Availability of Small Business Financing May Suffer from Political Wrangling. But Business Owners Who Prepare in Advance Can Become Positioned to Survive.
Small-business owners are holding their collective breaths as President Barack Obama’s proposed budget wends its way through the politically-charged Congress. It is as much the chief executive’s opening salvo, as it is his wish list. Moreover, it is a posturing tool for further negotiations with the Republicans and some conservative Blue Dog Democrat opponents.
So what do you do to gird yourself against most outcomes? How can you steel yourself so that possible budget cuts don’t slice into your business’ future? Drill down “into cash management with tools you can introduce into your business to accelerate incoming cash,” says Kraig Kramers, a management consultant and consummate entrepreneur who turned around such Fortune 500 Companies as Snapper-brandlawn mowers. “Delegate these tools to those managers and employees who can do the best with them.”
Borrowing an idea from “a Fortune 500 company,” he says, “Look at a detailed balance sheet, yes, to the penny.” As a result, “we found a half-million-dollar stock certificate that had been forgotten.” But the technique is not just for large corporations. Kramers also found “recapturable deposits in several smaller businesses this way.”
Here is another tip that you must know. “Stay close to lenders and prospective investors long before you need them,” Kramers says. “You must have prior happy relationships with those who will provide the cash timely when you really need it.”
More specifically, you may find that the friendly banker who smiles and thanks you for your checking account deposits, tap dances and stutters when asked for a line of credit or term loan to see you through a time of need. If increased corporate and personal income taxes choke off the cash flow you will need in your business, whom are you going to call?
Go talk to your bank’s loan officer tomorrow morning and test the water. It is better that you see your loan officer tap dance now than before crunch time. And if he or she dances, it is time to look for alternative funding sources.
Kickstarter.com, for example, is an alternative, web-based site for artists, film buffs, musicians and writers who want to turn their hobbies into businesses. These creative folks post Online what they want to do, and to my surprise, in some cases funders make contributions to help them succeed.
“However there is still limited conventional financing for start-ups,” says Mike Rozman, co-president and chief strategy officer for BoeFly.com. His company’s web site has over 1,500 participating lenders paying subscription fees in order to view from applicants seeking financing. “We’ve seen an increase in conventional lending over the past six months for existing profitable businesses seeking to expand or refinance debt,” Rozman says. Many of BoeFly’s lenders also make loans that are partially guaranteed by the U.S. Small Business Administration and U.S. Department of Agriculture.
SBA’s 7(a) loans are suitable to finance real estate, equipment, machinery, working capital, and to purchase an existing business. The agency’s 504 programis for fixed assets and most suitable to build, expand or purchase real estate. More recently, SBA initiated a temporary 504 program to “rescue” borrowers who have existing loans with balloon balances coming due and find that take-out lenders are scarce.
USDA’s Business and Industry Loan Programis similar to SBA’s 7(a) but the businesses must be in rural locations. Sometimes, sparsely populated locations on the fringe of urban metropolitan statistical areas are approved. Unlike SBA’s loan limits of $5 million for 7(a) and approximately $10 million for 504, USDA’s B&I program tops out at $25 million under certain circumstances. And the loans may go up to $40 million for rural cooperative organizations that process value-added agricultural commodities.
Lenders are concerned that the Obama Administration’s final budget and the political scuffling in Congress may leave SBA and USDA with inadequate loan-guarantee authority to meet the demand going forward. If that happens, and “guarantee coffers are low, the borrower needs to worry if their loan will be approved before the program runs out of money,” Rozman says. Borrowers will to need be “aggressively seeking alternatives,” he says.
Jerry Chautin is a former entrepreneur, commercial mortgage banker and business lender. He writes and blogs about business and real estate for several publications and is SBA’s 2006 national “Journalist of the Year.” Jerry is a volunteer business mentor with SCORE, “Mentors to America’s Small Business,” offering free business advice. Post your comments and ask questions on this Blog or send Jerry an e-mail.
Copyright © 2012 Jerry Chautin — All rights reserved.