Financing Options for Small Businesses

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FUNDING - SBA LOANS, MICROLOANS and ANGELS SBA Loans SBA lenders make loans to start-ups for the purchase of business assets including the purchase of existing businesses. But it also is a great resource for established businesses looking to secure working capital. Offers small businesses a way to access commercial loans over longer terms and for larger amounts than traditional lender. Many lending institutions won’t lend long-term credit to a small biz, but in SBA-guaranteed loans, the risk is shifted from lender to SBA. The SBA guarantees loans based on factors common to any credible lending institution: a well-thought-out business plan, management experience, good character, and an owner's willingness to take a stake in the business, among others. Two key things the SBA looks for are management ability and good personal credit. Good credit is especially important since an SBA-guaranteed loan is often less collateralized than a traditional loan. At Wells Fargo, loan officers require that start-up owners put their own cash towards the deal. Ask for 30% of the investment from the start-up owner. Want the business owner to have a vested interest in [the business's] success just as bank does. One of primary lending programs is 7 (a) provides loans to small businesses unable to secure financing on reasonable terms through normal lending channels SBA Express - quicker process b/c lender bank is PLP (see below) Rates: The SBA puts ceilings on rates Interest rate tiers are based on the loan's size, and rates are negotiable up to the ceilings. The maximum rate is prime plus 2.25% for a loan of less than seven years and greater than $50,000 When the SBA handled the entire loan process, from paperwork to approval, the process tended to be sluggish. But now banks with the PLP (Preferred Lending Program) designation are authorized to approve the loans themselves , says Burke. "That means we do everything, from origination, to underwriting, to documentation, to closing, to funding, to servicing the loan with little or no SBA input on the transaction," he says. Generally, his bank can turn around a request in 30 days, he says, with the exception of a real estate loan, which takes longer because of the appraisal process, environmental studies, and other issues related to property purchases. Info Needed: same information as for bank loan: a solid business plan with projections; information regarding marketing and management; products or service descriptions, including information on how the business plans to differentiate itself from the competition; current financial statements; credit history; and other convincing information. Microloans Unlike pursuing traditional bank loans or credit lines, tracking down and qualifying for a microloan generally requires help from a business-support group with special ties to nontraditional lenders. Size: Can run up to $25,000 but usually around $1,000


Microloan lenders approach the process with different underwriting standards than other lenders They'll accept collateral that regular banks wouldn't consider: office equipment, for example, or the owner's home washer and dryer. They'll also overlook some types of credit problems if they believe those problems have been solved. The Catch: Rates are much higher. 12.5% - 15% is common. A business owner's goal should be to qualify for a microloan, use it to build his or her company to the point that traditional bank financing becomes feasible, and then leave this market. Angels Before Making Contact 1 Write a Presentation 10 - 15 slides, no more than 20 minutes Outline product, market, management and why it WILL SELL Turn Presentation into B Plan Try to keep it b/t 20-25 pages (not including exhibits) 2 Identify Investors Approach individuals that are less than 2 degrees of separation from you. Referrals from referral rarely invest Stay local Create a Term Sheet and Specific Valuation


A one-page outline of the investment opportunity your company affords - includes valuation (must include warning of risks) Structure the investment as common stock rather than preferred stock. While savvy investors often push for preferred stock, I'd recommend that the first money into a business -- the "seed" capital -- be in the form of common stock because it puts the investor on equal footing with the entrepreneur. If the company's valuation is fair, getting common stock shouldn't be too difficult. If your investor insists on preferred stock, which comes with privileges that aren't available with common stock, make sure that you have a fair "liquidation preference." Such a clause addresses the way the money is allocated in case of an acquisition or bankruptcy. Don't allow angels "double dipping" that provides for their getting back their original investment as well as their pro-rata percentage. It's best if they get only their pro-rata percentage of the company's sale or liquidation value. Making Contact Never send business plan to investor. Explain that although you'd rather meet before handing over a formal plan, say you will send over 2-page Executive Summary.
General Business and Funding Sites

"Where to start and grow your business" Really amazing Financing section: financing search engine and capital sources database. Phenomenal information and resource site - includes news, how to guides, newsletters, tools. Have sample documents for everything under the sun - sales policy, NDA's, etc. User Name: RMW Password: goober The U.S. Small Business Administration (SBA) was created by Congress in 1953 to help America's entrepreneurs form successful small enterprises. SBA Classroom feature - links to sites, news and info regarding starting up/growing a business. Online library provides great reports, statistics and studies on broad array of topics. Offer loan programs. Find vendors, angel investors, venture capital firms. Post and fix your biz plan. Take 5 minutes to submit your FREE online application now. We'll instantly Great AngelSearch tool - searchable by industry interest - $2.00 a record. Entrepreneurs and investors alike would benefit from this global portal that seeks to connect founders with funders, and also serves as a posting outlet for business professionals and job seekers. Included are tips for making pitches and a comprehensive roster of relevant links. Has VC database and biz GetSmart is a leading financial services marketplace that provides consumers with the tools to efficiently manage their finances and access competitive financial products and services through a single online destination. Consumers can access a range of products from more than 100 financial service "A world of resources for entrepreneurs" Glossaries, resources, links Channels: Starting your business Growing your business Supporting entrepreneurship Social entrepreneurship General law site. Small business information for starting a business, choosing

NYC Specific Small Business Information

Provides extensive list (w/ links) to Financial Services and Business Assistance - organized by city programs, state programs Provides a list of useful agency home pages and business Web sites. ** Offers guide to Small Business Loans Business Plan Expansion Financing and Refinancing Finding Employees VC Regulatory Assistance Minority and Women ** Statistics and Economic Data to over 100 agencies links Channels include: Has section for financing and tech assistance for small biz The Banking Department has developed a source book of private, public and non-for-profit small business assistance programs in New York State to be used as a resource tool for financial institutions, as well as a referral source for small business entrepreneurs. The potential benefits to small business ** Lists w/ links of lenders to small biz as well as list of programs for Minorities Offer products/services - i.e. LDP "linked loan" provides businesses with NY Business Development Corporation Privately owned financial org funded by NY State banks - makes loans b/t $25,000 - $1.3m ** Provide useful Loan Payment Estimator Specific channel addressing Minority and Women-Owned Businesses ** Provide Loan Application Checklist Mission of Empire State Development (ESD), NY's economic development agency is to assist and service businesses in order to encourage economic investment and prosperity in New York State. Work closely with businesses to: identify creative solutions to challenging problems, generate enhanced opportunities for growth, ** Helps businesses locate sites, learn about tax incentives, financial incentives and loan discounts. Help new business w/ problem-solving, licensing, finding financial resources. ** Minority and Women-owned Business Development (MWBD) NYSBDC Business Advisors provide (often by working w/ other organizations listed above) counseling, training and business research services to NY's small businesses. ** 49% of clients are women. Instrumental in helping small business recovery efforts post 9.11.

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