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Alternative finaincing options for small businesses that don't fit the bank mold.
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Alternative Financing Alternatives for your Business
Your Tour GuideYour Tour Guide
District Center Manager for Ohio SBDC at Columbus State since 2002
SBDC State Star for Ohio in 2007
Won the SBA Innovation and Service Center of the Year for Ohio and SBA Region Five in 2007
Striving to accelerate the growth of entrepreneurship and small business innovation. #RunNerds Marathoner. What's worth doing is worth doing for 26.2!
Visit my small business blog at Visit my small business blog at Ideas2Deals.comIdeas2Deals.com
Getting Financing Is…Getting Financing Is…
Financing All About CustomersFinancing All About Customers
“In preparing for battle I have always found that plans are
useless, but planning is indispensable.”
- Dwight D. Eisenhower
7
Who is out there to buy our Product?
How do we get them to buy our product at YOUR price?
Can You Answer This?Can You Answer This?
Bootstrapping is building the business from internally generated funds.
• You need to establish a foundation for your business.
• Build credibility and show that your business has customers and a product that people want to buy.
• Focus on customers and cash flow. • Work hard and be creative in seeking ways to drive
revenue while holding expenses down.
Friends Family & FounderFriends Family & Founder
Angel investors are high net worthindividuals who are interested in investing inemerging businesses.
Two Types of Angel Investors
Professional Strategic
Angel InvestorsAngel Investors
The underlying reason that they will invest is return on their investment.
They invest in spaces they know. They invest with people they know They invest based on referrals from
people they know. Invest based on due diligence. Will require professional terms. Looking for a big payout based on a
liquidity event.
Professional InvestorsProfessional Investors
More interested in the product than the business.
Invest based on gut reaction. May take common stock May not look for a liquidity event. May be the friends in FFF (or referred
by FFF)
Strategic InvestorsStrategic Investors
If you take someone else’s money you have a partner. They will want to have some influence on the company to protect their investment.
You will probably have to relinquish some level of control over the company.
If you are unwilling to share leadership of the company, investors are not the option for you.
Key Points About InvestorsKey Points About Investors
The only reason that they will invest is return on their investment.
They only invest in spaces they know. They only invest with people they know They only invest based on referrals from
people they know. Invest only based on due diligence. Will only require professional terms. They are only looking for a big payout based
on a liquidity event.
Institutional Venture CapitalInstitutional Venture Capital
The Value of Funding The Value of Funding Is Drastically Is Drastically
OverratedOverrated
There Is No Such There Is No Such Thing As “Free” Thing As “Free”
MoneyMoney
Banks are in business to:
• “Make money” not to make loans.• Lending is a tool to make money
not a moral obligation to help you.
Banks ~ Why They Say NoBanks ~ Why They Say No
• Commercial banks typically lend for “stuff”.
• There is no 100% financing from a typical commercial bank.
• Working Capital is short-term money to operate the business. Typically financed by a Line of Credit.
Commercial BanksCommercial Banks
SBA is not in the business of making bad loans.
Once the bank has agreed that the loan is good but in some way outside their guidelines they will seek an SBA guarantee.
The SBA is there to help you with your cash flow.
• Longer term• Lower down payment
Small Business AdministrationSmall Business Administration
Credit
Credit Score should strive to be over 710 +
Guard Your Credit Score
What Do Banks Look For?What Do Banks Look For?
Business Plan
The business plan shows you “Ability to Repay” the loan.
If you can’t show you can cashflow you can’t get a loan.
Plan for yourself then put into whatever format the lender wants.
Build A BusinessBuild A Business
Collateral
Security for a good creditIncentive to get you to repayThere is no 100% financingTo a bank collateral is real estate or equipment.
What Do Banks Look For?What Do Banks Look For?
Creative Creative Financing Financing OptionsOptions
These are direct loans between a business and investors. They are typically facilitated by a third party intermediary that collects information on loan amount, purpose, the credit and business strength (financial statements, bank accounts, etc.). Investors are able to look at the opportunities and select what they are interested in funding.
What attracts investors to participate is return. Typically rates will be above 10% depending on the strength of the borrower.
Peer To Peer LendingPeer To Peer Lending
Factoring ~ Factoring ~ Accounts Receivable FinancingAccounts Receivable Financing
Business sells its accounts receivables/invoices to a third party at a discount. The "Factor" provides a cash advance, often 70-85% of the value of the accounts. When the customer pays the bill the check is typically sent to “Lock Box” in the name of the business and the factor. Upon collection of the receivable the factor takes their principle and their accumulated fee with the remainder going to the business.
The fee is typically based on a percentage rate to be paid to the factor based on the number of days the receivable is outstanding. This can get expensive if the receivable drags on and is not paid in a timely manner.
With factoring the strength of the vendor paying the invoice is just as important as the strength of you as the business owner (actually the strength of the vendor is probably more important).
Merchant FinancingMerchant Financing
If you are accepting of credit cards in the course of your business this may work for you.
You need to be able to show your historic card activity and that you have a reoccurring volume of credit card purchases to secure cash advances from your merchant services provider.
You are getting a loan based on what you have done in credit cards in the past. Repayment/fee is deducted from your merchant account as you do business and generate credit card sales.
Vendor FinancingVendor Financing
Sometimes what you deliver is so important to your customers that they will help finance your growth capital needs.
Look at who your customers are and if they may be willing to fund some of your working capital needs.
When preparing to approach your customers for funding you need to consider if they are strong enough financially and have a strong cash position that will enable them to provide support. In the ask you should connect how your business growth will help their business grow.
CrowdFundingCrowdFunding
Crowdfunding is exactly what the name implies:
Raising small chunks of capital raised from a large number of people that will eventually total to the amount you need. This type of funding is a numbers game. You need to reach a large number of prospective funders so it is well suited to use social networking and internet funding portals like Kickstarter, Indiegogo and Fundable.
Currently, crowdfunding is based on a rewards model where if someone contributes they get a reward such as a t-shirt or an early release of the product instead of repayment . Eventually you will be able to seek investors and sell equity on crowdfunding sites.
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Where You Can Find MeWhere You Can Find Me
Everything is always impossiblebefore it works.
That is what entrepreneurs are allabout – doing what people have toldthem is impossible.
The Ohio SBDC at Columbus State
p. 614-287-5294
www.SBDCcolumbus.com
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