Business Funding: Disappearing VC, the Microloan, and Impressing the Loan Officer

The business funding world has literally been turned on its ear by the current economic situation. Venture capital opportunities are vanishing before our very eyes. But microloans are on the rise and dazzling your loan officer increases your chances of getting one.

Venture Capital Funding on Life Support
Cnet news reveals a stark impression about the absence of venture capital for businesses from start-ups to the majors. According to Dow Jones VentureSource, venture capital investment in US companies is down nearly 50 percent in a single year--from $7.78 billion to $3.90 billion. The IT industry has been hit particularly hard, with its VC at the lowest point since 1997. In effect, interest in unproven business models just isn’t there.

The Microloan Makes a Comeback
Financial guru Pat Gage, author of The "10 Steps To Money®" system and expert on acquiring business funding for small businesses, raves about this type of loan vehicle for start-ups and expansions. Microloans typically come in amounts of between $13,000 and $35,000--and entirely backed by the Small Business Administration. Support from the SBA gives you much more clout when dealing with traditional banks and lenders.

How to Impress Your Loan Officer
This is critical. So much so the US News and World Report offers some basic advice on what to do--and not to do--when you walk into the loan application meeting.

• Come Well Equipped. Have your finance package filled out completely and bring a copy of your business plan
• Have the Numbers. Be ready to present financial projections and explain how you got them
• Get Your Financial House in Order. In order to get business funding, you’ll have to show that you can manage your own personal finances

Loans for Business: From Private Equity to Traditional Lending, the Outlook is Grim

Despite the signs of an economy attempting to pull itself out of the mire, loans for business just aren’t materializing as you might expect. Traditional lenders are a literal no-show and private equity is in a virtual deep freeze. Setbacks like these have small businesses looking internally for capital.

A quick look at the numbers says it all. USA Today reports that the National Small Business Association has revealed 42 percent of small-business owners aren’t getting the loans for business they need to become competitive--or even remain stable. The worst news is that the figure is up from 33 percent just last December. These statistics seemingly fly in the face of proposed economic stimulus packages.

The news from GOP USA is similarly bleak. The government was left holding $2.1 billion in write-offs of small business loans it had guaranteed last year. That’s a new record and one that has sent the process of acquiring loans for business is a continually downward spiral. The Small Business Administration purchased $2.1 billion in bad business loans that have placed a strain on the SBA’s ability to offer better financing vehicles.

With respect to the noticeable absence of private equity--such as venture capital, business angel capital, management buy-ins, management buy-outs, and mezzanine arrangements--small business owners must consider in-house financing opportunities. These include merchant cash advances and equipment leasing. Those businesses that can capitalize on inside resources have a distinct advantage in a challenging economy.

Restaurant Financing: Four Things You Must Know

Despite the uncertain economic times, some service industries are doing remarkably well. As consumer save more cash, they’re able to spend more on entertainment--meaning it just may be the right time to start an eatery. Here are four things you must know about restaurant financing.

1. Restaurants Can Beat The Recession
According to a new survey by Franchise Times, 9 of the Fast 55-- the 55 fastest growing, young companies-- are sit-down or fast food restaurants. The list was compiled using the percentage of growth experienced over the last fiscal year. The surprise showing by these restaurants echoes expert opinions that restaurants opened in the right location and serving the right market can resist the negative impact of a lingering recession.

2. The Start-up Capital Search Isn’t Easy
QSR Magazine has some sobering news for those looking to acquire restaurant financing for start-up or expansion. Getting the needed capital requires a strong history of performance and the right numbers on the balance sheet. These standards are forcing newer restaurants to investigate less traditional financing vehicles, such as merchant cash advances and internal liquidation sources.

3. Obama’s Legislation Will Affect Restaurant Financing
Larry Summers, director of the US president’s National Economic Council, relays the developments within the Obama legislation that will affect restaurant financing in the coming four years. In an interview with Financial Times, Summers points out that fixing the current banking system requires tougher management of credit. This partly explains the difficulty some restaurateurs will experience in securing financing.

4. Franchises May Be The Way to Go
Morningstar reveals the recent tendency of large franchises to convert corporate-owned resources into more locally-owned franchises. This could be an opening for potential restaurateurs to move into management with established companies.

Merchant Cash Advance 411: Why You Should, Why You Shouldn’t, and Why It Matters

The merchant cash advance is one of those interior financing sources that many businesses shy away from. Some do so because they’re uninformed--some feel more comfortable with traditional financing options. But some businesses appreciate the value of an MCA--and they’re taking advantage of its power for start-up and expansion activities.

The Skinny on the Merchant Cash Advance
BusinessWeek offers a timely overview of the merchant cash advance industry for those considering getting their feet wet. Some industry highlights to become familiar with:

• The Deal. Merchant cash advance lenders offer businesses a lump sum payment in exchange for a share of future sales, actually based on a percentage of past receipts.
• The APR. According to Leonard C. Wright, "Money Doctor" columnist for the American Institute of CPAs, annual percentage rates can range from 60% to 200%.
• Noticeably Absent. Unlike traditional lending vehicles, with MCAs there is no due date and there is no fixed payment.

Why Some Averse to MCAs
Inc., the daily resource for entrepreneurs, points out some of the drawbacks of the merchant cash advance. Despite its seemingly quick cash-flow provisions and favorable terms, the annual percentage rate is viewed to be a bit pricey. Also, more unscrupulous lenders have been known to extend more money than they know the client is able to pay in an effort to launch a cycle of indebtedness. However, industry watchdogs are quick to point out that new Federal regulation is leveling the playing field.

The Bottom Line
Internal Business Consultant Francisco J. Acosta, EVP, says it best: The only way to beat a cash advance is to get the bank’s absolute best rate and put up everything you own as collateral. Otherwise, MCA wins every time.

Unsecured Business Loans: Separating the Good from the Bad and Asking Direct Questions

Unsecured business loans are proving unsettling in the current economic situation. SmartMoney’s Small Business Site presents two side of the coin: the problems associated with small business loans and the investors who are ignoring the red flags. Also, small business advocate and consultant Sue Malone offers specific questions to ask when seeking out an unsecured business loan.

The Statistics Stack Against Unsecured Small Business Loans
According to Marshall Eckblad of SM Small Business, steady losses are having an anchor affect on the US economic recovery. Rising commercial real estate delinquencies handcuff banks and sates continue to face dwindling tax revenues. Some statistics of note include:

• SBA losses more than doubled in 2008 to almost $1.3 billion
• SBA took permanent losses of nearly $504 million in loan amounts

But Don’t Hang your Head Just Yet
SM Small Business’ Diana Ransom paints a rosier picture of the ability for businesses to obtain unsecured business loans from investors. According to Ransom, although they’re not handing out money hand over fist, investors are lured by the lean qualities of today’s burgeoning start-ups.

Here’s How to Handle the Banks
If your business is searching for unsecured business loans, business advocate and consultant Sue Malone shows you how to dodge the rhetoric of lenders by asking a few basic questions.
1. Are you actually entertaining small business loans at this time?
2. How many loans have you personally made in the last 30 days?
3. What are the typical loan terms for the amount of loan I’m seeking?
4. How long will it take before I get a decision?
5. Who will be responsible for final approval?