Government Support

Entrepreneurs’ Groups

Launching Advice from the Experts: Rob Weber

Got Partners? Got A Prenuptial? Barry Bendes

Create a Template for Your Business: Doug Crisman

Find the Funds: Joe Benjamin

Finding Money for Tech Start-ups: Carl Kopfinger

SBA Loans Launch New Businesses: Don Swartz

Corrections or additions?

These articles were prepared for the January 4, 2006 issue of U.S. 1

Newspaper. Some articles have been adapted from the weekly Survival

Guide section for 2005. All rights reserved.

Launching a Business

Many entrepreneurs learn the hard way, by trial and error, but often

the successful ones have learned to take advice.

Ezekiel Fleming says he owes his much of his success in building his

Trenton-based insulating business to good advice from Lorraine Allen,

the regional director of the Middlesex-Mercer Small Business

Development Center (SBDC) at the College of New Jersey. Fleming was

one of 15 entrepreneurs who received a New Jersey SBDC Success Award

in December.

"What the SBDC did was to get me organized," says Fleming. "I knew how

to do the work, but I didn’t know how to gain assurance or get into

position for a bid. Or the financial aspects, how to keep overhead

low, gain a profit in a short period of time, and put money away so I

wouldn’t get into debt."

Fleming wanted to translate his experience with an insulation company

in South Jersey to open his own firm in Central New Jersey. Now his

Trenton-based start-up, Airseal Insulators LLC, provides

weatherization and all types of insulation to government entities in

Mercer and Camden counties and Atlantic City; he also does work for

homeowners.

"Zeke went step by step," says Allen, who offered her consulting

advice on a dozen occasions during the launch process. "He is an

example of a start-up entrepreneur who maximized resources and

followed the step by step process."

Fleming made it easier for himself by tapping the expertise of the

SBDC (www.njsbdc.com). Here’s how:

Registered the business. By the end of 2004 he had registered his

business as an LLC and was directed to Allen and the SBDC by the New

Jersey One-Step program (www.state.nj.us/Business.shtml).

Set up record keeping. Allen and the SBDC counselors showed Fleming

how to set up and run a business, how to keep records, how to divide

responsibilities between himself and a partner, and how to get

business insurance.

Devised marketing plan. Under Allen’s direction, Fleming devised a

marketing plan and began working on his official business plan.

Fleming learned that, before writing his business plan, he needed to

figure out who his customers were.

Applied for state certification as a small/minority owned business.

Bid on government contracts. Fleming took an SBDC course on

procurement and began to look for opportunities to bid on contracts.

(New Jersey allots money for county-run and municipality-run

weatherization programs for the elderly, low-income families, and some

first-time homeowners.) The SBDC walked him through the steps, from

preparing the bid, to participating in the bid conference, to

fulfilling the bid award.

Recovered from a mis-step. After a year of working with the SBDC,

Fleming officially launched his business in July, 2005. Everything

went so well that he wanted to expand, and go from one truck to

several trucks, and that was when Allen stepped in. Keeping in mind

that a home improvement company’s reputation is of great importance,

Allen advised him to concentrate on quality, not quantity. "He took

his licks and came right back and got grounded again," says Allen.

"It is a not a field where you want to make mistakes," says Fleming.

"I wanted to grow fast, and Lorraine said, `Let’s think about this.’

We decided to pay attention to detail, to do things right and

correctly, to gain a positive reputation rather than grow real fast.

It is so hard to build a reputation once it is torn down."

"I am new to the world of business," says Fleming, "and I want so much

to be successful that I will take direction. If you bump your head as

many times as I have, you learn."

Fleming grew up in Trenton, the only child of a single parent. (His

mother died when he was young. His father worked as a delivery person

for the New Jersey State Museum and owned real estate on the side.)

"My father taught me his work ethic," says Fleming. "He said that

everybody fills a position, that there are national positions and

local positions, and that once you find your position it is important

to be the best. He slowly but surely bought one house at a time, and

at one time he owned five houses in Trenton."

After graduating from Notre Dame High School in 1984, Fleming briefly

attended Kutztown State and then joined the Air Force. Working as a

jet mechanic in Texas, he learned to be organized and do everything

according to a protocol, a skill that carries over to his current

work. He learned the delivery business at a multi-national firm,

Honeywell, and then worked for an independent Dover-based firm before

starting his own.

Now Fleming has a two-year contract in Atlantic City, a month-to-month

contract in Camden, and is participating in a trial with Mercer County

that could lead to a year-long contract. He has been self-financed

until now but has applied for an SBA-backed loan to buy another truck

and more equipment. The SBDC is also advising Fleming on how to build

a website.

His current formula for success: "I show up and I answer my phone."

– Barbara Fox

Airseal Insulators LLC, 17 Lee Avenue, Trenton 08618; 609-695-5450.

Ezekiel Fleming, president.

Top Of Page
Government Support

New Jersey Small Business Development Center, 49 Bleeker Street,

Newark 07102. Brenda Hopper, statewide director. 800-432-1565; fax,

973-353-1110. www.njsbdc.com

Free management consulting and affordable training for entrepreneurs

through 11 regional centers, also satellite centers and incubators

New Jersey Economic Development Authority, 36 West State Street, Box

990, Trenton 08625-0990. Caren S. Franzini, CEO. 609-292-1800; fax,

609-292-5722. E-mail: njeda@njeda.com. www.njeda.com

Self-supporting, independent state financing and development agency,

offering incubation space and funding.

New Jersey Commerce, Economic Growth and Tourism Commission, 20 West

State Street, Box 820, Trenton 08625. Virginia Bauer, CEO/secretary.

609-777-0885; fax, 609-777-4097. www.commerce.state.nj.us

Coordination of government and private resources to provide technical,

financial and other assistance. For businesses seeking information or

assistance, call 1-866-534-7789.

Top Of Page
Entrepreneurs’ Groups

Employers Association of New Jersey, 30 West Mount Pleasant Avenue,

Suite 201, Livingston 07039; 609-393-7100; fax, 973-758-6900. John

Sarno, executive director. www.eanj.org

New Jersey Entrepreneurial Network, 600 College Road East, Suite 4200,

Princeton 08540; 609-987-6656; fax, 609-987-6651. Robert Frawley,

president. www.njen.com. Also 609-279-0010.

New Jersey Entrepreneurs Forum, Box 313, Westfield 07091;

908-789-3424. Jeff Milanette, president. www.njef.org.

Rutgers Center for Entrepreneurial Management, 111 Washington Street,

Newark 07102; 973-353-1062.

Venture Association of New Jersey, Box 1982, Morristown 07962-1982;

973-631-5680; fax, 973-984-9634. Jay W. Trien CPA, president.

www.vanj.com. Also 973-267-4200, ext. 193.

Top Of Page
Launching Advice from the Experts: Rob Weber

Rob Weber suggests that between 60 and 70 percent of products brought

to market annually will die away within their first year. And in a

cruel twist, the winners are often far from the most useful entries.

Pet rocks and corn cob holders can barely be kept in stock, while

improved bicycle helmets and cheaper lawn mowers gather dust. The new

products that flourish – no matter how frivolous – are those that are

placed on the right shelves in the right way.

Weber founded the Wayne, Pennsylvania-based ENSONIQ, a provider of

digital audio products (Email: rweber@antiphony.com). "I think

probably the greatest mistake the new business person makes," he says,

"is that he gets swayed from his original market strategy – if he has

one at all." For Weber, marketing plans must be precise, yet flexible.

Market focus. How many times have you heard it on TV? "This is a great

product, it dices, slices, chops, cures measles, and babysits the

kids."

"Entrepreneurs get lured in by their own product," says Weber. "They

fantasize about its uses until they believe that every person with a

pulse is a potential customer." This something-for-everyone approach

not only dilutes the image of quality and turns away buyers, but it

also diffuses and burns the new company’s resources in a scattershot

approach.

Weber’s advice for startups is to focus like a laser on one specific,

and very limited market group. Concentrate on serving them better and

winning a major purchasing share from them. ENSONIQ decided to sell

music synthesizers to hobbyists. Its strategy deliberately left out

hackers, professionals, and semi-professionals. While these groups

were large and enticing, Weber saw he could not stretch his product –

or his marketing efforts – to address the needs of all of these

audiences.

Controlled growth. As the product grows more successful, the market

will change. Entrepreneurs should forecast their products’ lifespan

and whom it will serve at given periods. Then owners can plan the

amount of funding they will require over a five-year period. Of

course, even the smallest niche market is never static. It is

important to be flexible and to update the product. The goal is to

have the customer dialing your number because "they always have just

the right item for me."

Raise less money. By beginning with a small but solid toehold, the new

company can dominate a position and leverage its experience. Nothing

so entices investors as a track record. Big plans are invariably more

attractive when you can show that a lot has already been achieved with

very little.

"If you’ve got some patience," says Weber, "it’s amazing how little

first round funding you can get away with." Venture capitalists are

fond of pointing to a very attractive sports blog that is seeking

funding to become a regional print magazine. It is a highly favored

prospect, far more likely to draw funding than an unproved business

plan for a sports magazine would be.

The CEO’s endless role. "If you have the idea that you are going to

fund your firm once, get over it!" exclaims Weber. "A CEO’s primary

job is to maintain cash flow for the company." As obvious as this may

sound, many company owners neglect this part of their job description.

"You may be selling yourself to venture capitalists, your stock to

shareholders, or your product to buyers," says Weber. "But you as CEO

are always the salesman."

Top Of Page
Got Partners? Got A Prenuptial? Barry Bendes

Every business begins with a marriage and launches in the whirlwind of

a honeymoon. It is a frenetic, wonderful time. There is intense

product research to be done, successive meetings with vendors and

potential clients, and marketing campaigns to plot. Finally your

product is flowing on and off the shelves and capital is at last

coming back into the firm. Now it begins.

You wake up one morning, look across at the other principals in the

company, and wish you’d had a better pre-nuptial agreement. The

honeymoon is over.

"Too many people start a businesses as if it were a hobby," says Barry

Bendes, an attorney with Roseland-based Wolf Block

(www.wolfblock.com). "They either want to treat it as a part-time job

or they want to delve into the intricacies of today’s problems with

never a thought toward tomorrow." The companies that endure are the

ones that foresee the eventualities and have already set in place

boilerplate solutions.

Assigning roles. Most businesses are launched by the combined energies

of the entrepreneur/inventor and the supposedly more silent backer –

emphasis on the "supposedly." It would contradict all human nature to

imagine a truly silent angel who merely opens his purse and never his

mouth, quietly pouring his coin into the company coffers. Once the

product is ready for market, this previously taciturn capitalist often

demands a say in everything from hiring and vendor selection to the

color of office furniture.

"It’s a simple matter of running through all the possible upcoming

decisions and working out placement of responsibility," says Bendes.

You can model yourself on other firms, but there are no absolutes. In

many firms the board holds final firing/hiring veto, in others that

responsibility rests with department heads. The trick is to hammer out

specific, shared duties beforehand. Think of what best makes the

company run smoothly, rather than what gives you the most power.

Resolving differences. Disputes, death, and taxes: count on them. The

former can prove somewhat less traumatic than the other two if there

is an agreed upon dispute management plan that includes several

fallbacks. "The absolute last thing you want to do," says Bendes, "is

take your problems to court. The second to last thing you want to do

is air them before a strange lawyer." Less drastic and far less costly

dispute resolution methods include establishing an inter-company

mediation, or arbitration, or even a grievance committee.

Partner-level disputes may most easily be handled through board member

or outside mediation.

Planning for succession. Unlike marriage, business partnerships are

not designed to last until death do the parties part. While you are

still laboring at the term-sheet level, it is wise to construct some

sort of buy-out plan. Figure the tangible and non-tangible assets of

ownership, then decide how partners may divest themselves of holdings

while still keeping the company functioning as steadily as possible.

For partnerships that do last right up to the doors of eternity,

problems may still exist for those struggling on this mortal plain. If

no previous arrangement was made, the surviving company principal may

find himself newly partnered with a wholly disinterested widow.

This is tough enough if the deceased functioned on the funding side of

the business, but if he was CEO, he may well have carried all the

basic operating secrets to the grave. "Not only must a line of

succession be clearly and legally established," says Bendes, "but all

partners should take out insurance on each other." Personal wills and

corporate contracts should be checked to avoid conflict.

Slicing the pie. "Amazing as it seems," says Bendes, "many companies

start up with absolutely no contingency for handling profit. The

capital at last begins rolling in and the two or three partners have

made no evaluation as to whose labor merits what percent of earnings."

Just as frequently company partners decide to give themselves salaries

that are dependent on a steady income flow. If profits fluctuate for

one quarter, the entire firm, even though strong, could have trouble

paying those salaries. A well forged profit participation plan laced

with fiscal reality contingencies may not engender more income, but it

goes a long way toward keeping spending efficient and keeping everyone

satisfied.

If you have enough optimism to start a company, you probably have

enough faith to believe it will last into the future. So why not take

all that energetic preparation you and your partners are lavishing on

the honeymoon and carry it on over to planning for your business’s

tomorrows. After all, yours could just be one of those seven percent

of American businesses that gets passed down for three generations.

Top Of Page
Create a Template for Your Business: Doug Crisman

In l976 Steve Jobs and Steve Wozniak sat in a garage, eating an apple.

They pondered the idea of forming a computer company. Four years

earlier Tony and Maureen Wheeler sat at their kitchen table writing.

Having just returned from an unguided trans-Europe and Asia jaunt,

they thought that there might be some money in publishing a guide book

or two called Lonely Planet. Not every business rises to the level of

the companies these entrepreneurs founded, but at some point a great

many dreamers do decide to expand into a real business.

For Doug Crisman, founder of Oldhorses (www.oldhorses.com), a

consulting company with offices at 212 Carnegie Center, such

transitions demand less an infusion of cash, and more a restructuring

of time, talent, and mindset.

When most sole-proprietors gaze into a future of expansion, they see a

frightening infusion of cash, overwhelming logistics, and a loss of

control. From this position, Crisman moves his often fearful clients

along a continuum toward greater leverage. That is, he helps transform

their company profits from more active income (profitable production)

toward more leveraged, or passive, income from investments or the

labor of employees. It is a shift that begins in the mind, and Crisman

admits not everyone can make it. Here is a roadmap:

Think as an investor. The owner who stops thinking, "I’ve got to make

$50,000," and begins to say, "I’ve got to have $50,000 in assets," is

well on his way. Says Crisman: "When a person makes the initial jump

from employee to self-employed, he has gained a great deal of freedom

and control, but not much leverage. I don’t really call such freelance

consultants a business." No matter how successful the tangible product

or service, the entire assets of the company rest on the owner.

Identifying new leveraged assets presents the largest creative hurdle

to success. Products, people, methodology, and distribution channels

all can be linked for leverage. Ancillary items or services, produced

by others, can be added to the company’s offerings. This can achieved

either by hiring employees or by linking up with other sole

proprietors, who provide a broader market base.

One of the most popular expansion methods is to link a product and/or

sales capability to a larger manufacturer. The producer, or in some

cases wholesaler, bundles your offerings with his and handles the

fulfillment for both from the orders you take in from your retail and

online outlets.

Freeing fixed costs. Instead of being inundated with an avalanche of

monthly expenses, tweak as many as possible into variable costs. This

move can slash overhead substantially. For example, very few sole

proprietors or partners have the gift of salesmanship. Hiring a

salesperson on straight commission creates a no-cost asset for your

firm.

"Never has there been more human talent available than right now, when

the corporate world is shedding so much of its personnel," says

Crisman. Contract workers can handle the full range of duties, and

often the tasks need not be outsourced any further than your own

county. Control remains with the owner.

Repeatable leverage. McDonalds and Home Depot succeed because they

remove emphasis from the individual and place it on the process. Each

shop and each job has a fixed, though not petrified, formula, that a

new franchisee or employee can use and repeat to generate more assets

for the company. Small businesses can copy this method by carefully

structuring all tasks so that new employees can easily pick up the

work when there is a vacancy.

Sales focus. "It’s more important to have a great sales manager than a

few genius sales people," says Crisman. If the method for selling is

incisively laid out, the actual sale becomes infinitely easier.

Finding that exact blend of direct, retail outlet, website, E-mail,

phone, and other selling avenues demands a strategic campaigner, not

just a lot of good foot soldiers.

Top Of Page
Find the Funds: Joe Benjamin

You have the idea of the century, but whether you’ve just come up with

a window cleaning robot or the next bio-technology solution, you will

need money to finance your new venture. Where do find that angel

investor or venture capital fund to finance your start-up?

Joe Benjamin founded YoungStartUp.com (www.youngstartup.com) in 1999

as a consulting company designed to assist early stage investors

particularly in regards to their investment presentations.

"Starting any company is an extremely difficult task," he says. "You

must be able to produce results, have a solid business model, and

build the right relationships." Once in front of the people with the

money, he has several suggestions for the new entrepreneur:

Do your homework. Know what your potential investors are looking for.

Be prepared with the information they are interested in about your

business.

Practice your pitch. "This is a sales game," says Benjamin. Make what

you are selling sound appealing. Practice your elevator speech. You

have about 10 seconds to interest your potential investors. After that

they’ve tuned you out.

Don’t speak in jargon. "A big mistake a lot of science people make is

to talk a lot of science jargon. They need to speak basic English," he

says. "Initially your investors aren’t interested in exactly how

something works." Instead he suggests practicing making your product

sound appealing. "You may have the solution that will solve the

world’s problems, but if your investors don’t see it as a winner they

are going to blink you out."

Benjamin suggests keeping your approach short. "Don’t tell everything

all at once." Several "buzzwords" can help get your point across, he

says, including the words "patent" and "partnerships." If you have a

patent on your product, make sure to mention it, he says.

Partnerships, too, are valuable assets an investor wants to know

about.

Don’t look too hungry. "Don’t come to your investor from a standpoint

of need. You want to build excitement about your product," he says.

"You need to have the attitude that you will succeed. If you aren’t

sure you’ll succeed, why should someone invest in you?"

Canvas friends and family. There are a limited number of ways for a

new company to get funds, says Benjamin. Bank loans or borrowing money

from friends and family are two typical ways. A third way may be to

hire someone to do research into potential investors. He cautions,

however, that this method takes money away from your business that

could be spent elsewhere.

Look to angels. Angel investors are another source of investment

money. An angel is "a private individual with discretionary income who

is looking for a place to invest it," says Benjamin. Usually, he says,

this person is a professional or a retired executive who has income

other than that which he or she is investing. Angel investors can be

particularly valuable in the early stages of a project when a company

does not yet have the measurable milestones a larger venture capital

fund may want.

Move onto venture capital investment. Venture capital funds are the

largest source of money for entrepreneurs who have moved past the

friends and family and angel investment stages. Each fund has a

website describing the types of companies in which it invests, the

geographical area in which it likes to invest, and the amount of money

it typically puts into a company. The fund’s portfolio companies are

listed on the site and provide insight into the types of businesses

that are likely to appeal to the fund’s partners.

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Finding Money for Tech Start-ups: Carl Kopfinger

Entrepreneurs with new technology often need patrons to see their

visions through to production and into the marketplace. Investors,

however, often lack the entrepreneur’s enthusiasm for a completely

untried technology. Banks and venture capitalists want to hitch their

wagons to a rising star, and they will scrupulously examine the

booster rockets to make sure it keeps ascending. The entrepreneur must

therefore try to position his company as the investment opportunity of

a lifetime.

For the high tech firm, whose whole industry is only now emerging from

a decade-long slump, this is indeed a daunting challenge. How does one

accessorize what must appear as "just one more software company" so

that public or private funders will hazard a glance?

"There are no more excuses for high technology companies," says Carl

Kopfinger, vice president of technical financial services for Commerce

Bank (856-751-2739), who spoke for a New Jersey Technology Council

seminar last year. "Venture capitalists are again opening up their

wallets and Thompson Economic studies undeniably show a last quarter

increase in high tech funding." It is an investment trend Kopfinger

has followed with keen interest for the last 25 years.

Yet no matter how new the product or company, Kopfinger insists the

old business rules apply, and if you want to get funded, you had

better adhere to them.

Be a business first. Long gone are those angels of the l980s who would

invest in almost any idea if it seemed technologically complex enough.

Now even the most exquisitely designed and saleable prototype gets

turned down if it hasn’t got a strong business structure bringing it

to market. This means, like any other service or manufacturing

business, early-phase companies had better hammer out an exhaustive

business plan, come up with capital tables, a cash flow and burn

schedule, and be able to swiftly respond to every item on the term

sheet. The more due diligence performed on yourself beforehand, the

more attractive you are to bankers.

Picture your banker as a person with a very small and busy hammer. He

will constantly keep tapping away to find holes not just in your

product, but in your previous financing, management capacity, and even

your relationship to the board of directors. If you have already given

away the store to get your initial startup capital, no future investor

will want to get in the middle of what could be a sticky bout between

financier and owner. So do some tapping yourself, warns Kopfinger, and

patch up the holes before meeting with lenders.

Skip the window dressing. About 15 years ago it became very popular

for startups to dress up their boards with name experts. When it came

time to merge or sell off, having a roster of names that spoke of

great financial prowess, proven investment track record, or even

renowned technological ability really boosted the price. But today,

while some corporations may be impressed, banks are not.

"Of, course we like to see an applicant who has a substantial team

behind him." says Kopfinger, "However, we want to know exactly how

active these people are in your project. Are they spread too thin to

be of any real use to your company?"

Venture capital firms and banks have different goals. In the hunt for

funding, the main caveat is to note what each lender wants. Banks seek

long-term relationship. They provide a lower rate, and once the

relationship is established, they may be more easily nudged into a

loan based on your past track record. The venture capital company

wants your new project to succeed swiftly and very profitably. It may

well want to take a substantial ownership interest, and will want to

see a return on investment in a relatively short time. And while the

venture firm may be willing to give you all you ask, with fewer

questions, it may want to place major decision makers on your board as

watchdogs of its own best interests.

Avoid cash burn blunders. Some start-ups, for example "spend far too

much on marketing before they’ve even got anything to sell," says

Kopfinger. Prodded by initial investors looking for a quick payback,

many new firms make the mistake of putting great amounts of resources

into marketing before they have a full business structure in place.

This scarcely gives future investors the sense of risk control they

desperately seek.

Top Of Page
SBA Loans Launch New Businesses: Don Swartz

This past year, the Small Business Administration (SBA) facilitated

over $602 million in loans to 2,800 businesses in the Garden State.

The key word is "facilitated." There is a common misunderstanding that

the government agency shells out the money, but that is not the way it

works. The SBA does not examine a start-up’s books or drop checks in

its mailbox.

In point of fact, you will probably never see a loan official from the

SBA. You will only notice his signature at the bottom of your bank’s

loan as a co-signer. Don Swartz, economic development specialist with

the SBA, explains the loan process. Swartz has served as a supervisory

loan officer for the entire northeast. Today he handles the offices

for southern New Jersey. The Mercer/Middlesex region are serviced both

by his southern office in Gloucester County, at 856-415-2283, as well

as the northern office in Newark, at 973-645-2434.

Banks drop all their loan applications into three baskets. Those that

meet all the standards, fall in the "YES" basket, and the applicants

receive the check. Those wholly outside the standards, for example,

those indicating bad credit, fall in the "NO" basket and the applicant

gnashes his teeth. The third basket is marked SBA. Those who fall just

a bit short on one criterion, maybe collateral, may get their

applications sent to SBA loan officials.

If the SBA reviewer smiles upon the application, the entire power of

New Jersey’s taxpayers and government gets behind the loan and

guarantees a certain percentage of it. It is returned to the bank with

the SBA’s blessing – and the loan goes through. The applicant himself

did not ask for this SBA review. In fact, he couldn’t ask for it. The

entire process is the lending bank’s call. Loan applications generally

miss the YES basket for four reasons:

Credit issues. The first and swiftest cut comes to those with bad

credit. If this is your problem, not even the SBA can help push it

through. But on the remaining three criteria, the SBA can provide some

wiggle room.

How much you must put in. An equity injection of 20 to 25 percent is

demanded by most New Jersey banks. Lenders want the entrepreneur to

put up this stake to cut down on the chance that he will walk away.

Coming up with this initial capital has proved a towering wall to many

otherwise prepared entrepreneurs, but the banks rarely bend on this

potential deal breaker.

How soon you must repay. Another hurdle involves the repayment

schedule. The return schedule must fit the lender’s risk requirement,

not, alas, the borrower’s ability to repay. "If, for example, you are

investing in inventory," explains Swartz, "that is material that

should be turning over quickly. The bank may want repayment in as

short as three months. Yet, if it is evident that will not work, they

will refuse the loan."

What counts as collateral. A real obstacle for many new business is

the universal bank requirement for collateral. The bank requires some

tangible asset against which it can fix a lien. If those tangible

objects are in the form of improvements to a building the business

does not own, they are not collateral. Patents and intellectual

property that are not yet bringing in income are not collateral, but

accounts receivable are. Banks can draw on their value long after a

firm has folded.

Your home, car, stock portfolio, and baseball card collection may also

be considered collateral if the lender so deems.

What the SBA can do to help. Typically institutional lenders turn over

to the SBA applications that fail narrowly in only one aspect. At that

point an SBA loan official reviews all the paper. Perhaps the business

is short 15 percent of the required equity injection, but it seems

otherwise strong. The SBA will not pony up the remaining 15 per cent.

Instead, it will return the application to the lender with an SBA

approval, which entails a positive guarantee for the major percentage

of the loan. With this guarantee, the bank has the peace of mind to

put the loan in the YES basket – and cut the check.

Bank loans get backed on a sliding scale. Notes of under $150,000 are

guaranteed up to 85 percent. For $150,0000 up to the $2 million

maximum, the SBA stands behind 75 percent. Additionally, the SBA

charges both bank and borrower a fee of 2 percent of the guaranteed

portion of the loan.

Legally the SBA cannot turn down a loan for want of any collateral.

"But that law can be quite misleading," says Swartz. He explains that

if a man applies for a business loan and has no home as collateral,

the SBA will consider his application. But the man who owns his home

and has not included it as collateral gets turned down. "We are

risking the taxpayers’ money," says Swartz. "I’m certainly not going

to have them stand behind a venture in which the company owner himself

is hedging his bet."

Where else to look for help. "The SBA should never be considered the

final word for the entrepreneur trying to link up with a bank," says

Swartz. He points to the increasing support afforded by urban

enterprise zones, empowerment zones, and county-based loan programs.

Each of these will often take a second lien position and give the

business the added cash to meet bank standards. The SBA also has its

own Microloan Lender Program that will find second lien lenders for

amounts up to $35,000.


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