So the bank turned you down, and conventional venture capitalists wouldn't touch your mundane company with a 10-foot balance sheet.
What next?
For small business, getting money has never been tougher. Commercial and industrial lending by U.S. banks has fallen 9% over the last five years. In California the decline has been even sharper--16% from 1987 to 1992.
Still, there are options out there, lending experts say. Whether we're talking seed money or fertilizer funds, finding the cash to plant or grow a small business is possible for many, even during a credit crunch.
The experts' advice is pretty basic:
* Exploit everyone you know or are related to. Family, friends and business contacts trust you and might be willing to sink some cash into your company.
* Take out a personal loan at the credit union or a second mortgage on the house--if you have any equity left, given real estate prices these days.
* Talk to the SBA. Bank loans guaranteed by the U.S. Small Business Administration have been a major source of long-term financing for small businesses during the last few years--though the loan-guarantee program is virtually out of money until the next fiscal year starts Oct. 1.
* Seek out specialized loan funds for small and minority-owned firms operated by nonprofit organizations, local cities or the state.
* Check out venture capital firms, which take a stake in your company in exchange for money. Venture capital financing has shrunken greatly since the 1980s, but it's still around.
* Don't rule out commercial finance companies just because they charge higher interest rates than banks.
If all else fails, max out the credit cards. Find the kids an agent. Find the dog an agent. Max out the kids' credit cards.
It's not so far-fetched. After all, comedian Robert Townsend financed a feature film, "Hollywood Shuffle," partly with plastic.
Here's how some \o7 other \f7 Southland entrepreneurs found their pots of gold.
Case No. 1: The Gift Center Money Source: Micro-Loan Program
Rebekah Peterkin is always on the lookout for the new and unusual for her 4-year-old shop. The same could be said of her financing.
"In a recession, you have to be creative," Peterkin says with a shrug.
For one-of-a-kind items to be sold in the space she leases at the Montgomery Ward department store in Panorama City, that means importing merchandise from Asia and Africa. For capital to get into importing and exporting, Peterkin last year joined a "solidarity circle" operated by the Coalition for Women's Economic Development.
CWED's circles are peer-support groups of five entrepreneurs--primarily women, although the nonprofit group now has one circle for men--modeled on revolving credit associations pioneered in Bangladesh.
One at a time, each entrepreneur in the group gets a loan--as well as a lot of support from fellow members. They are keenly interested in the group's success; if one person is late with a payment or defaults on her loan, the next applicant can't get any money.
Peterkin quickly repaid her first loan of $1,500 and now is paying off a second loan of $5,000. She hopes to graduate next to CWED's individual loan program, which promises bigger bucks.
CWED, which gets its funds from private and public sources, requires applicants for solidarity circles to have been in business at least 6 months, said Delphine Pruitt, one of the agency's program managers. The 18-month loans carry a 15% interest rate.
"Our primary focus has always been women," she said. "But women still don't seek us out. They have trouble picking up the phone and calling."
Case No. 2: Thanhlong Nguyen, dentist Money Source: SBA-Guaranteed Loan
Thanhlong Nguyen dreamed for 10 years of opening her own dental practice. As she worked her way through UC Irvine and UCLA, Nguyen and her husband, Son Kim, saved the earnings from their Fullerton carburetor shop and tapped relatives and friends.
Still, they fell short of the $350,000 they needed.
Now, Nguyen's dream is about to come true. Paramount-based Mechanics National Bank has approved a $250,000 loan, guaranteed by the U.S. Small Business Administration. All that remains is SBA approval.
Nguyen says she knows there are lots of Vietnamese dentists in Orange County, but she isn't worried about the competition. At their auto shop--Dr. Smith Carburetors--the Nguyens learned that quality service provides the necessary competitive edge.
Because of record demand for SBA loan guarantees, the agency is just about out of money for the current fiscal year. The SBA is trying to divert funds to the program from other areas, said Ken Nhieu, vice president and business loan development officer for Mechanics National Bank.
The loans--made by banks but guaranteed by the SBA at a cost to taxpayers of about a nickel for every dollar of loan amount--carry an interest rate of 2.75% above the prime rate. The current SBA loan rate is 8.75%. Loan terms are seven to 25 years; the maximum guarantee is $750,000.
