So here we go with our next set of startup debt financing options:

SBA Loan – We’re all familiar with SBA loans and I know they have a bad name with some but, if you’re a startup, don’t discard this option.  Brock Blake is the CEO of Lendio, a free small business resource that should be utilized by any small business owner looking for capital.  According to Blake:

“SBA can be a great option for startups looking for capital.  One of the most important requirements is strong personal credit. With good credit, it’s likely that a startup could get approved for a loan up to $35,000 through the Community Express or Community Advantage loan programs. For larger loan sizes, the business owner will need a combination of strong credit, industry experience, collateral, and a thorough business plan.”

Home Equity Line of Credit or HELOC – I realize this isn’t 2007 so there are not nearly as many HELOC’s being handed out.  However, there are still people who either own their homes free and clear with no financing or they have a lot of equity.  People who have been downsized after several years in the workforce.  Others have inherited a property from parents or grandparents and now they have options to borrow against their new home.  So, despite the fact that approximately 30% of homeowners owe more than their homes are worth, there is still a large army out there with equity.  If you’re part of the silent “equity army” and you’re looking for a HELOC then you may be wise to look at the smaller banks and credit unions since the lending challenges and issues at the big banks are well documented.  Lastly, even though HELOC’s are not nearly as prevalent as they once were, they belong on the list of options.

Peer to Peer Loan aka P2P – I’m still amazed that, with all the requirements involved in being a lender and the burdensome requirements of the SEC, that we still have lenders who are willing to offer small loans like the P2P lenders.  So on one hand they are great.  But if you visit the websites for two of the largest P2P lenders, Prosper and Lending Club, you’ll quickly learn that these loans aren’t cheap.  With closing costs and high APY’s this is not your bank loan with minimal closing costs and a reasonable interest rate.

However, there are tens of millions of dollars of loans being issued through these networks and the default rates are rather minimal.  So they have created models that work.  The downside is that loan amounts are pretty low on average.  Lending limits are usually $25,000 to $35,000 and the average loan sizes that are being approved are much lower than those limits.  You’ll almost always get better terms on a credit card which allows you to use the funds over and over again instead of only once like a loan – and you may be able to get a larger credit limit as well.  P2P loans may not be cheap and they do have their downsides but these are a good fit for the right person.

Contract Financing – This is a relatively new financing option that allows business owners to capitalize on a contract that is either existing or in the beginning stages of negotiation.  Kris Roglieri is the founder of Commercial Capital Training Group and the President of a national commercial finance company who has used contract financing for many clients.  Roglieri explains it like this:

“By having a contact, some lenders can immediately monetize a portion of the fixed payment stream from the contract to fund the small business in order to perform on the contract. This method allows the business to grow effectively and is a far cheaper debt option compared to giving up equity to a lender or investor.” 

The credit of the borrower and financials of the new business are not a factor in determining whether or not a business can access capital from their contract.  Roglieri points out that:

“The underlining factor in a lenders decision to monetize a contract is solely done on the issuer of the contract and their credit worthiness.  Ideally, the business provides a unique technology or service to an investment grade company and has a fixed contract over a period of time.”

So the bottom line is to know and understand what your options are.  After all, how can you make the best decision if you don’t know what your options are and which one or which combination is best for you?  Be sure to check out Part 1 too.  I realize that not every option is here but we welcome your comments.  So to all my fellow business owners keep living the dream!

Home Equity Loan Photo via Shutterstock

From Small Business Trends

8 Ways to Finance Your Startup with Debt: Part 2

I have split these 8 solutions into two parts based on the likelihood and value factors.  Simply put, likelihood just asks the question, “How likely is it that this type of financing can be obtained by a higher percentage of people?”  Value is all about how much value would each form of financing bring to business owners who utilized this form of financing.  So let’s get started.

Here are the 4 most likely forms of debt financing for small business startups:

Credit Cards
This is absolutely, positively, without doubt the most common form of financing for small business startups.  Additionally, credit card financing – when it is done right – is arguably the least expensive form of financing.  From a benefit perspective they also do not require collateral like many other forms of financing.  The problem is that when credit card financing is not done correctly – and normally it is not – you will hurt your credit profile, pay too much in interest, you will not properly separate your personal & business credit, and you’ll likely miss out on some good tax benefits.

ROB’s
Technically known as Rollovers as Business Startups – are only an option for people who have saved up some adequate retirement funds.  It’s also much more risky than most other forms of financing.  This is a very popular form of financing for new franchisees.  The downside is you’re risking your future basically since you’re tapping your retirement savings.  The upside is that you can access a sizeable amount of capital if you have a nice nest egg waiting for you.

Trade Credit
Maybe it’s not as popular but it is very common.  Examples of trade credit – which is also referred to as vendor credit – would be a line of credit at Staples, or Dell, or any other company where you need to purchase their goods or services for your business.  There are many forms of trade credit where you can obtain loans and lines of credit that are revolving in nature…meaning the balances are not due in full and can be spread out over several months or several years.  However, the most common “terms” attached to trade credit are Net 30.  So there is not the same value or ability to finance nearly as much since you’re only delaying the purchase by a month or maybe two.

Equipment Financing
Most startup companies need some type of equipment.  Ideally, if the goal is to use your capital in the best way possible, you wouldn’t use a working capital loan or line of credit to purchase equipment.  Sometimes it is necessary but, often times, you can get a loan or lease specifically for your equipment and then leave your cash, working capital loans, and credit cards available for other uses.

With over 15 years of small business lending experience, Kris Roglieri is the Founder of Commercial Capital Training Group and President of a national commercial finance company.  According to Roglieri:

“In the last 4 years, the number one characteristic of defaulted loans or leases in a lenders portfolio were companies that had less than 2 years time in business so most lenders only finance companies that are more than two years in business or their underwriting requirements are very tough and stringent.  If you’re seeking to finance equipment as a startup you should have good personal credit, some experience in your industry, and hopefully at least 6-12 months of liquidity.”

In Part 2 we’ll discuss the other 4 most common debt solutions for startups.

Credit Card Photo via Shutterstock

From Small Business Trends

8 Ways to Finance Your Startup with Debt: Part 1

There are many great resources to help you evaluate if, in fact, you are the right temperament and type of person to take entrepreneurship on. Here are a few of my favorites:

Entrepreneur.com
SBA.gov
Success.com

I recently interviewed Joe Abraham, author of Entrepreneurial DNA and the founder of the BOSI formula, which offers four personality types: builders, opportunists, specialists and innovators. Abraham’s premise is that one size does not fit all and there are different personalities and approaches that identify successful entrepreneur types. His sytem is much like the DISC personality profiles used in HR to identify what jobs and careers are best suited to job seekers.

In addition to evaluating your entrepreneurial personality, you must think of yourself and assume the roles of master salesman, networker and marketer, regardless of how many employees or support people work with you or for you. Sales, networking and marketing are the three most important areas that impact success, other than a very good and needed product or service, which of course must be the reason you sell, network and market in the first place.

Here are three tools from the SBA that will help you. First, take an honest self assessment of your entrepreneurial temperament.  Second, identify your key qualities, skills and intangibles.  Third, create your entrepreneurial success blueprint, your platform and business plan.

Here are 12 resources and tools I have used to become a better seller, networker and overall marketer. These are proven ways to your build brand awareness and credibility and grow your relationships with your personal and professional communities.

1. LinkedIn is the professional platform that gives you unparalleled potential to be introduced to and interact with top people in your field or related fields.
2. Facebook is the most diverse platform for engagement, personal branding and interactivity.
3. Twitter can be a powerful “real time” communication tool.
4. Blogging is the best way to build clout and authority in your field.
5. Email marketing can help you grow existing  and new relationships and revenues with a permission based community.
6. Article writing, either on your own blog or for other key blogs and websites, builds your brand leadership.
7. Texting used properly can also be a very effective “real time” communication tool.
8. Video is the best way to show people your vibe, your personality and how you present yourself and your ideas.
9. Volunteering is the side door into many business opportunities and aligns you with things you are passionate about.
10. Networking online and in person can open up amazing opportunities with people all over the world or right in your local community.
11. Webinar workshops offer a way to deliver quality content on a specific subject online with just a short time commitment.
12. Radio podcasting has opened more doors for me than just about any other platform, and can do the same for you if you use it to feature others.

If you are ready to take your expertise and use it to become an entrepreneur, set yourself up to succeed by building a foundation, a platform and your blueprint for success. Business ownership is the most exciting endeavor that one can take, as long as your risk/reward tolerance is high enough.

Jobs, Gates and Oprah can teach us much about entrepreneurship, but so can the countless other ordinary people who are doing extraordinary things as entrepreneurs and are launching daily and succeeding now. Check out CNN’s 2011 Heroes to see some of these amazing people in action.

In the words of the wise Rabbi Hillel:

“If I am not for myself, then who will be for me? And if I am only for myself, then what am I? And if not now, when?”

Set yourself up to succeed, make the shift and take the risk.  This is the perfect year and perfect time.

Who Am I Photo via Shutterstock

From Small Business Trends

You’re An Expert, But Are You An Entrepreneur?

Okay, perhaps that statement is not surprising. But the patterns across countries in how business founders are assessed are intriguing.

As the figure below indicates, a recent British Broadcasting Corporation survey of more than 24,000 adults in 24 nations showed that a paltry 25 percent of Egyptians believe that business founders are “highly valued” in that country, as compared with 75 percent of Indonesians.

I doubt it would surprise most of you that two-thirds of Americans believe that entrepreneurs are highly valued, putting the U.S. in the upper half of the nations surveyed. But it might surprise you to learn that entrepreneurs are more highly valued in several other countries. The comparison that shocked me the most was that the French are more likely than Americans to think that entrepreneurs are highly valued in their country.

There’s something oddly troubling to me about this statistic. The French are supposed to be the ones who hold artists and philosophers in high esteem; and we’re the ones who are supposed to respect business people.

I think I heard De Tocqueville turning over in his grave when the survey results were released:

Source: BBC World Service Survey Poll, May 25, 2011

From Small Business Trends

Where Entrepreneurs are Valued

The Japanese are particularly pessimistic about their chances of becoming becoming entrepreneurs. A Gallup Organization survey of 26,000 people aged 15 and older in 36 countries reveals that 87 percent of Japanese believe that becoming self-employed in the next five years is not practicable. At the other end of the spectrum are Icelanders, only 44 percent of whom think that going into business for themselves in the next five years is not possible.

What about Americans? While people in this country aren’t among the most pessimistic about their chances, they aren’t among the most optimistic either. The Gallup survey showed that Americans were twelfth of 36 nations in how feasible they think self employment is.

I thought that America was the land of opportunity and entrepreneurship was the American dream? So why don’t more Americans think starting a business in the near future is viable?

Percent Who Think Self-Employment in the Next Five Years is not Feasible:

Source: Created from Data in the Flash Eurobarometer

From Small Business Trends

Is Self-Employment Feasible for You?

According to a Gallup poll of a representative sample of 1,721 children in fifth through twelfth grade conducted this Spring, African-American kids were significantly more likely than White kids to report that they plan to start a business. While 39 percent of White children said they plan to start a business, 52 percent of African-American kids reported this intention.

These numbers are interesting because they are so different from current adult self-employment rates. According to a recent study by Steve Hipple of the Bureau of Labor Statistics, African-Americans had lower incorporated and unincorporated self-employment rates than Whites. For unincorporated self-employment the rates were 7.4 percent for Whites and 4.5 percent for African-Americans. For incorporated self-employment, the rates were 4.2 percent for Whites and 1.5 percent for African-Americans.

Does the divergence between children’s plans and adult actions represent a generational shift in attitudes toward entrepreneurship among children of different races? Or does it demonstrate the greater obstacles that African-Americans face in achieving their entrepreneurial ambitions? I don’t know.

What do you think?

Source: Created from data from Gallup-Hope Index 2011

Image from Paul Frederiksen/Shutterstock

From Small Business Trends

What Future Entrepreneurs Will Look Like

1. Get found.

Many businesses invest money in building a website in order to have an online presence and then stop there. In the offline world if you put up a business in a well-trafficked area of town, you’ll get visitors. They see the building and stop by. On the Internet, it’s a different story. Once your site is built, you still need to put significant effort into getting found.

Get listed on Google Places. Get listed in local directories. Get listed in industry directories. Learn the basics of search engine optimization or hire someone to do that work for you.

2. Get leads, not just traffic.

Another area where many people goof up online is in lead generation. After you build your website and start driving traffic, your job is to turn that traffic into leads. Ideally most pages of your website should have a lead capture mechanism. You need to offer something of value to your visitors in exchange for their email address or other contact information. If you don’t, you’ll lose a lot of your traffic. You need to develop a list-building mentality. Build a list of leads with every activity you engage in. Then, follow up with that list. Email marketing systems can help you do this in systematic ways.

3. Use email marketing to tell people about your business.

Recently, proponents of new marketing techniques have bashed email marketing, claiming that the medium is dying. This is far from the truth. Research firm ForeSee Results published a study early this year that was conducted during the 2010 holiday shopping season. They asked people who made purchases online about what influenced their visit to ecommerce sites.

As you can see in the study, the overwhelming majority (64 percent) stated that they prefer to hear about sales and promotions through emails. When engaging in email marketing, make sure you follow  best practices and provide value to your leads instead of bugging them with sales messages all the time. Use email to build real relationships with your leads, not bother them.

4. Know that text messaging is not just for teenagers.

Many brick-and-mortar businesses are successfully using SMS marketing (text message marketing) to capture leads and follow up. You can have your store visitors opt into text message promotions by texting a keyword to an SMS short code. You can follow up with these people in the same way you do with email. You can even use text messaging to capture email addresses.

The world is going mobile—don’t miss out on these emerging opportunities.

5. Use QR codes in fun and creative ways.

You have offline customers. Eventually, you want to be able to communicate with them online as well. QR codes are barcodes that can be scanned with a cell phone to send people to a particular website. QR codes on direct mail pieces, your store window, your checkout desk and other strategic areas can give you an opportunity to move offline traffic online.

Keep in mind that QR codes are used by cell phone users. So drive them to mobile-friendly pages where you offer something in order to capture their contact information.

6. Use online partners–they can be huge assets.

You may have been slow to get your business online, but that doesn’t mean you have to suffer forever. Most likely you know other local business owners who made the transition earlier. They may already be getting significant amounts of traffic. Hunt down the people who are doing well online and set up a way for them to drive traffic to you and you to them.

Complementary businesses can set up referral or affiliate programs to drive traffic to each other at appropriate points in the sales cycle. Using partners can jumpstart your online business significantly.

7. Give your customers an online account portal.

We’re all getting used to managing our accounts online. We can do this with our banks, our cell phone accounts, our utilities, etc. But do you offer a way for your customers to manage their accounts with you online? For those of you who provide recurring services (pool cleaning, landscaping, legal retainer, etc.), providing a portal where customers can manage their accounts online makes working with you more convenient for them.

That’s really what the Internet is all about – convenience. The more of it you give, the more your customers will love you.

8. Get social, maybe.

Social media is a booming arena for online marketing.  If used correctly, it can provide a great stream of online traffic for your business. It also is a great way to listen and engage with customers. But I say “maybe” here because I see many small businesses wasting way too much time trying to figure out how to make social media work. The truth is, it’s not for everybody.

If your target audience is social, then you do need to figure it out. If you want to get into social media, I suggest you read my Small Business Trends post on The Social Media Money Formula.  It will show you how to actually tie social media efforts to increased sales, instead of wasting time getting “friends” and “followers.”

One last point to consider is that there is a lot of hype on the Internet. Like most things, Internet hype is usually based on some amount of truth. The key is to decipher the hype about the latest trends. Adopt only the trends that make sense for your business, and make sure the tactics you use make a difference to the bottom line. If not, you’re wasting your time.

Of course there are many other things to consider when getting started online, but these steps will help you get started in a meaningful way.

From Small Business Trends

8 Steps to Take Your Brick and Mortar Business Online

In a recent “20/20″ episode, Robert Frank, Wealth Reporter for The Wall Street Journal, said:

“Part of the risk-taking personality is the ability to overcome failure….One of the things that makes billionaires successful is their reaction to failure.”

This makes me think of my own, sometimes risk-aversive behavior.  Who wouldn’t love an automatic win, a sure thing, a guaranteed success? But the truth is business carries opportunity and costs.

The Opportunity

When you start a business, you get to, as Captain James T. Kirk (yes, “Star Trek”) says, “boldly go where no man [or woman] has gone before.” The adventure itself is a reward, apart from what you discover and create (and sell).

The Cost

You have to boldly go where no man has gone before. That means no lighted path, no safety markers, no examples. Just you, your team and your dream (and a plan).

The Real Risk

This economy has taught me that the real risk is in staying the same. Observing the status quo and available resources, and then using that knowledge to solve problems that everyone else ignores, is smart business. The true risk is in doing what everybody else is doing, and hoping it will take care of you for the life of your business.

And I’ve discovered that just because it’s easy to start a business sitting at the dining room table in one evening before your favorite nighttime reality show comes on doesn’t mean that it’s as easy to maintain it or to grow it.

What risks are you taking?

From Small Business Trends

Is Small Business Risky?

While ghouls and goblins should frighten you on Halloween, what about starting your own business? Fear (and more specifically, the fear of failure) is one of the strongest forces preventing budding entrepreneurs from reaching their potential. It’s fear that has stopped countless great businesses before they’ve even begun.

A few simple “tricks” can help you overcome your fear of starting or growing a business:

1. Forget about perfection: To often potential entrepreneurs wait until every little detail of their business is perfected before launching. But guess what? Perfection is unattainable. So don’t wait, just go for it! So what if you’re wrong? So what if there are little glitches here and there? Just go with what you have, and build on what you learn. If you wait until your blog, product, website, etc. is perfect, you’ll never launch anything at all.

2. Really think about your worst-case scenario – is it as scary as you think? All too often, we underestimate our ability to recover from a worst-case scenario. If you start a business and fall flat on your face, how long would it take you to recover? How hard would it be to find another job or start another business venture? Would you be down for a few months, a few years? Could you handle that risk? And what’s that risk compared to a lifetime of never chasing your dream?

Of course, you, along with your family, best know your situation and your ability to assume risk. But for many, the monster hiding under the bed is not as bad as you envisioned.

3. Take steps to minimize the downside of failure: No matter your personal situation, you should always manage risk intelligently. Overcoming fear doesn’t necessarily mean you should risk losing it all. You can make the necessary preparations to minimize the downside of failure. For example, you can structure your new business so as to minimize your personal liability. You can build up an emergency fund. Or you could begin the early stages of your business while you still have a “day job.”

4. Be honest about your financing: It’s no secret that Main Street/small business lending isn’t in such great shape right now. We are seeing some venture capital coming back, but for the average small business, traditional funding from banks is still tight. This means you may have to self-finance or start small at the beginning. If you don’t have access to tons of capital, you probably shouldn’t consider launching a manufacturing company with lots of overhead, or a concept with expensive product inventory. However, it’s more than possible to start a business with just a small investment.

5. Think about what’s truly scary: Yes, starting a business can be a scary endeavor, particularly when the news paints such a troubling economic picture. But think of it this way: Never taking a chance on your dreams can be scariest outcome of all.

This fall is the perfect time to start putting a plan in motion to launch a business for the New Year. You’ve got two months to create your business plan, assemble whatever resources you need, and research your legal and tax obligations for starting a business.

So if you’ve been considering starting a business, take a deep breath and jump right in! Set a deadline with yourself (and maybe with a friend to hold you accountable) and do something that will force you into action. With every action you take, you’ll gain confidence and momentum. And who knows where this exciting entrepreneurial path will take you by next Halloween!

From Small Business Trends

Don’t Get Spooked by Starting Your Own Business

The National Association for the Self-Employed (NASE) has released its Startup Kit to help its business owner members quickly access a wealth of information in a single resource. “The NASE decided we would amass our 30 years of knowledge on starting a business into an easy-to-read and easy-to-follow resource, and that’s how our Startup Kit was born,” said Kristie Arslan, President and CEO of NASE.

The result is a substantial document covering 10 things new business owners need to know, such as:

• Choosing the right business structure
• Setting up a DBA (Doing Business As)
• Paying self-employment tax
• Funding a business

There’s a thorough checklist at the end of the kit that helps users make sure they manage all of the tasks necessary to get a business up and running.

Creating New Jobs, One at a Time

While the self-employed numbers aren’t climbing as much as you might expect, given the unemployment rate, Arslan feels confident that starting new businesses is the key to economic prosperity:

“We firmly believe that encouraging self-employment and nurturing startups will help us out of this economic downturn.  We like to stress over and over again that someone who is self-employed does create a job – their own.”

Where to Get the Kit

Currently the Startup Kit is available only to NASE members (and everyone is invited to join), although NASE is offering a free preview chapter to people who like its Facebook Page.

From Small Business Trends

Want to Start a Business? Get NASE’s Startup Kit