8 Ways to Finance Your Startup with Debt: Part 2
I mentioned this article to someone recently who was surprised at the limited number of debt options for startup companies. I asked her to do some research and encouraged her to come on and comment on the story if she has some other suggestions. It’s not that we’re discussing the “only” debt options for startups but, rather, we’re talking about the most common options or the solutions that can be employed by the majority. The answers to all your prayers may not be here but it’s important to clearly understand your options and the beginning of empowerment is to know what can and can’t be done so that decisive action can be taken.
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
8 Ways to Finance Your Startup with Debt: Part 2
Latest Small Business Events
Every two weeks we put together a list of key events for small businesses and entrepreneurs. The following Small Business Events Guide contains worthwhile events for those wanting to grow their businesses:
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The Art of the Cold Call // BUSINESS 153
January 23, 2012, New York City
So your startup doesn’t have any money for a fancy ad campaign or a seasoned sales exec. You can barely keep the lights on as it is. But you know that your product is amazing, and if only your clients knew about you, you would be raking in the dollars. For a struggling start up like yours, there is only one way to make that happen. Pick up the phone. Cold calling is a deeply psychological exercise. We’ll start with a brainstorm. Why is cold calling so hard? What do you feel when you get that call? When you make one? We’ll tackle these issues so that you can build up your confidence and deliver a flawless call.
Introduction to Developing Entrepreneurial Ideas
Four Session Series: January 23 & 30, February 6 & 13, New York City
Do you have an idea but you are not sure if you can make a business out of it, or have an idea but need to refine it? Or need help in creating, reviewing or evaluating an idea? This class will focus over four sessions on the idea generation process and generating creative new ideas and turning entrepreneurial ideas into businesses. Often people think they need just one great business idea and this idea will cover them in a “flash of genius.” While this can be true, often good business ideas get developed, molded, and improved over time. We will discuss both products and services ideas and focus on how to transform an idea or invention into an economically viable innovation and business.
Tax Tips and IRS Examination Advice for Small Business Owners
January 25, 2012, Wheaton, MD
If you are a small business and want to learn tips about taxes and the IRS examination, this class is for you! This class will be taught by small business accountants and attorneys. In this workshop attendees will learn 1) tax tips, 2) how to prepare for tax season, 3) red flags for being selected for examination, 4) the elements of an examination, 5) how an examination proceeds, and 6) potential outcomes. One 2.5 hour session.
How to Drive Buyers for Your Book, in Droves
January 31, 2012 – Twitter chat, 7:00 pm New York time
Presented by the 4th Annual Small Business Book Awards, this hour-long Twitter chat will help authors and aspiring authors learn the secrets to marketing your book.
Today, even the largest publishers do a limited amount to market a book. As an author, it’s up to you to take charge, make your book known, and find buyers. And today many of the sales efforts focus online, or a combination of online and offline. This chat on Twitter, from 7 to 8 pm Eastern time, will features authors and book publicists. Twitter chat sponsored by JustRetweet.com.
Small Biz Success Summit 2012
February 1 – 23, 2012 – Online
Presented by Social Media Examiner, this mega-event is designed to help you grow your small business using social media. There’s no travel! You simply attend this online event from the comfort of your home or office. It consists of multiple online webinars and Q&A sessions spread out from February 1 to 23, 2012. Recordings and transcripts also available.
You will hear from 28 of the world’s top small-biz social media experts, including: John Jantsch (author, Duct Tape Marketing), Anita Campbell (founder, Small Business Trends), Michael Stelzner (founder, Social Media Examiner and author, Launch), Mari Smith (co-author, Facebook Marketing), Brian Clark (founder, Copyblogger Media), Lee Odden (founder, TopRank Online Marketing), Ramon Ray (founder, Small Biz Technology and author, Technology Solutions for Growing Businesses). —-> Register now.
Sponsorships 101: How to Find them, Close them and Create Value for them
February 2, 2012, San Francisco
Events, events, events! They are everywhere, especially in tech. Over the last two years, pariSoma has hosted over 300 events. Some of them were co-organized, some self-organized, and some completely independent. What was needed for many of them were sponsors! Sponsors help you grow your community, create a value add, and of course, cover your costs.
This class will teach you how to look for sponsors, how to engage with them, how to create value for them, and how to close them.
Getting Down to Social Business
February 3, 2012, Atlanta
Social Media, Social Networks, Mobility and Cloud services are impacting all aspects of life today. While “social” has been driven by personal/consumer enthusiasm, it has carried over to business interactions – external (with customers and prospects) and internally (between colleagues across the organization and with trusted partners). Topics covered include:
- Changing Corporate Culture to Win Over Customers and Employees in the Social Age
- Big Data and the Social Customer – How to Turn Information into Insights, Interactions and Long Customer Relationships
- The Subscription Economy: Using Clouds, Marketplaces and Social Strategies to Connect with Today’s Customer
- ROI: How to determine the value of Social Initiatives to the Organization – How to determine the Value of The Social Customer to the Organization
- Beyond Marketing and Promotion: How Social Initiatives Are Being Used In Overlooked Areas To Help Businesses Compete in Today’s Market
- The Collaborative Organization: Tools and Tactics for Interacting in a Multi-channel, Multi-device World
Speakers include Paul Greenberg, Author of CRM at the Speed of Light, Anita Campbell, Publisher, Small Business Trends, Jeff Nolan, VP of Product Marketing, Get Satisfaction, Jeanne Hopkins, VP of Marketing, HubSpot, and Robin Carey, CEO of Social Media Today.
Where Is Everyone?: The Remote Project Manager’s Arsenal
February 6, 2012, San Francisco
So how exactly does one manage a tribe and change the world, with all these to-do’s and deadlines bogging us down? Not to mention the finicky Skype calls, buried emails, and timezone arithmetic. Join us for practical tips to get more out of you and your team:
- Preemptive strike: attack problems before they happen
- Two (free!) tools for working better, and how to set them up
- Your inbox is a blackhole. Get out of it.
- Social psychology 101
-And more…
Specifically designed with the remote project manager in mind, this class will cover tips that go beyond watercooler politics and planning agendas. Methods will be applicable to MiF-carrying PM’s and jetsetting entrepreneurs, to office bees who occasionally work from home… or anyone who has to work with other humans.
Small Biz Big Things
February 7, 2012, San Francisco
Small Biz Big Things is all about YOU, YOUR BUSINESS, YOUR challenges. In this interactive forum you’ll hear from business growth experts who have built (or are building) successful companies and can share their lessons learned, success stories, growth challenges and victories with you.
Speakers include Scott Hintz, co-founder of Tripit, Jim Fowler, who built Jigsaw and sold it to Salesforce.com, and Tamara Mendelsohn, VP of Marketing for Eventbrite.
Come network, have a great lunch and learn from experts who can help you GROW YOUR BUSINESS.
Social Media Week
February 13-17, 2012 – London, Miami, New York, San Francisco + More
Reflecting the global impact of social media – and its role as a catalyst in driving cultural, economic, political and social change in developed and emerging markets – Social Media Week is one of the world’s most unique global platforms, offering a series of interconnected activities and conversations around the world on emerging trends in social and mobile media across all major industries.
See website for each city’s schedule of events.
Small Farms Conference
February 25, 2012, Corvallis, OR
The event includes workshops ranging from harvesting rainwater and marketing meat products to grafting vegetables and selling produce to schools and hospitals. Speakers include farmers, OSU faculty, farmer’s market representatives and experts from the state Department of Agriculture.
Other topics include farm financing, land-use legislation and business plan development.
Inc. GrowCo
March 5-7, 2012, New Orleans
Come to GROWCO and master the strategies, tactics, and real-world solutions your company needs to thrive. Packed with actionable insights, GROWCO can be a life-changing event. You’ll learn from mega-successful entrepreneurs whose companies have created millions of dollars of wealth and tens of thousands of jobs…and a lot more.
Seventh Annual Small Business Summit 2012
March 6, 2012, New York City
The Small Business Summit is New York’s premier event for small business owners looking to network with other decision-makers, attend cutting edge seminars and shop around for products & services available to help their small businesses succeed. You’ll network with 500+ attendees, hear from small business experts in exciting presentations and panel discussions, and have a great lunch. The winner of the Small Business Strategy Award will be announced live, plus great raffles and giveaways.
Early Bird Registration Rate of $149 through February 24th.
Geek Girl Cape Cod Boot Camp 2012
March 17, 2012, Cape Cod, MA
Whether you are a beginner newbie who needs hand-holding on all things computer, to the intermediate self-starter entrepreneur who needs some new tools, to you entirely tuned-in code toads looking to learn, there is a workshop for you at this bootcamp. See website for full list of sessions.
2012 Ohio Business Matchmaker
March 20-21, 2012, Dayton, OH
The Ohio Business Matchmaker 2012 event is a unique opportunity for exhibitors, purchasing agents (buyers), trainers, and small business owners (suppliers of goods and services) to come together.
More than 1,300 small business owners who represent small, minority, service-disabled veteran-owned, veteran-owned, HUBZone, women-owned businesses, and approximately 250 purchasing representatives from city, state, county, and federal agencies will be participating this year. Prime contractors and other organizations with a combined purchasing budget representing hundreds of millions of dollars in opportunities will attend as well.
In addition to one-on-one matchmaking meetings, this event will offer exhibitors networking opportunities and workshops covering current topics vital to small business success such as Selling to the Government, Doing Business with Federal Government Prime Contractors, SBA Policy Updates, and Surety Bonding.
Social Tech ’12
March 29-30, 2012, Seattle
Social media marketing is no longer an option for B2B—it’s an absolute necessity. Luckily, we’ve got you covered with over 25 of the leading experts who will teach you how to use social media marketing to generate more inbound leads, grow brand awareness, drive conversions, and increase revenue. You’ll meet with industry insiders as well as other B2B marketers to discuss best practices, winning techniques, current roadblocks, and find out what works for your business!
Infusioncon 2012
April 2-4, Phoenix, AZ
Get ready to learn, network and set new ideas in motion! Join hundreds of small businesses from all around the world at InfusionCon 2012, Infusionsoft’s annual user conference, and experience three days of idea sharing and inspiration in beautiful Phoenix, Arizona on April 2-4.
Innovation Uncensored
April 18, 2012, New York City
Where provocative thinkers collide and engage in meaningful, unexpected conversations. At this event, participants from various industries are charged with sharing smart techniques and exploring the next generation of innovative ideas that are shaping our world.
Confab: The Content Strategy Conference
May 14-16, 2012, Minneapolis
Deep dives. Conceptual discussions. Practical application. Whether you’re a seasoned content vet or new to the game, Confab has something for you. You’re sure to walk away with not only new insights and discoveries, but also the ability to actually DO something with them. A mixed agenda format will offer attendees a variety of ways to engage with and employ the innovative ideas that come from the scintillating content and unexpected environment.
The event content is aimed toward anyone who thinks of themselves as an innovative business leader including but not limited to the fields of technology, design, marketing, entertainment, venture capitalism, energy, infrastructure, non-profits and brand executives.
America’s Small Business Summit 2012
May 21-23, 2012, Washington, DC
The U.S. Chamber of Commerce’s annual event — America’s Small Business Summit — unites small business owners, managers, and entrepreneurs from across the country to learn, network, and discuss common legislative and management concerns. Past speakers include former President George W. Bush, General Stanley McChrystal, Small Business Editor of the WSJ Colleen DeBaise, and many more. Attendees help influence our nation’s economic and political agenda by advocating for pro-business policies through the Rally on the Hill portion of the program. The event will take place at the Omni Shoreham Hotel in Washington, D.C., on May 21-23, 2012. For more information and important dates, check the Summit website, www.uschambersummit.com.
8th Annual Kentucky Innovation and Entrepreneurship Conference
June 1, 2012, Louisville, KY
The Annual Kentucky Innovation and Entrepreneurship Conference (8th KIEC) will bring together distinguished speakers, tech-based economic development practitioners, researchers, innovators, entrepreneurs, students and postdoctoral fellows.
The conference will focus on growing local initiatives powered by science and engineering talent.
2012 Veteran Entrepreneur Training Symposium
June 11-14, 2012, Reno, NV
Designed by Veteran small business owners for Veteran small business owners, VETS2012 brings government agencies, industry leaders and Veteran entrepreneurs together in a small, intimate forum to discuss the questions you need answered.
To find more small business events, contests and awards, visit the Small Business Events Calendar.
If you are putting on a small business event or contest, and want to get the word out, please submit it through our Events & Contests Submission Form (it’s free). Only events of interest to small business people, freelancers and entrepreneurs will be included.
Brought to you as a community service by Small Business Trends and Smallbiztechnology.com.
8 Ways to Finance Your Startup with Debt: Part 1
There’s good and bad news to share about startup financing for a small business. Keep in mind, we are only looking at debt options so think of loans and lines of credit that you pay back to a lender. We are not looking at any equity solutions such as angel investors, venture capital, etc. The good news is that there are options. The bad news is that nothing is easy nowadays and if you have damaged credit or you’re looking for several hundred thousand dollars it’s much less likely to happen purely with debt.
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
8 Ways to Finance Your Startup with Debt: Part 1
