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Business Start-Up
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Sources of Capital for New, Start-up Businessesby Joseph Lizio As the economy continues to face credit challenges, small businesses, especially new, start-up companies are finding it even more difficult to find the capital they need to take their ideas and concepts and turn them into viable businesses. Private equity firms and angel groups are no longer actively seeking new investments. They are more concerned with preserving and protecting their current portfolios. Further, private investors, like your neighbor or local doctors, accounts, lawyers, are not investing in local companies as their investments and retirement portfolios (usually the main source of their investment capital) have taken such large hits that any new investments are just out of the question. Bootstrapping, by far the greatest source of capital for new businesses, is drying up fast. Credit card issuers and backers are pulling programs, tightening approvals and reducing limits. Friends and families are struggling just to survive themselves and do not have the disposable income to investment in your company. Taking loans from retirement accounts are nearly impossible today as the market values of these assets have drop so dramatically over the last two quarters. There just isn’t the value there to take a loan against. SBA backed loans remain just a difficult and costly to obtain as always. These loans still need to be underwritten by traditional lenders who are not making any loans at all as well as be underwritten by the SBA who has followed the banks’ course in tightening standards. So, what are new, small businesses to do? A few suggestions are as follows: First, start smaller and work your way up. Small scale operations mean smaller capital needs. Thus, the small amount of capital a new entrepreneur does have (savings, home equity, retirement plans) can be used to jump start a business if it is designed on a smaller scale. Micro-Loans: Micro-loans are loans for small organizations or start-up companies that do not qualify for regular loan facilities. These loans usually range from $500 to $25,000 and take up to five weeks for approval and funding. Personal Loans: There are still a few companies that make personal loans from $10,000 to $100,000 provided the borrower has excellent (and I mean excellent) credit and a demonstrated ability to make the loan payments. Asset Based Facilities: If your business has some proven track record, even if it is just for a few months, and has generated some financial assets like accounts receivables or credit card receipts, you may qualify for capital against those assets. Account Receivable Factoring can help speed up your cash flow while you wait for your customers to pay you. You can then access working capital that can be used to generate new business, cover current liabilities obligations, or make payroll. There are companies that will factor receivables as low as $200. Included with Accounts Receivable Factoring is Purchase Order Financing. If your business has an order to be filled but does not have the money to complete the order (e.g. buy supplies or equipment or hire needed labor) Purchase Order financiers will provide the funds needed based on that order. Business Cash Advances, while not really a loan, can provide working capital against FUTURE credit card sales. The funds can be use for any purpose and could provide the capital your business needs to get it through these troubled times. Equipment: Do you own some equipment outright? If so, you can sale that equipment (including tools and machinery) to a leasing company. Then, lease the equipment back from the lessor. You get the cash you need now and still benefit from possible tax deductions of the lease payments and other costs. Where there is a will, there is always a way. These may not be the cheapest financial products in the market but for most business owners and start-ups, these may be the only option. When seeking capital in this market, try to keep in mind that it is only temporary. The markets will turn around and lending standard will loosen. So, what you seek now should only suffice enough to get your new, start-up business through this down period. Copyright 2009 - BusinessMoneyToday.com Joseph Lizio holds and MBA in Finance and Entrepreneurship and has a strong commercial lending background. In his current venture, Mr. Lizio is the founder of www.businessmoneytoday.com - a site designed to help business owners find and obtain capital to grow their businesses. |
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