What would you do if the SBA was no more?
By Karlene Sinclair-Robinson
Earlier this week, the Wall Street Journal headline read: “Should the Small Business Administration Be Abolished?” The internet buzz is swirling with conjecture. There is, of course, no concrete evidence to this and organizations such as WIPP (Women Impacting Public Policy) are against the Small Business Administration (SBA) closing. This action would devastate many local programs supported by this government agency in many areas of the country.
When an arm of the government which supports, in some way or other, millions of entrepreneurs comes under fire we must pay close attention. Without the assistance of the various support services that the SBA offers, many startups and seasoned entrepreneurs would not be in business today. These businesses employ millions of individuals nationwide, not to mention the thousands who start their own businesses each year.
Through the Small Business Administration, there are over 100 Women’s Business Centers scattered across this nation. This figure does not include the many Small Business Technical and Development Centers nationwide and many other organizations that are supported peripherally by the SBA in support of small businesses on the local level.
Role of the SBA
It is important to note that this government agency is the voice for small businesses at the federal level. It defines, applies, and serves as the cushion for this segment of the market force from defining business size and minority classification to guaranteeing loans for small businesses and much, much more. The SBA is widely recognized through its lending support programs. Some of these programs have been around many decades. These programs include the 7(a), CDC/504, Export, Military, Microloan and Disaster Programs, to mention a few.
It is a common mistake to assume that the SBA is a lender. This is not the case. The Small Business Administration is NOT a lender. What the SBA does though is “guarantee the loan”. They guarantee loan repayments to approved lenders in case borrowers default. The popularity of the program illustrates how banks are reluctant to risk their capital without the support of the government.
On the flip side is this – many startups are having a difficult time accessing information and resources to start and/or grow their businesses. Too often I hear clients say they “wish they had known of place like this”. There are many that still do not fully understand the purpose of the SBA or know how to access a SBA supported business development center.
The marketing arm of the SBA needs to step up the game in blitzing the businesses and showcasing their products and services. How great would it be if more entrepreneurs had a better understanding of the purpose and reason for the Small Business Administration?
Get Involved
Business owners, please weigh in on this topic today! Call your congressperson, write letters, emails, and voice your concerns via social media sites such as Twitter and Facebook. The powers that be need to hear from you.
Wall Street Journal Article: Should the Small Business Administration Be Abolished
http://online.wsj.com/article/SB10001424052702304537904577277701392070324.html
Welcome
To all guest visiting this blog for the first time, I welcome you. This blog site will endeavor to post valuable and meaningful articles and information to guide you. It is my hope that you learn something of value from visiting Accessing Alternative Business Capital Blog. I look forward to reading your comments. Do not hesitate to contact me with your questions and thoughts.
"The Fear of Success is just as debilitating as the Fear of Failure. Do not let either one hold you back." ~Karlene Sinclair-Robinson
"The Fear of Success is just as debilitating as the Fear of Failure. Do not let either one hold you back." ~Karlene Sinclair-Robinson
Friday, March 23, 2012
The Small Business Administration and Your Business
Tuesday, March 13, 2012
Small Businesses and Banking Lines of Credit
By Karlene Sinclair-Robinson
In a recent Los Angeles Times article titled ‘Bank of America severing some small-business credit lines’, the issue of Bank of America closing out small business lines of credits was addressed. This brought to mind how many small businesses are victims to this type of financing dealing. This is not new. What is new is the increased number of small business owners being affected by this process.
Small business credit lines are certainly monitored by banks. Banks keep an eye on all accounts and will check the business and personal credit of its clients from time to time. This is not just a practice by Bank of America, but is common practice amongst banks and other financial institutions. In closing small business lines of credit, the small business closure rate has increased and it has even impacted the bankruptcy rate of small businesses. With so many small business owners being affected by these credit line closures, instead of keeping quiet about it, they are now fighting back.
Risk Assessment
When small businesses start having financial difficulties or sudden growth, they rely heavily on their personal savings and their available lines of credit. They also tend to go the traditional route of asking family or friends. These are all great ways to raising much needed capital. On the other hand, using a business banking credit line for survival or growth can have positive and negative consequences.
With lending institutions being totally risk adverse, they are canceling lines of credit when their small business clients have exceeded the maximum base line usage or ratio the banks have put in place. This ratio varies per bank. It is the reality of banking sector, so expect to see more. What the lenders are monitoring is the business’ debt to income ratio and current spending habits, so do not take on more debt than you can handle.
Who owns the asset?
The problem many small business owners face is that often they do not have any viable assets except their homes and the business’ accounts receivables. These are the primary collaterals many use to gain access to their current credit lines. When banks use the collateral presented, they then file the applicable UCC or UCC1 (Uniform Commercial Code) form with the state. This document notifies all parties that the bank is in 1st position on the business assets, and their accounts receivables. All future creditors will have to get in line behind the bank in the event that the business owner defaults on paying back their credit lines and legal action is required.
Once the bank files this document with the state, the collateral the small business used, such as accounts receivables, cannot be used or pledged in any other financing transaction. In this case, any additional future access to capital will require some other form of collateral to secure the additional financing.
Cash flow challenges
Small business owners will have to take a closer look at how they use their current lines of credit. They also have to address the issue of their business cash flow. When banks start closing lines, it means that the affected businesses are having cash flow difficulties. Oftentimes, the business owner has their business banking account with the same bank as their credit line. Bankers can tell from the business checking account what is going on in and out of your business.
This is the yardstick with which banks measure and project what could happen with the business in the coming months. They are foreseeing upcoming issues with the business’ cash flow. Cash flow issues could result in the business defaulting on paying the line. Due to these issues, the bank can cancel the line.
Do not let this happen to your small business. Pay close attention to the company’s cash flow while keeping both personal and business debt as low as possible.
In a recent Los Angeles Times article titled ‘Bank of America severing some small-business credit lines’, the issue of Bank of America closing out small business lines of credits was addressed. This brought to mind how many small businesses are victims to this type of financing dealing. This is not new. What is new is the increased number of small business owners being affected by this process.
Small business credit lines are certainly monitored by banks. Banks keep an eye on all accounts and will check the business and personal credit of its clients from time to time. This is not just a practice by Bank of America, but is common practice amongst banks and other financial institutions. In closing small business lines of credit, the small business closure rate has increased and it has even impacted the bankruptcy rate of small businesses. With so many small business owners being affected by these credit line closures, instead of keeping quiet about it, they are now fighting back.
Risk Assessment
When small businesses start having financial difficulties or sudden growth, they rely heavily on their personal savings and their available lines of credit. They also tend to go the traditional route of asking family or friends. These are all great ways to raising much needed capital. On the other hand, using a business banking credit line for survival or growth can have positive and negative consequences.
With lending institutions being totally risk adverse, they are canceling lines of credit when their small business clients have exceeded the maximum base line usage or ratio the banks have put in place. This ratio varies per bank. It is the reality of banking sector, so expect to see more. What the lenders are monitoring is the business’ debt to income ratio and current spending habits, so do not take on more debt than you can handle.
Who owns the asset?
The problem many small business owners face is that often they do not have any viable assets except their homes and the business’ accounts receivables. These are the primary collaterals many use to gain access to their current credit lines. When banks use the collateral presented, they then file the applicable UCC or UCC1 (Uniform Commercial Code) form with the state. This document notifies all parties that the bank is in 1st position on the business assets, and their accounts receivables. All future creditors will have to get in line behind the bank in the event that the business owner defaults on paying back their credit lines and legal action is required.
Once the bank files this document with the state, the collateral the small business used, such as accounts receivables, cannot be used or pledged in any other financing transaction. In this case, any additional future access to capital will require some other form of collateral to secure the additional financing.
Cash flow challenges
Small business owners will have to take a closer look at how they use their current lines of credit. They also have to address the issue of their business cash flow. When banks start closing lines, it means that the affected businesses are having cash flow difficulties. Oftentimes, the business owner has their business banking account with the same bank as their credit line. Bankers can tell from the business checking account what is going on in and out of your business.
This is the yardstick with which banks measure and project what could happen with the business in the coming months. They are foreseeing upcoming issues with the business’ cash flow. Cash flow issues could result in the business defaulting on paying the line. Due to these issues, the bank can cancel the line.
Do not let this happen to your small business. Pay close attention to the company’s cash flow while keeping both personal and business debt as low as possible.
Saturday, March 3, 2012
Five Ways to Build Business Credit
BY Kelly K. Spors
A year after launching her printing business, Sherry Stewart Deutschmann began leasing a new facility and needed large printing and sorting equipment. She had a business credit card with a $5,000 limit, but it would take hundreds of thousands of dollars to finance the kind of fast growth she saw for her business.
It was 2003, and she was generating about $2.5 million in annual revenues at the time, yet several banks and equipment suppliers all turned down her credit requests. “Nobody explained to me why,” says Deutschmann, the 51-year-old founder and CEO of Nashville-based LetterLogic, which prints business statements and invoices. ”They just flat out said no.” She suspected it was because she was still a new business with little track record.
Finally, later that year, she was introduced to a venture capitalist who offered $350,000 in exchange for a 25% equity stake in the business. He also guaranteed a $500,000 line of credit. Today, LetterLogic generates about $21 million in annual revenues with 33 employees. Banks now contact her regularly to see if she needs loans or new credit lines, Deutschmann says. “The interesting thing is we don’t need it anymore. We don’t really have any debt.”
As she learned, getting credit is much easier when you don’t need it. But there are ways to build your business credit to avoid the same rejections Deutschmann faced early on. Here are five options to get started.
1. Mind your personal credit rating. The biggest factor in many banks’ decision to initially lend businesses money is the owners’ personal credit ratings and they typically look for a personal credit score of at least the mid-600s, says Ami Kassar, co-founder and chief executive of MultiFunding LLC, a Broad Axe, Pa.-based company that helps businesses connect with lenders. To boost your credit score, be sure to pay personal bills on time, keep a low ratio of debt to available credit on personal credit cards and credit lines, and make sure any balances remain under 30% of your limit on credit cards. Moreover, lenders will also often check the personal credit of any investor or business partner with more than a 20% stake in the business, Kassar says.
2. Apply for credit before you need it. To begin building a credit history for your business, apply for at least some sort of credit soon after starting up, Kassar says. A small business will often have to establish itself for two years before a bank feels comfortable offering a sizable credit line. But there are ways around that, such as getting a business credit card or applying for a small bank loan. If you have trouble scoring even a small loan, consider opening a store-based credit line or getting a small secured credit card with a low limit. Some major retailers that supply to small businesses, such as OfficeMax or Home Depot, offer commercial credit accounts that can help build a credit history for your business.
3. Grow your credit and use it. Many businesses with enviable credit histories applied early for business credit cards and credit lines and used them as early as possible, says Wayne Sanford, owner of New Start Financial Corp., a credit consultancy in Allen, Texas. Once you’ve established a payment history, request an increased credit limit — even if you don’t need it right away. Also, check to see if you have a profile with Dun & Bradstreet, a business data and credit reporting agency, suggests Gwendolyn Wright, a San Francisco business consultant and former first vice president of the Bank of San Francisco, a community bank. If not, it may be worth paying a fee to set up a profile. You can then add credit references, such as suppliers you’ve worked with, to elevate your credit profile as a business.
Read More: http://www.entrepreneur.com
A year after launching her printing business, Sherry Stewart Deutschmann began leasing a new facility and needed large printing and sorting equipment. She had a business credit card with a $5,000 limit, but it would take hundreds of thousands of dollars to finance the kind of fast growth she saw for her business.
It was 2003, and she was generating about $2.5 million in annual revenues at the time, yet several banks and equipment suppliers all turned down her credit requests. “Nobody explained to me why,” says Deutschmann, the 51-year-old founder and CEO of Nashville-based LetterLogic, which prints business statements and invoices. ”They just flat out said no.” She suspected it was because she was still a new business with little track record.
Finally, later that year, she was introduced to a venture capitalist who offered $350,000 in exchange for a 25% equity stake in the business. He also guaranteed a $500,000 line of credit. Today, LetterLogic generates about $21 million in annual revenues with 33 employees. Banks now contact her regularly to see if she needs loans or new credit lines, Deutschmann says. “The interesting thing is we don’t need it anymore. We don’t really have any debt.”
As she learned, getting credit is much easier when you don’t need it. But there are ways to build your business credit to avoid the same rejections Deutschmann faced early on. Here are five options to get started.
1. Mind your personal credit rating. The biggest factor in many banks’ decision to initially lend businesses money is the owners’ personal credit ratings and they typically look for a personal credit score of at least the mid-600s, says Ami Kassar, co-founder and chief executive of MultiFunding LLC, a Broad Axe, Pa.-based company that helps businesses connect with lenders. To boost your credit score, be sure to pay personal bills on time, keep a low ratio of debt to available credit on personal credit cards and credit lines, and make sure any balances remain under 30% of your limit on credit cards. Moreover, lenders will also often check the personal credit of any investor or business partner with more than a 20% stake in the business, Kassar says.
2. Apply for credit before you need it. To begin building a credit history for your business, apply for at least some sort of credit soon after starting up, Kassar says. A small business will often have to establish itself for two years before a bank feels comfortable offering a sizable credit line. But there are ways around that, such as getting a business credit card or applying for a small bank loan. If you have trouble scoring even a small loan, consider opening a store-based credit line or getting a small secured credit card with a low limit. Some major retailers that supply to small businesses, such as OfficeMax or Home Depot, offer commercial credit accounts that can help build a credit history for your business.
3. Grow your credit and use it. Many businesses with enviable credit histories applied early for business credit cards and credit lines and used them as early as possible, says Wayne Sanford, owner of New Start Financial Corp., a credit consultancy in Allen, Texas. Once you’ve established a payment history, request an increased credit limit — even if you don’t need it right away. Also, check to see if you have a profile with Dun & Bradstreet, a business data and credit reporting agency, suggests Gwendolyn Wright, a San Francisco business consultant and former first vice president of the Bank of San Francisco, a community bank. If not, it may be worth paying a fee to set up a profile. You can then add credit references, such as suppliers you’ve worked with, to elevate your credit profile as a business.
Read More: http://www.entrepreneur.com
How To Use Crowdfunding To Start Your Business
by Ryan C. Fuhrmann , CFA
Due to the rising costs of obtaining a college and post-graduate degree, entrepreneurs and business-minded individuals have started to suggest that younger people may be better off spending their education dollars on starting a new business. With the total cost of a four-year college degree (including tuition and lodging) sometimes surpassing $100,000, and a graduate program costing about the same, that amount of money could be an incredible launching pad to open a franchise or other start-up. (To learn more, read The Small Business Jobs Act: Make It Work For You.)
See: Starting A Small Business
The need for creative ways to raise capital has become even more important these days. An anemic economy struggling to return to growth following the credit crisis has meant that credit is tight and that traditional avenues to raise funds, be it bank loans or government programs to fund small businesses, have limited resources. Lately, the entrepreneurial community has started clamoring for additional means to raise capital as an alternative to more traditional channels. Additionally, the recent crisis has sent unemployment skyrocketing. As a result, politicians are eager to find ways to create job growth.
Gaining Popularity
The down economy and the rise in social networking have given movement to the concept of crowdfunding (the term crowdsourcing has also been used interchangeably), which combines the resources of a large number of individuals to fund a single business concept. Traditionally, an entrepreneur has sought to scrape together enough seed capital by combining his or her own (usually modest) wealth with that of a small, close-knit network of friends and family to get a business venture off the ground. The advent of social media on the Internet has made it possible to scale business relationships even more. These days, it is common for an individual to have hundreds of relationships across a wide array of social media platforms, be it Facebook, Twitter or LinkedIn.
With the networking means largely already established by savvy social networking sites, the only thing holding back the widespread adoption of the crowdfunding concept has been uncertainty regarding restrictions on who can commit capital to a new business venture. Many state requirements stipulate that only accredited, or wealthy investors can contribute funds to such business startups. The thinking is that these investors have the experience and deep enough pockets to withstand losses, given that start-ups have a high failure rate.
This more limited mindset to entrepreneurism is slowly crumbling in the current economic environment. Right now, bills are being discussed and working their way through Congress that would clarify the uncertainty over who can fund a business venture. It is paving the way for smaller and non-accredited investors to contribute their hard-earned capital to entrepreneurs. The ability for a business to raise up to $1 million through a crowdfunding network has been discussed, as have restrictions that limit individual commitments to below $10,000 or 10% of one’s annual income, whichever is less. (For help on how you can fund your small business, see How To Attract Investors For Your Small Business.)
To further validate the use of online means to create businesses, last year an estimated $280 million was invested toward the creation of more than 30 sites dedicated to crowdfunding. More than $50 million is reported to have been committed to business ventures on sites that include Second Market on a national scale, as well as more local initiatives, such as local stake.com in the Indianapolis, Ind. marketplace.
Read more: http://financialedge.investopedia.com
Due to the rising costs of obtaining a college and post-graduate degree, entrepreneurs and business-minded individuals have started to suggest that younger people may be better off spending their education dollars on starting a new business. With the total cost of a four-year college degree (including tuition and lodging) sometimes surpassing $100,000, and a graduate program costing about the same, that amount of money could be an incredible launching pad to open a franchise or other start-up. (To learn more, read The Small Business Jobs Act: Make It Work For You.)
See: Starting A Small Business
The need for creative ways to raise capital has become even more important these days. An anemic economy struggling to return to growth following the credit crisis has meant that credit is tight and that traditional avenues to raise funds, be it bank loans or government programs to fund small businesses, have limited resources. Lately, the entrepreneurial community has started clamoring for additional means to raise capital as an alternative to more traditional channels. Additionally, the recent crisis has sent unemployment skyrocketing. As a result, politicians are eager to find ways to create job growth.
Gaining Popularity
The down economy and the rise in social networking have given movement to the concept of crowdfunding (the term crowdsourcing has also been used interchangeably), which combines the resources of a large number of individuals to fund a single business concept. Traditionally, an entrepreneur has sought to scrape together enough seed capital by combining his or her own (usually modest) wealth with that of a small, close-knit network of friends and family to get a business venture off the ground. The advent of social media on the Internet has made it possible to scale business relationships even more. These days, it is common for an individual to have hundreds of relationships across a wide array of social media platforms, be it Facebook, Twitter or LinkedIn.
With the networking means largely already established by savvy social networking sites, the only thing holding back the widespread adoption of the crowdfunding concept has been uncertainty regarding restrictions on who can commit capital to a new business venture. Many state requirements stipulate that only accredited, or wealthy investors can contribute funds to such business startups. The thinking is that these investors have the experience and deep enough pockets to withstand losses, given that start-ups have a high failure rate.
This more limited mindset to entrepreneurism is slowly crumbling in the current economic environment. Right now, bills are being discussed and working their way through Congress that would clarify the uncertainty over who can fund a business venture. It is paving the way for smaller and non-accredited investors to contribute their hard-earned capital to entrepreneurs. The ability for a business to raise up to $1 million through a crowdfunding network has been discussed, as have restrictions that limit individual commitments to below $10,000 or 10% of one’s annual income, whichever is less. (For help on how you can fund your small business, see How To Attract Investors For Your Small Business.)
To further validate the use of online means to create businesses, last year an estimated $280 million was invested toward the creation of more than 30 sites dedicated to crowdfunding. More than $50 million is reported to have been committed to business ventures on sites that include Second Market on a national scale, as well as more local initiatives, such as local stake.com in the Indianapolis, Ind. marketplace.
Read more: http://financialedge.investopedia.com
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Spank The Bank: The Guide to Alternative Business Financing
The Small Business Owner's Guide to Alternative Funding