Thursday, May 03, 2007

Where's the Money?

I was a panelist for the Access to Capital session at the first Small Business Success Conference. Our objective was to give small business owners a bit of insight into the financing options available for business loans and equity investments. As the moderator pointed out, just because one door is closed to a small business owner doesn’t mean that all doors are closed. Each lender and investor has its own set of criterion – which can change from day to day.

In addition to me, the panel included a representative from the SBA, a commercial banker and a factor.

My role on the panel was to help the attendees understand a little bit about the world of angel investing given my alliance with Angel Strategies, an angel capital firm that invests worldwide in a variety of early stage companies.

So here’s a few highlights from the presentation…

The banker confirmed the obvious. We’ve got lots of money to lend at very reasonable rates. But be prepared when you ask for money because we’re not in the business of taking significant risks.

The SBA representative said we’ll step up to provide the bank comfort if all you need is a lender to take a teeny, tiny little more risk than usual. And don’t worry if the bank says no because we’ve found that credit unions have quite the appetite these days for originating SBA loans. But even with their loan guarantee, the borrower still needs to find a way to show they have skin in the game. Having a home to offer as collateral and a FICO score over 640 sure helps.

The factor (who by the way, has done a great job with a few of my clients) told the crowd that his firm can provide a small business with lots of money secured by accounts receivable and purchase orders in less than a week once you complete a simple one page application. He’s also provided a number of business loans through his minority loan program.

Unlike a business loan, the world of equity entails giving up a piece of your company in exchange for money. Finding the right angel investor is akin to looking for a needle in a haystack. Almost 60 percent of the $25 billion of angel money invested in the US in 2006 went into the technology, software and healthcare sectors. The average investment in 2006 was less than $500 thousand. While the lender wants to know how they’re going to be repaid principal and interest, the angel investor wants to know your exit plan - how you’re going to give them a very healthy return on their investment in three to five years time.

So the overall message is as follows – there’s lots of money out there. Lots of money. Who gets it depends upon how good of a job the small business owner does of finding the lenders and investors that are a good fit with their needs and objectives and how well they tell their story.

See you at the next Small Business Success Conference in October!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call.

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