Surviving in Lean Times: You Can Still Find Operating Cash, but It's Not Easy
by Scott Zajac
The Hunt for Additional Capital Will Take You through Federal, State and Private Channels, but Persistence Will Pay Off in the End.
If you are a business owner, you don’t need to be reminded that even in non-recessionary times, survival is not easy. The Small Business Administration reports about half of all new businesses will fail in their first five years. In today’s world, there is no longer much shock value in the fact that many traditional lenders are reluctantly saying “no” to small businesses’ requests for loans, financing, even lines of credit that have historically been available.
But small businesses are the key to our nation’s economic health. In fact, small businesses have created nearly 70 percent of new American jobs over the past decade. However, lack of collateral, insufficient credit history and management challenges can prevent a business from surviving, even in good times.
If you are nimble, patient and dedicated to finding new sources of funding, you will discover there are alternative means of financing.
Start with the Feds
One of the most successful ways for businesses to get capital infusion right now is through the Small Business Administration. This may be the best time to apply for the SBA’s 504 or 7(a) loans. Because of the Recovery Act, loan fees have been waived and the loan guarantee has been raised to 90 percent until the end of the year. In other words, lenders can reduce their risk on a loan to your business to 10 percent—and you as a borrower will get a long-term, fully amortized loan with no balloon payments and no fees.
The SBA also provides the long-term, fixed rate 504 loan, which first requires a business to secure loans from other sources. Fees have also been waived through the end of the year. There are also SBA short-term relief loans of up to $35,000 to help businesses ride out the recession. Some SBA lenders will offer these loans through the end of October 2010.
State-level assistance
Another successful avenue for alternative financing, for Missouri businesses, is through the state New Markets Tax Credit program; there also is a New Markets program on the federal level, available in all states. The goal of these programs, which attract private investment into businesses in low-income communities, is to augment the involvement of highly qualified investors in the participating states.
New Markets Tax Credit lenders work cooperatively with traditional banks to attract long-term, patient investment capital to a state’s low-income communities, promoting new expansion, creating new job opportunities and building on existing growth in the state.
As a business owner, if you are located in a low-income area—or would be willing to move your business into a low income area—you may be able to qualify for funding under these programs.
Flights of ‘angels’
And while the availability of angel funds has declined, according to a recent study by the Angel Capital Association, more than half of angel investors plan to increase their co-investment activities with other angel groups through the end of 2009.
Assess, assess, assess
Finally, in practical terms, a business owner must not delay in making difficult business decisions. View your business as a bank or a venture company would view it.
Ask yourself the tough questions about whether you have the right management team in place, and the most effective business model for challenging times. This is an exciting time to start or grow a business—but controlling costs and maintaining liquidity are crucial. 
Scott Zajac Senior Managing Director of Advantage Capital Partners.
P | 314.725.0800 x107
E | szajac@ladvantagecap.com
Return to Ingram's October 2009