Financing options exist for small businesses

Bank financing has been extremely difficult ever since careless underwriting and other excesses by Wall Street and banks of all sizes brought the financial world crashing down in 2008.

Finding financing for small businesses isn’t impossible, however. Here are some things you should know:

Ÿ Banks are under heavy regulatory pressure to improve their own balance sheets. That fact, a result of the crash, inevitably affects bank lending decisions.

Ÿ Big banks will talk, and lend, to small businesses, though a big bank’s definition of a small business can be different from ours. Still, Kevin Brown, a vice president and senior relationship manager at Harris Bank, St. Charles, typically works with businesses having $5 million to $50 million in sales. He also talks to startups and sole proprietorships.

Our conversation focused on business lines of credit, which, Brown says, are intended to “help fund the financing gaps” in a business’ operating cycle. The gap between the day you get an order, buy necessary supplies, produce the item and receive payment from your customer can be excruciatingly long.

If you’re looking for bank financing, here’s what Brown says makes him comfortable. “Dialogue that helps me get my arms around the business. What the business is about. Some level of business plan, which does not always have to be a full-blown plan. Historical financials, the past two to three years. Interim financials for the current year. Accounts receivable and payments aging. Information on the business owners, their personal finances and taxes.”

What might tip the discussion in your favor? “The financial strength of the business,” Brown says. “Whether there is a strong management team. The prospects for the coming year.”

Ÿ There are alternatives to bank financing. Brown’s suggestions include private equity firms, venture capitalists, friends and family. Factors also can be a financing fit.

Essentially, says Trevor Morgan, president of Prairie Business Credit, Inc., a Naperville-based factor, factors will buy your outstanding invoices at a discount — generating cash flow for your business — collect what’s due and keep the proceeds.

A factor won’t rescue a business, and “we will talk to the people who will write the check that pays the invoices before we agree to a deal,” Morgan emphasizes, but factors can provide short-term financing.

Small Business Administration programs can work, too — especially the SBA’s 504 loan program for long-term fixed-asset purchases. Startup Wessex 504 Corp. and SomerCor 504 Inc., both Chicago-based community development corporations, are good beginning points. A CDC typically provides 40 percent of the financing; a bank will chip in with half, and you’ll come up with 10 percent.

Truly small businesses, often unbankable, should check out ACCION Chicago, a microloan fund that lends between $500 and $25,000 to qualifying businesses. Parameters are at www.accionchicago.org.

Ÿ Contact Jim Kendall at JKendall@121MarketingResources.com.

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