cross-selling, says author and consultant Patricia Sigmon

By Karen E. Klein

Too many small business owners are focused on making payroll, not profits, says Patricia Sigmon, founder and president of David Advisory Group, a Manhattan consulting company, and author of Six Steps to Creating Profit (Wiley 2010). Sigmon, who also founded and still owns a $2 million, 10-employee computer consulting business, LPS Consulting in Fanwood, N.J., spoke to Smart Answers columnist Karen E. Klein recently about boosting profits in small businesses. Edited excerpts of their conversation follow.

Why do many small businesses lag in profitability?

The No. 1 reason is small business owners don’t have the answers in hand. They have no idea that they didn’t make a profit, or that they had a loss. They are chasing payroll money every month, they’re getting deeper into debt, and then they have one bad month—and they’re dead.

Too many small business owners don’t know the difference between “busy” and “profitable.” Small businesses that wait until the end of the year to look at financial reports can lose a lot of money being “busy”—especially in a recession.

Are CEOs not looking at monthly or quarterly financial data?

Some might be, but even then they’re not capturing real-time data. A lot of small business owners still have payroll clerks entering last week’s numbers into spreadsheets. They use a patchwork of software programs that don’t talk to each other and don’t calculate actual costs.

Aside from upgrading their technology so they’re better informed, what else do you recommend for increasing profitability?

Everyone in your organization must be pitching in to improve the bottom line: networking, marketing, selling, cutting costs. If you have employees who show up to take a paycheck and don’t contribute, their jobs should be on the line. Small businesses cannot afford that mentality anymore. Every department should be looking for ways to save money on what they are doing and help the company earn more.

Read More…

Access to Alternative Financing for Small Businesses

The business owner seeking capital is finding it a challenge to access capital through traditional markets, specifically the banks. Accessing capital for expansion or survival is crucial. Where are these individuals to go if their banks are not lending? This is where non-traditional capital sources are vital. If the business owner is not aware of these sources, this could mean the loss of business, employment layoffs, and much more. But there is hope! You just have to know where, when, why, who, and how!

Where To Go

Non-traditional lenders are sometimes referred to as Alternative Funders. Many of these funders can be classified as private lenders, asset-based lenders, factoring funders, purchase order funders, to name a few. They are private sources who have the capital and/or the backing of private investors who have the capability to assist many small business owners access the capital they so need.

Niche Funding Areas

Alternative funders specialize in niche areas. Examples of these include, but are not limited to the following:

1. Accounts Receivables – these include medical, construction, government, commercial;
2. Asset-Based – which includes real estate, equipment, inventory, machinery, receivables;
3. Contract-based – to include purchase orders, government contracts, and consumer contracts.

There are many more niche areas and niche funders. You just have to locate a source in that market.

Niche Industries

In addition to niche areas, there are also niche industries with specialized financing options. These include but, once again, are not limited to the following: technology, medical, construction, staffing, security, manufacturing, printing, wholesaling, auto, trucking, and many more. If your industry is not highlighted, do not despair, there are sources out there for you too.

Accessing an Alternative Source

When you decide to seek outside financing, there are many questions to ask. You might ask yourself, “How do I access such a source?” First, you must understand your industry, how you relate to your clients, who are paying your invoices, and much more. An alternative funding source reviews a potential client for funding in a different manner from the way a banker would.

This source will take into consideration your current operations, contractual obligations, contracting opportunities, and all the potential risk of funding a small business owner’s request. They can make a more informed decision than the banker could. The funder has the capability to make these decisions based on the future expected growth of a company, while the banker looks at the past history.

Alternative funders like to develop long-term relationships with their clients. Once you have developed a great relationship with such a source, you can use their expertise to help guide your company in the right direction. It is the greatest accomplishment for them to take a client from near disaster, bankruptcy, negative cash flow; you name it, and turn them around.

Where to Find Alternative Funders

Alternative funders are everywhere. You just don’t hear about them. Bankers sometimes don’t know they exist. Bankers who do know of these sources will sometimes refer clients to these types of funders. If you are in need of funding, ask your banker, your CPA, or even your attorney to assist you in locating one of these sources.

You can also check with your local business consultants, chambers of commerce, or community business centers in your area for assistance. If they cannot help you, then contact a source such as myself who does specialize in this area of funding.

Decision Time

When is the right time to seek alternative funding? You have to decide when and if this is the right avenue for you and your business. Timing is everything.

This boils down to two things:

1. Are you willing to take the next step to grow your business?
2. Are you serious?

It is decision time! Taking the next step to help you and your business get to the next level is important but you must be open to these non-traditional means of funding your business. Remember, you do not have to allow the current economic climate to be drawback to you. Get the capital your business needs today!