Where to Find the Money: Small-business owners look for sources

We all remember the memorable scene from the movie Jerry Maguire where actors Tom Cruise and Cuba Gooding Jr. banter with the now-famous phrase “Show me the money!”

It’s a phrase small-business owners often utter under their breath, wondering where they can go to find the money they need to start, operate and grow their businesses.

Know thyself

Whether you look to traditional sources of funding like banks, an S.B.A. loan or more “out of the box” sources such as angel investors or programs like “Make Mine a $Million Business,” most importantly you must absolutely know your business, according to Katherine Howe Frilot, business relationship manager with Wells Fargo.

Knowing your business is an essential component of operating a successful business. It could be the number of potential customers walking in your door, the number of visitors to your Web site or the number of phone calls you get asking for information. This knowledge, along with your financial information, your sales and profits, is critical to completing the statement, I did “this,” and the results were “that.” Without this information about your business, you are simply shooting in the dark, failing to focus your actions to achieve the desired results.

Any source of funding, excluding perhaps your Uncle Ralph, will want to see your current financials, a balance sheet and three to five years of income statements and your business plan. Regardless of whether your business plan is a fancy bound multiple-page report or something a bit simpler, demonstrating you have knowledge about your company, your sales, your competition, your growth and external factors that may impact your business is key to gaining the confidence of your source of funding.

Know the source

We know when there’s an emergency, we can dial 911 for immediate access to help. Imagine if no such system existed. We’d have to first determine if we needed to call for an ambulance, a fire truck or the police and then look up the appropriate number. Having relationships with professionals before there is an emergency is a bit like having this system already in place.

Annie Turner, vice president and business banking manager of Wells Fargo, says it’s like having the right tools in your tool belt — a competent bookkeeper, a legal advisor, a business plan and a trusted banker, each contributing to your success. Any good advisor wants to see you succeed and will point you toward the solution that best fits your needs. Being a great resource for their clients is important for bankers like Frilot and Turner, even when a traditional loan may not be the best fit for your current needs.

For your company’s marketing needs, you will most likely approach a reputable marketing company with experience working with businesses in your industry. Similarly, you want to approach a funding source familiar with businesses such as yours.

For instance, Janie Barrera, C.E.O. of ACCION Texas, a nonprofit micro-lender and winner of one of the NAWBO® 2009 Entrepreneurial Spirit Awards, works with small-business owners whose access to conventional credit channels is limited because of their credit history or lack of sufficient collateral. Understanding the issues of startup businesses has been key to meeting the needs of their clients.

Know the result

Involvement with nonprofit organizations has taught that those giving funds always want to know how the funds will be used. Whether it’s the United Way or a well-known foundation, the program that will benefit from the funds and the assurance those funds are being put to the best use is all part of that process. Your potential sources of funding will also need to know how their funds will be used — to purchase equipment, a building or to fund future growth. Loans for equipment or buildings often fall within the parameters of a commercial loan or an S.B.A. loan.

If it’s a loan rather than a generous gift from Uncle Ralph, the source of your funding will want to know how you plan to repay the loan. The lender looks at a number of factors to assess the risk involved when lending money — past history, future projections and outside factors.

Members of volunteer organizations often make judgments about how a fellow member conducts business based on how she performed in a volunteer role. Your lender uses this same logic in looking to your personal credit history and your business history of paying vendors. The attention you pay to your personal credit is a great indicator of how your business loan will be treated.

Based on your current ability to generate revenue and cash, as well as your future projections, your lender must assess if it will be a strain on your operations to make loan payments. Barrera indicates a lender wants more than assurance that “I’m good for it” from a borrower. Should things go south, the lender wants to know where the borrower will get the funds to repay the loan.

Outside factors include the current local and national economy. In today’s economy it is critical to provide your lender any additional information about your industry as well as the economic factors that impact your business. If there are regulatory issues or pending legislation that will affect your industry, providing your lender with credible information will increase the lender’s confidence in you.

Know when to look outside the box

When some of the typical sources of funding say, “No” or “Not now,” there are still options. Grants for nonprofits, while not easy to get, are more widely available than grants for for-profit businesses. For-profit business grants tend to be education- or research-related and very specific in nature. Two resources arewww.foundations.org and www.fdncenter.org.

Dawn Stokes, C.E.O. of Texas Driving Experience, learned firsthand about alternate sources of funding. As the 2006 winner of American Express OPEN’s “Make Mine a $Million Business” program, she earned an injection of funds plus marketing and public relations assistance.

(Note: As the keynote speaker at the National Association of Women Business Owners®’ recognition of the 2009 Entrepreneurial Spirit Award winners, on March 19, Stokes will share additional insights related to out-of-the-box thinking.)

Know where to find money

With the economically uncertain times we hear about repeatedly in the media, you might be led to believe there is no capital available to small businesses. In fact, by knowing your business well, by knowing your source of funding well, by knowing the anticipated result of this access to capital and by knowing when to look beyond the standard forms of capital, you will be best positioned to gain access to the holy grail of small businesses: capital!

Cheryl E. Cook is president of the National Association of Women Business Owners® San Antonio Chapter and is the author of Small Business, BIG RESULTS.

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