Let’s say that you’ve been unsuccessful in your attempts to raise money for your business from the primary sources listed in Sections C and D above, or you have raised some money, but still need more. What do you do next? The first step is to go back to the people who initially seemed interested but ultimately turned you down and find out why. This is not a waste of time. If you get the same answer from several people, you will know what you have to work on. And then there is the possibility that someone’s circumstances have changed and they have more funds now. Remember, it took the man who invented dry paper copying 21 years to raise the money to get the first photocopier made. If a bank lending officer, or even two or three, turned you down but you still think borrowing is a good way to fund your business, try other lending officers at other banks. A friend of mine got a $15,000 unsecured loan to improve some agricultural property just by going to five different banks. The first banker laughed him out of the office, the second banker listened to his story for five minutes and the third for ten minutes. By the time he got to the fifth bank, he knew what questions the banker was going to ask and was ready with some solid answers. The banker was impressed and he got the loan. In fact, for this very reason, it’s not a bad idea to try a longshot bank first and the most likely one last. (See Article 10 for ideas on how to present your business plan to bankers.)

Example:Sue Lester tried all the usual sources to get the $20,000 she needed to open a piano school. One person she talked to was her Aunt Hillary, who had loaned her money to go to school several years before. This time Aunt Hillary said, “Sorry, but no.” One afternoon a few months later Sue ran into Hillary at her niece’s birthday party. Hillary asked how she was doing with plans for the school. Sue told her she was still short $10,000 and was going to try the Small Business Administration as soon as she made one or two changes in her business plan. Aunt Hillary asked about the changes. Sue told her that an experienced teacher had suggested she charge slightly more per hour, start with a good second-hand piano instead of a new one and try to work out a referral arrangement with a local piano store. This way she could pay herself more salary and wouldn’t need to take another job to make ends meet. Hillary asked to see the changes when they were complete. After Sue showed the revised plan to her Aunt Hillary, she offered to lend her the money. Sue was both delighted and curious. When she asked, Aunt Hillary said there were two reasons for her change of heart. First, she was pleased that the more realistic sales projections left Sue enough money to live on so she would be able to keep her enthusiasm for the hard job of creating a new business. Second, she had sold a small piece of land for more than expected and now had the money to lend.

Secondary Sources of Financing for Start-Ups or Expansions

Let’s assume you have tried all of the primary sources of financing small businesses at least twice, and have been turned down each time. Is it time to head for the showers? Not if you really want to start your business. If everyone turns you down, you have no choice but to get creative. Remember Knute Rockne’s exhortation, “Winners never quit and quitters never win.” Here are some suggestions.

1. Small Business Administration

Many years ago Congress recognized both that small businesses provide most of the employment and growth in the country and that they have a great deal of trouble borrowing money because large corporations tend to hog too much of the loan money from banks. As a result, Congress created the Small Business Administration (SBA) and several other government organizations specifically to help small businesses compete with larger corporations for loans. While the SBA can make direct loans to small businesses, it usually guarantees loans from commercial banks. The SBA will guarantee 85% of a bank loan up to $750,000 if the loan meets SBA criteria. These criteria are not as difficult as some readers may think. Typical requirements include that the borrower show profits for at least two years, that the borrower work in the business full-time and that the borrower have some real or personal property available to offer as collateral. Some bankers are strongly interested in working with loans guaranteed by the SBA since the bank can make a fee by processing the loans and later selling them to other financial institutions. Since the bank’s fee is based on the size of the loan, such banks are typically only interested in processing loan requests for more than $50,000. Many banks treat SBA loan origination as a profit center and aggressively seek out borrowers.

Some of these banks offer assistance in completing the SBA forms for a fee and offer quick turnaround on decisions. If any banks in your area offer this service, make an appointment with a loan officer specializing in SBA loans. Chances are, he will be able to estimate your chances of success based on reading your business plan. Loan approvals sometimes take place as soon as a week or so after you complete all the paperwork. The SBA’s past reputation of being hard to deal with and not very cooperative seems to be changing! That’s true for the guarantee program, at least. Your chances of receiving a direct loan in a reasonable time from the SBA will be greatly enhanced if you qualify for a preference category. For example, if you are disabled or a Vietnam veteran, requirements are slightly less restrictive. Ask your local SBA bank or SBA office about some of the direct loan programs. There are also small private business lending companies that perform a function similar to a bank’s function in assisting small businesses obtain SBA financing. To get names and addresses of organizations in your area, write the SBA, Financial Assistance Division, Office of Lender Relations, Non-Bank Lender Section, Washington, DC 20416.

2. Small Business Investment Companies (SBICs)

A Small Business Investment Company (SBIC) is a corporation established with the assistance of the SBA to lend money to small businesses. Some SBICs serve minority enterprises, and are called Minority Small Business Investment Companies (MSBICs). An SBIC can borrow up to four times its invested capital from the SBA. It then lends out these funds to other businesses, aiming to make a profit on each loan transaction. There are some 400 of these across the country, each with different investment goals and objectives. To obtain a list of SBIC addresses and areas of investment specialty, contact your nearest SBA office.

3. Farmers’ Home Administration (FmHA) This loan program is aimed at businesses that provide jobs in rural America. Business loans through the FmHA are guaranteed in towns with a population of 50,000 or less or in suburban areas where the population density is no more than 100 per square mile. Use of the loans varies considerably; loans have been made to enable a grocery clerk to buy the store he worked in and for someone to buy a McDonald’s fast food franchise. FmHA loans are normally made through a local bank. To start the process, look under U.S. Government, Department of Agriculture, Farmers’ Home Administration, in the local phone article and make an appointment with the FmHA supervisor. Loans under this program often take months to complete, so allow plenty of lead time.

4. Economic Development Administration (EDA) The EDA, which is part of the Department of Commerce, makes or guarantees loans to businesses in redevelopment areas—city areas with high unemployment. Eligible areas are listed in a publication available quarterly from the regional EDA director. Contact your local SBA office to locate the regional EDA director. If you’re in one of the designated redevelopment areas, this program bears looking into.

5. Federal, State and Local Programs Other federal programs are published in the Catalog of Federal Domestic Assistance, available from the U.S. Government Printing Office, Washington, DC 20402 for $20, or at your library. There always seems to be a variety of programs available from the federal government, so this directory is worth checking if you’re interested in government money. All states and many local governments have a number of aid programs available to help businesses create jobs. These are normally called Development Agencies or Development Administrations. You can find out about them by contacting your local Chamber of Commerce or by asking a banker.

6. Overseas Private Investment Corporation (OPIC) OPIC is a self-funded U.S. government agency that makes direct loans and loan guarantees and insures private businesses against political risks in developing countries. The ideal candidate for assistance is an American company that enters into partnership with a well-established foreign business. To learn more about this agency, call 202-336-8799.

7. Insurance Companies and Pension Funds pension funds. Normally, neither is a viable lending source for small businesses. Some insurance companies have a small fund they can invest in businesses, especially if you can offer a combination of loans and investments. However, most small businesses will find money from less restrictive sources long before they make an application to an insurance company.

8. Advertising Your Project and Selling Stock to the General Public Advertising and selling corporate stock to the general public through a public offering is very different from selling stock to your friends, relatives and business acquaintances. Following any of these procedures requires a knowledgeable attorney—don’t try it without help. It can be an expensive, time-consuming process that can easily cost $200,000 in attorney fees, accountant fees and printing expenses just to meet government filing costs. If there is an underwriter (an investment company that guarantees to buy the stock at a discount), the costs are even higher. However, the federal Securities and Exchange Commission (SEC) has promulgated a simplified Form S-18 to allow smaller businesses access to public capital markets. Form S-18 is generally available to companies offering up to $7,500,000 worth of shares to the public for cash.

Also, SEC Regulation A is available to corporations making public offerings of up to $1,500,000. Note that even these less-cumbersome public offering procedures require considerable time and money to implement. In addition, simpler and inexpensive “limited offering” procedures are contained in federal and state securities laws (briefly discussed in Section B2). SEC Regulation D contains three rules which simply require the filing of a Notice of Sales form with the SEC, instead of the more costly registration procedure. While two of these rules include a ceiling on the total value of the securities that may be sold ($500,000 and $5,000,000), one rule does not impose any upper limit on sales. Sales of securities under Regulation D may be made to an unlimited number of people defined as accredited investors (defined to include principals of the business, such as directors, executive officers and general partners, as well as outside investors who meet certain minimum investment, net worth or individual net income requirements) and to 35 or fewer persons who are non accredited investors. A number of states have adopted the Uniform Limited Offering Exemption (ULOE) in order to make it easier for entrepreneurs to raise money under Regulation D. With this program, the states that adopt ULOE consider that the state regulations are met when an offering meets federal Regulation D requirements.

B. Draft Your Business Accomplishment Resume Investors and lenders want to be certain that you have the experience, education and desire to make your business a success. Your resume shows your backers that you can achieve your objectives. This isn’t a traditional resume that lists past jobs and the years or months you held each. More correctly, you’ll develop a statement of everything you have accomplished that has a direct bearing on your business objectives. Although you may not have owned or expanded a business before, you have accomplished some demanding tasks that are similar to the tasks you’ll undertake when you begin your business. But don’t fool yourself into thinking that good credentials alone will get a loan from the first person you approach. When it comes right down to it, few people will part with their money unless they also have a positive feeling about you as a person.

Your task is to get them to trust and like you as a businessperson. If you’re like most people, your glowing accomplishments are sprinkled with past mistakes and failures. Everybody makes mistakes, including your backers. Be honest in your resume but don’t go overboard. You don’t need to give a litany of every sin you have committed, including the time you skipped algebra class in the seventh grade. Only provide details of your errors when they’re relevant to your business plan. For example, if you ran a business for five years and eventually went bankrupt, you’ll need to mention that. Be prepared to talk with prospective investors and lenders about everything you present in your resume. The best way to build trust in a financial relationship is to communicate with full disclosure.

The worst thing you can do is to lie about or try to cover up a negative. (See Article 10, Section A3, for suggestions about how to discuss your past mistakes.) Now that that’s out of the way, let’s deal with the important, positive information: How do you demonstrate that you’re qualified to run a business? As with anything else, there are some tricks to writing a resume that will interest a potential investor. First, make a list of every job and experience in which you produced positive accomplishments for any organization, even if you were a volunteer or working for yourself. Since you’re not writing a standard resume, dates of employment are optional. You may be able to create this list by cutting and pasting old resumes, or you might just start from scratch. If you have access to a word processor, it’ll save you a lot of time. Also, it’s okay to include personal information about your hobbies and family status in this resume. Your financial backers want to know you as a person. Under each organization, list the business areas you worked in—for instance, sales, management, delivery, credit and so on. Now, set out the specific things you accomplished for that organization while carrying out your responsibilities. This information will become the raw material from which you choose the accomplishments most likely to support your proposal. Remember, this isn’t the place to be humble. Getting a new business off the ground is no project for the meek. Maybe you reduced costs for your employer by redesigning a delivery route.

Perhaps you designed a better canoe or came up with a new marketing strategy that increased sales of tortilla chips. Maybe you figured out how to improve the efficiency of a computer system or revised a recipe to make brownies taste better. Once you’ve completed your first list of accomplishments, write a statement that shows how your ifi li h l bili b i I l d i d specific accomplishments relate to your ability to run your business. Include experiences and achievements that support your case and exclude those that are too general or off the point. Emphasize your knowledge of how your potential business works and your knowledge of and respect for financial realities. Now that you understand the process and the objective, write a first draft of your business accomplishment resume. You may have to rewrite it several times to get the right perspective. Depending on your experience, your resume probably should be between one and three pages long. Ask someone to read your drafts to make sure you’re convincing the reader that you’re the right person for the job. You needn’t prove you can walk on water, but you should show a good understanding of business realities.

Example 1: Here’s an example of an inadequate statement for a credit manager’s job. This description doesn’t give a potential investor any information about the credit manager’s ability to run a business: Credit Manager, XYZ Company:Supervised two clerks and the accounts receivable and billing sections.

Example 2: Here is a much better version that details the credit manager’s positive accomplishments for the company. It shows that the credit manager understands and can improve critical business factors: Credit Manager, XYZ Company:Managed a credit department of 10 people, consisting of an accounts receivable section, a billing section and a delinquent accounts section. Reorganized both our collection department and our credit granting process to accomplish the following: 1.Collected $200,000 in delinquent accounts that had previously been consigned to the “unlikely to ever collect” category. This was a result of my decision to keep in closer contact with customers. 2.Reduced accounts receivable from an average of 90 days to an average of 38 days, considerably below the industry norm, again primarily by getting to know our customers better. 3.Reduced bad debt losses from 4% of sales to 0.5% of sales in two years by streamlining the credit application process and credit checking procedures as well as requiring our sales reps to personally vouch for customers’ creditworthiness. Maintained the 0.5% loss percentage in the following years. As part of this, we successfully brought 15 lawsuits with no new staff. 4.Through sales conferences, newsletters and frequent phone contact, worked closely with the sales force to ensure that new accounts were creditworthy. During this time, XYZ sales grew from $3 million to $7 million. The following two resumes—Jim Phillips’ and Sally Baldwin’s—share two important attributes: •knowledge of the particular business the individual wants to start and •specific business accomplishments. In this respect they are somewhat different from many typical job application resumes. For example, a potential employer might be concerned about whether your independent personality will fit in well in a job environment, where these resumes focus on concrete accomplishments.

Determine Your Annual Living Expenses

The goal of this part of the form is to make an accurate estimate of how much it costs you to live. Business expenses should be covered under a separate profit and loss statement for the business.

Real Estate Loan Payments or Rent: List your mortgage holder or landlord and your monthly payment. Indicate whether you rent or own. Fill in the annual total of all your rental or real estate loan payments, including principal and interest.

Property Taxes and Assessments: List your yearly liabilities if you own real property. Also list business non-real estate property, such as inventory or equipment, if it is taxed every year and the taxes are not shown on statements for your business.

Federal and State Income Taxes: Show your totals from last year’s income tax forms. If this year’s taxes will be very different from last year’s, make an estimate. Especially if you’re an independent contractor, you may want an accountant to help you prepare your estimated taxes for the year.

Other Loan Payments: List payments for all of the non-real estate loans, notes, charge accounts and credit cards you listed in the Liabilities part of the form. Use last year’s numbers unless they have changed substantially; if they have, append a sheet and explain.

Insurance Premiums: List everything you expect to pay for the year that won’t be covered through your job. Common types of insurance include life, health, disability, property and automobile.

Living Expenses: Estimate your other regular personal living expenses that weren’t covered earlier, such as utilities, child care, medical and dental costs, transportation, food, clothing, earlier, such as utilities, child care, medical and dental costs, transportation, food, clothing, entertainment and travel. Either provide an itemized list or a general category of expenses.

Other Expenses: List child and/or spousal support obligations and any other expense not listed above, like art collection purchases or vacation trips. Include professional associations that have continuing education expenses and club membership fees.

Total Annual Expenses: Now add up all your expenses. If your total is greater than your annual income total above, examine the information carefully before you consider borrowing money with a fixed repayment schedule.

6. Complete Your Personal Financial Statement If you have not already done so, transfer the draft information to the blank Personal Financial Statement from Appendix 4 or print out your computer spreadsheet. Make sure you sign and date your completed form; you’ll be surprised at how fast things change. As noted above, many financial institutions prefer their own form, which they will supply you. However, chances are that you won’t have to redo your Personal Financial Statement or, if you do, it will be easy.

7. Verifying the Accuracy of Your Financial Statement Potential lenders probably will want to verify your financial statements. Tax returns for the last two or three years are normally adequate to back up your income and expense statements. If your actual income is somewhat greater than your tax returns show, be ready to verify your assets in some other way. But don’t worry too much about this sort of disparity unless it is large. In an age of overly high taxation, your lender will not be surprised if your actual income is a shade higher than your reported income. His probably is, too. In addition, lenders usually obtain a personal credit check from a credit information agency on your track record in making payments. That shows what bills you pay and when, as well as any unpaid bills. Credit reports also list your current employment, lawsuits in which you’re involved and bankruptcies filed in the last ten years. It’s a good idea to request your own copy of your credit report before you meet with any prospective lenders. That way, you’ll know what they will see and will be prepared to discuss it. If your credit file contains some inaccurate or misleading information,