APRIL 2003
Greetings & Salutations:
Money! - Money! - Who's got the money?
Over the past month, I guess I have fielded a couple dozen
questions about "Financing" a small business ... everything
from small manufacturers to Internet marketing companies. --
So ...
This month, let's explore the issue of ...
Getting Financing for Your Business
Having set on both sides of the desk ... both Borrower and
Banker ... I have seen the best and the worst of both worlds.
-- I have known Bankers who knew absolutely nothing about doing
business required by their "job" to pass judgment on
business loan applications ... relying upon outdated textbook
business templates to make a decision.
On the other hand, I have seen otherwise intelligent business
people ... with sound business plans and sometimes even successfully
operating small businesses ... approach the lenders with the
most ridiculous "financing plans" imaginable.
In one case, a small business owner came to me for financing
for his business. -- He needed about $150,000 to expand the business
from its current operating base. But, instead of asking to borrow
$150,000 ... which was justifiable ... he wanted to borrow $1,000,000;
putting $150,000 into the business and using the $850,000 to
create a self-liquidating sinking fund to pay off the loan. (He
told me, "That's the way the big companies do it.")
Another "business borrower" came halfway around
the world to my bank in the South Pacific to try to borrow $25,000.
-- The loan may (or may not) have been justifiable but his business
was too far away for us to get a real picture of his "local
trade area" business. -- When I directed him to take his
request to a bank or loan company in his home town, his reply
was, "They all know me." (I guess he figured I didn't
know him, so I would give him the money.)
Beyond that ... in case after case ... "business borrowers"
approached my bank without knowing for sure exactly how much
money they needed, or what the money would be used for. -- In
most of those cases, the "cash" requirements of the
business could have been reduced to near nothing by utilizing
leasing, factoring and vendor financing. -- In those cases where
I could work with the borrower, I would take the time to show
them how to use leasing to satisfy their equipment needs; factoring
to give them a faster cashflow; and vendor financing to increase
their inventory ... without borrowing any money at all.
Unfortunately, in the majority of those cases, the "business
borrower" wouldn't listen to anything that didn't put the
"cash" proceeds of a loan into his grubby little paws.
-- Their attitude was, "Just give me the cash. Then, I'll
use it to get what I need." -- But, as every banker knows,
"cash" only has value in a business when it is "necessary"
to the business ... not just a "wanna have."
So, if you are looking for "financing" for your
business, you should ...
First Determine Exactly What You Need!
(Most Likely, You Don't "need" As Much As You Think.)
Back when I was serving with the "Active Corps of Executives"
(ACE) program with the "Small Business Administration"
(SBA), I was called upon countless times to review the loan applications
of, and interview, small business people seeking SBA loans.
My job was to find out whether or not the loan amount was
sufficient to the needs of the business; or excessive. -- To
that end, I looked at each loan application and asked myself
a series of multi-part questions. Questions you need to ask yourself,
before you even begin your search of business financing.
Question #1: Is any part of the loan to be used to
buy equipment of any kind? -- Can that equipment be leased, or
will the business need the cash to buy that equipment? -- If
the business must buy the equipment, is there a ready market
for that used equipment should the business fail?
Question #2: Is any part of the loan to be used to
buy inventory? -- Do the vendors in that particular business
offer their goods on consignment? Open account? Short term (90
day) financing? -- What is the minimum cash required for starting
inventory? -- What kind of cash reserve should be set aside for
future and on-going inventory? -- What is the anticipated annual
inventory turnover? -- What is the industry 'norm' for inventory
turnover?
Question #3: Does the business currently have any Accounts
Receivable? -- How much? -- What is their aging? (How long do
they stay unpaid?) -- Can the borrower Factor the current Accounts
Receivable to generate some of the cash requirements? -- Are
the Accounts Receivable too old to be Factored? (That probably
means the business should be required to review their credit
policies.)
Applying just those three questions to your "business financing"
needs will put you ahead of the game. -- You will better know
what you really need - and - by noting the answers to those questions
in your "Loan Proposal" or "Business Plan,"
you will be able to show a banker where you have made an effort
to use alternative sources in your planning. -- But ...
What If ... even then ... The Bankers Won't Loan
You Any Money?
Well, don't feel like the Lone Stranger. -- Over the years,
I have seen even the best thought out and presented business
loan applications rejected by Bankers (and the SBA) simply because
the lenders lack a working knowledge of the business community
they are serving.
In that case, you might want to use ...
The Greatest Financing Tactic Of All!
Over the past 40 years, I have seen more money raised using
this method than any other. -- In one case, I saw it generate
over $500,000 in "private" financing in less than a
week.
What is it? -- What is it?
Believe it or not, all you have to do is run a "Classified
Ad" in the newspaper ... preferably the newspaper in the
largest city near to you. But, it's not what you say in the ad,
it is "WHERE" you place the ad.
What? -- Didn't I just tell you to place the ad in the "Classified"
section of the newspaper?
YES - but - you probably think the ad should be in the "Business
Opportunities" section. -- It shouldn't. -- In order to
reach the people you need to reach, you should have your ad published
in the "PERSONALS" ... that's where it will be seen
by the Private Investors you will be seeking.
Now, here is the customary, and generally acceptable, ad to
use:
PRIVATE INVESTORS Wanted for new ____________ enterprise.
Minimum investment $xxxx. ROI ____%. Business plan available.
Call:
Of course, the ROI (Return On Investment) you offer should
be significantly higher than the interest being paid by local
banks. -- Today, 10% to 12% are good numbers.
You should have a well thought-out Business Plan prepared
to tell your story to anyone who calls - but - don't mail it
to them. When a potential investor calls, set an appointment
... time and place ... where you can meet with them. -- This
will allow you to separate a lot of the "tire kickers"
from the "real players." -- Take a copy of your Business
Plan with you and be prepared to answer any questions.
Note: Have your attorney prepare the necessary promissory
notes and/or any other legal documents you might need. Take a
set of those forms with you, too.
In some cases, you may be able to convince the investor to
write a check right then - but - in most cases, you will have
to leave a copy of the Business Plan and any necessary forms
for them to "think about." -- Follow up with them.
-- Respond to any further questions they may have. -- ASK them
for a loan ... or investment.
Should the investor decide "NOT" to participate,
ASK them to return the Business Plan and forms to you ... by
mail, or in person.
A lot of work - but - when you really need the financing,
it is a small price to pay.
Then again, you could ...
Take Your Business Public!
Hey ... that sounds a lot harder than it actually is, today.
Using "Form U-7" under the "Small
Corporate Offering Registration" (SCOR) ... adopted
by the North American Securities Administrators Association in
April, 1989 ... your business can... Raise up to $1 million annual
... Sell stock to an unlimited number of non accredited investors
... Use ads and telemarketing as general solicitations ... and
... Allow registered brokers and officers to sell the offering.
When you use the SCOR Form U-7, you don't have to go through
the regular registration process, or even file any documents
with the Securities Exchange Commission.
Beyond that, it is even easier when you need less than $500,000
because, under $500,000 you don't (usually) have to have audited
Financial Statements.
Rather than try to explain the SCOR program to you, I high
recommend you cough-up $44.94 and buy a copy of "How
To Raise $1 Million for Your Business" ... the most
revolutionary manual ever written on the how, why, what, where,
when of selling up to $1 Million worth of your stock to the public
... a step by step manual with sample replies ... including all
important "contacts" who can assist you in getting
the job done the right way.
With the information and resources in, "How To Raise
$1 Million for Your Business" you could be selling free
trading stock in your company ... with no restriction for resale
... quickly and hassle free in as little as 30 days.
Order your personal copy of "How To Raise $1 Million
for Your Business" directly from the publisher at: http://www.salesmart.com/scor.htm
Once you have your SCOR offering prepared, start selling the
issue to your family, friends, associates, and co-workers. Also,
place your classified ad in the newspaper again only, this time
eliminate the ROI and change "Business plan available"
to "Prospectus Available."
This might just catch the eye of a Big Bucks Venture Capitalist,
or some stock brokers, who will be impressed with the fact that
you already have a prospectus.
By the way, with a SCOR offering, any Stock Broker can sell
the stock for you ... in any state in
which you file the registration. (I suggest only registering
in your own state to begin with. If a stock broker wants to sell
the stock in another state, let him register the offering in
that state for you.)
Of course, there are other ways to get financing for your
business - but - these are the best ways I know of and I know
they work because I've either done it myself or helped others
do it. -- But, no matter how you go about it, always remember
...
STRAW'S LAW OF BUSINESS FINANCE
Business financing is an expedient; not salvation. It is ONLY
a way of spending tomorrow's earnings, today. If the project
AND borrower, combined, cannot logically indicate future earnings;
or if you have already spent tomorrow's earnings yesterday, the
lenders won't touch it with a 10-foot pole.
Note: Now that you've read this letter, go to: finance.html
and read my article entitled, "Business Financing - To
Be or Not To Be." (I think you'll learn something.)
Copyright - 2003, J.F. (Jim) Straw. All rights reserved.