 
Money Drives Entrepreneurial Success (continued)
Every small business owner has a story about being turned down for financing. When a door is closed on an entrepreneur, they have no choice but re-open it and try again. Perseverance is a prerequisite for small business success.
The biggest mistake an entrepreneur can make is not doing adequate research and planning before seeking financing for a business start-up or expansion. Banks make money by loaning money. Requesting a loan when you are not properly prepared sends the wrong signal to the banker.
Research and Planning
The first step to small business success is a strong business plan that is consistently updated as the business matures. Too often, entrepreneurs say they don’t have time to develop a business plan. The reality is they can’t afford not to invest the time. It is key to the entrepreneur’s vision – and potential financing.
There are many free resources available to assist in developing a business plan. The Small Business Development Centers (SBDC), Service Corps of Retired Executives (SCORE) and Veterans’ Business Outreach Centers offer a wide variety of counseling and technical assistance programs. The SBA’s Business Information Center in Wilmington also offers an extensive resource library and access to software programs to enhance the business plan.
The Internet also can’t be ignored as a valuable resource. The SBA's website, www.sba.gov, should be on every entrepreneur’s list. It not only explains SBA financing programs in detail; it also offers web-based training in cooperation with the Harvard Business School and Cisco Systems. And there are hundreds of links to other helpful small business sites.
There are so many websites, but my short list includes:
www.sb2000.com – The affiliated website of PBS’ popular small business TV show “Small Business School” (a must see for every business owner). It offers streaming videos of success stories and excellent small business tips.
www.onlinewbc.gov – The website is affiliated with SBA’s Women’s Business Center program and features a national chat room for women business owners to share ideas. If a business owner needs information on procurement, marketing, financing, personnel, etc., this is the site.
www.business.gov – Time is money. Business owners should take advantage of this one-stop site to better understand federal regulations that impact business operations.
Every business plan should include an exit strategy. Financial partners want to see a “bail-out” plan in case the business fails. No matter what the level of experience is, there is always a risk associated with small business.
Financing Options
There are pros and cons to every financing option. Entrepreneurs should always consider the type of business, use of proceeds, management control, and repayment ability. The success or failure of a business is driven by the access to capital. No decisions should be made without extensive research.
SBA Guaranty Loans
The SBA offers a wide range of financing programs to help you start, build and grow your business. In guaranteeing 75-85 percent of a loan, the SBA reduces a bank’s credit exposure and expands the financing available to small business. By providing this guaranty, the SBA helps tens of thousands of small businesses every year get financing that otherwise would not be available.
SBA financing covers practically every small business financing need, including working capital, equipment, and the purchase and renovations of buildings. One of the most attractive features of SBA loans is the longer term loan maturities: up to 25 years for real estate, up to 10 years for equipment, and up to seven years for working capital.
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Family and Friends
This is a popular option for many start-up businesses, but it should be carefully evaluated. Money issues can cause friction between family and friends. Treat it as it is – a business transaction. A business owner may want to offer an investor a revenue sharing opportunity. In this relationship, an investor shares in the sales, but not the ownership.
Personal Savings
Most businesses are started with personal savings of less than $10,000. But a business can’t grow without available cash. Some experts recommend an entrepreneur have at least 18 months of salary saved before starting a business.
Never expect to start a business with a grant. Financing resources will never take you seriously. A business owner is more driven to succeed if they have a personal risk at stake too.
Credit Cards
This option always should be approached with great caution. Credit card abuse can cause a quick downward spiral to small business failure and impact future access to credit. They can provide a revolving line of credit for purchases, but payments should be made when the cash comes in. Research credit card companies that offer a wide range of rewards programs that benefit the business.
Venture Capital
Keep in mind that venture capitalists focus on growth. They aren’t interested in small mom and pop shops unless there is a potential for substantial expansion into numerous locations. Many venture capital firms specialize in particular industries, so identify a firm that focuses on your industry. Venture capital is an ideal option for a growth-oriented business needing several million dollars or more in financing.
Venture capitalists expect a return on their investment. This is not an attractive option for entrepreneurs who don’t want to yield control in ownership and decision-making. It also can be expensive to get a deal finalized. Experts say entrepreneurs should plan to spend from $15,000 to as much as $150,000 just to line up the investment.
The SBA offers venture capital financing through its Small Business Investment Company (SBIC) program. Licensed by the SBA, the SBICs are privately-owned and managed investment firms. Participating venture capitalists can supplement their own private investment capital with funds borrowed at favorable rates through the federal government, and in turn, invest in small businesses. Last year SBA financed 4,600 investments worth $5.6 billion through this program.
ACE-Net and Angels
Sophisticated individual investors, better known as angels, can provide bridge loans and equity capital. This is an ideal option for a growth-oriented firm that needs more financing than a traditional bank loan, but less than a large venture capital deal.
ACE-Net is an Internet-based matchmaking service overseen by the SBA’s Office of Advocacy. For an annual service fee (maximum charge of $450), small, growing businesses can post their securities offerings on a secured website to be viewed by accredited investors, SBICs and institutional venture capitalists. Only entrepreneurs who can sell security interest in their companies (corporations and limited liability corporations) can enroll in ACE-Net.
This program was the concept of small business delegates to the 1995 White House Conference on Small Business, who identified it as their top access to capital priority. For more information, access SBA’s website, www.sba.gov.
Small business is big business. Entrepreneurs should always remember this as they settle into the driver’s seat.
 Jayne Armstrong is district director of the U.S. Small Business Administration’s (SBA) Delaware District Office. She can be reached at (302) 573-6382.
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