INSIGHT ON: Financing Small Business – Start-up financing

Posted on Dec 6, 2013 :: Commercial Lending , Insight On
Posted by , Insight on Business Staff Writer

Start-upWhen starting a business, the odds are usually stacked against you: Statistics from the Small Business Administration (SBA) show that half of new businesses never make it to their fifth birthday. Add to it the extra hurdle of challenging economic times – the 2008 crash of the financial sector led to tighter lending rules – and it is more difficult for entrepreneurs to get loans and get their new business off the ground.

But things are slowly getting better since the SBA made some changes, making borrowing more attractive to lenders and making alternative resources, such as microloans and revolving loan funds.

“Getting funds to start a business is still doable,” says Kent Nelson, president of Menasha-based Quick Start Inc., which helps small business owners with finalizing their business plans, securing financing, and other financial issues. “You just need to make sure all your ducks are in a row and you’re prepared.”

Being prepared means that having a solid business plan in place, including one with income projections, is essential in securing funding, says Tim Vogelsang, vice president of commercial banking for First National Bank Fox Valley. “Some people have a great idea and skip the step of putting together a business plan. They just have an idea and think that’s what they need,” he says. “An idea won’t get you funding. You need a solid plan.”

He usually steers entrepreneurs-to-be who don’t understand what they need to SCORE (small business counseling) or the e-Seed course at Fox Valley Technical College’s Venture Center. “They walk you through the whole process of writing a business plan, which makes sure you have a valid idea for a business,” Vogelsang says. “It’s a huge asset to the community.”


SBA changes

After the 2008 crash, the SBA increased its efforts to help small businesses get funding. The SBA doesn’t use its own cash, rather it partners with lenders to work with small businesses. One of the agency’s most popular programs – the 7(a) loan program – actually guarantees up to 85 percent of a loan so lenders have that extra assurance they aren’t taking on too big of a risk by backing a small business. If the business defaults on its loan, the SBA uses its own funds to repay the lender. Just this fall, the SBA sweetened the pot even more by dropping fees paid by financial institutions for loans less than $150,000, Nelson says.

“The SBA keeps taking steps to make it more attractive to lenders to make loans. With the guarantee of getting back up to 85 percent of money loaned, plus not having to pay any fees for making a loan less than $150,000, why shouldn’t a financial institution offer its support?” he says. “Banks have cash they want to lend.”

Nelson admits some smaller community banks with cash to lend don’t have the manpower to keep up on the latest SBA changes or its paperwork, so that’s where his company steps in. Quick Start partners with financial institutions and presents them all of a business’ paperwork so it’s ready to go.

Vogelsang says the SBA changes do make it more attractive for lenders to back small businesses, but that “it’s still a little more difficult for start-ups to get funding. There’s a lot of regulations lenders need to follow before a loan can be approved. We’ve done a few start-ups in the past year, but nowhere near where it had been. I do think waiving that fee for loans smaller than $150,000 will definitely be a help.”


Beyond the banks

As lenders have tightened their belts, small business owners have become more creative in securing funding, turning to other organizations for help. The Advance Microloan Program started in 2011 and has 25 active loans worth $615,000, says program director Laura Gille. Started by Advance, the economic development arm of the Green Bay Area Chamber of Commerce, the program pools money from area financial institutions that want to work together to support entrepreneurs and small businesses in the area.

“It can take quite some time for start-ups to find funding in this economy,” she says. “People need just more than a good idea – they need to have a business plan or even a prototype made if they want to sell something so they can take it around and show they’ve given a lot of thought to their business idea and how to make it work.”

The Brown County Microloan Fund usually provides financing in concert with financial institutions, Gille says. “Let’s say someone needs $450,000 to get their business started, but can only secure $400,000 through a bank loan. We can come in and help with the remaining $50,000,” she says, adding the fund’s loans range from $5,000 up to $100,000, with an average amount of $25,000.

Just like a bank, Advance Microloan Program takes a close look at the business plan, checking for three years of financial expectations, personal and business tax returns and more before taking the company’s request to the loan committee. “We want to make sure we are making solid decisions,” she says.

Revolving loan funds are another source for businesses looking for capital, Nelson says. Municipalities or counties typically have revolving loan funds in place to help businesses expand or get off the ground.

“The funding is out there. You just have to know where to look and examine all the options,” Nelson says.


» Advance Microloan Program:

» Fox Valley Technical College’s Venture Center: