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Financing Your Small Business in a Tough Economy

Financing Your Small Business in a Tough Economy

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Published by: Crowdsourcing.org on Sep 23, 2011
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Financing Your Small Business in a Tough Economy
August 11 2011
Small businesses are still struggling to get financing, and that has manyentrepreneurs wondering how to go about getting the cash they need to eitherstart or maintain their business.
“These days you’re more likely to win at roulette
than to secure a business lo
an,” said Mike
Michalowicz, entrepreneurial advocate and author
of “The Toilet Paper Entrepreneur.”
 Nearly two-thirds of privately held businesses saidthey were denied by banks when they applied for aloan, according to a recent Pepperdine Universitysurvey.So, many entrepreneurs are having to get creative when it comes to raising money.
When Andy and Rachel Berliner started their frozen food business, Amy’s
Kitchen, they had no choice but to get creative.
”We didn’t have any money. We borrowed on Rachel’s car,” Andy Berliner said.“I sold a gold watch someone had given me years before, and borrowed a little bitfrom family.”
 After they got things started, the Berliners went to a bank for a loan and broughtalon
g their product for a tasting. The bankers were hooked. Now, Amy’s Kitchen
is an established business that makes over 150 products and expects its sales to top$300 million for 2011.
 Here are a few tips from the pros when it comes to raising money.
Bank Loans
 Before you fill out that bank loan application, do some homework.First, business owners should run a credit check and talk to local bankers about thecriteria needed to get a loan, said Raj Tumber, a business mentor and counselor atSCORE, a nonprofit association that helps entrepreneurs and small businesses.Then, he said, make sure you have a solid business plan that includes details suchas a competitive analysis, the management process, a marketing analysis andfinancial projections.Entrepreneurs are also expected to lay out more of their own cash.According to Tumber, the banks used to settle for anywhere from 10 percent to 20percent in cash or assets put up by those seeking a loan. Now they are looking for agood 50-50 split.
“The more money that comes out of your pocket the better…or the more assets youhave the better,” he said.
Micro Loans
 If you are looking for a loan under $50,000, a microloan may be the way to go.
The Small Business Administration’s
provides small, short-term loans through specially designated intermediary lenders, which are usuallynonprofit community-based organizations.
 While the maximum amount is $50,000, the typical loan is for $13,000.
“The requirement to obtain a microloan is more lenient as far as credit [score]goes,” Tumbler said.
Plus, he said, many big banks are generally hesitant to approve loans for under$50,000.
The Competition
One of Michalowicz’s favorite approaches is reac
hing out to the competition. Hethinks a big competitor may provide an annuity investment or a loan if youposition yourself as a growing company that may be able to provide things it wantsdown the road.Offering a piece of the pie or a first right of refusal tobuy the company at a predetermined price are twoways to entice your competition to invest, he said.Once the investor has an interest in seeing you succeed, you may get guidance onbusiness decisions.
Friends and Family
 Instead of going to the rich uncle, Michalowicz suggests doing what is called
“crowd funding”— 
getting pieces of money from everyone in the group.
“It’s a lot lower risk for everyone involved,” he said. “The other upside is now you
have a lot of people with interest in the business and they may be more likely to
give you referrals and opportunities.”

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