Financing a Business: 4 Options Evaluated

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Before leaping into a new business opportunity, most entrepreneurs face the challenge of securing working capital. Although it’s not an easy task, it is essential to getting your idea off the ground. It’s also not a decision to take lightly, as the choice you make will stick with you for years to come, even after your business starts making a profit. You can set yourself up for a win by researching the different avenues available and deciding the best action for your specific needs. Here we evaluate four of the more common options owners consider when deciding how to finance a business.

How to Finance a Business

When it comes to business financing, there isn’t a right or wrong answer. Business owners must take their situation into account to plan for the best possible outcome.

Small Business Loan/SBA Loan

Last year, 43% of small businesses applied for a loan from a small business lender. Bank loans and lines of credit are a popular business financing choice for a good reason. They’re a reliable source for a short-term loan that allows you to grow. But, you want to be selective when choosing who to finance through. Banks, private equity firms, microlenders, and other venture capitalists are concerned with getting their money back, so they tend to charge high-interest rates. If you have a good credit history, you can do some shopping around to find better rates. Also, be sure to apply for loans through the U.S. Small Business Administration. They tend to have more flexible terms and lower interest rates.

Angel Investor

We commonly see business owners acquire capital from an angel investor in exchange for an equity position. This is often sought by businesses that lack the cash flow needed to obtain a traditional bank loan. It’s less risky than taking a business credit card or a short-term loan. But, it comes with other setbacks that some aren’t willing to look past. Equity financing means forfeiting some control to a partial owner and granting this person a say in the business’ operations. Additionally, this person will receive a share of profits if you decide to sell. For this reason, you’ll want to make sure you can work well with this person for the long haul.

Crowdfunding

Crowdfunding is an increasingly popular option, especially amongst business startups. Rather than acquiring a business loan from one financial institution, some business owners choose to raise small amounts of funds from a large number of people. Over 600 crowdfunding platforms exist, where billions of dollars are raised annually. Typically, the more successful crowdfunding campaigns offer something in exchange for a donation. Whether that’s exclusive member access or a free product/service, it’s good to come up with ways to incentivize your donors.

Personal Investment/Borrow From Friends and Family

The last business financing option we’ll touch on is actually the one you should start with. Before seeking external funding, it’s best to try to raise as much as you can on your own. You should never put up your entire personal savings; you never know when an emergency will arise, and you’ll need cash-on-hand. But, again, lines of credit can be costly with high-interest rates. If you can cover a lot of business needs yourself or seek a low-interest loan from friends and family, you can save in the long run.

Acquiring a small business loan is a big step in the business buying process. You’ll need to make sure you can afford the monthly payments and have a good enough credit score to be accepted for a loan program. Contact us for more information on business financing and help with preparations.

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Resource Roundup – 8 Reopening Strategies for Businesses

Businesses reopening amidst uncertainty regarding regulations and safety are facing some challenging operating decisions. The U.S. Chamber of Commerce shares these eight strategies to reopen safely.

Beefing up delivery, takeout and curbside

Restaurants and retail stores have been hit hard by COVID-19, so those operations are making big changes to try to survive this challenging environment.

In the restaurant world, many joints reopening are keeping dining rooms closed (even if they are allowed to open), and instead they’ve added improved delivery and takeout options to better serve wary customers. For example, in Georgia, restaurant dining rooms are allowed to reopen, but many noteworthy restaurants have created robust delivery and takeout options.

As for retail stores, they are beginning to test out new ideas such as curbside pickup. For example, the Mall of America in Minnesota now “offers curbside service from over 20 retailers, including Nordstrom, Legacy Toys, and Cinnabon” with two pickup locations.

Converting shared spaces into enclosed ones

While open-office plans have been all the rage in recent years, these types of offices often don’t offer enough separation to meet new social distancing standards. This may encourage many large office buildings to return to cubicles or add plastic dividers between desks that can create a similar separation effect. Some businesses are predicting new dividers could be as tall as 80 inches high to isolate germs.

“You’re gonna see a lot of plexiglass,” Michael Boonshoft of real estate company Cushman & Wakefield, which is helping offices prepare for this new office reality, told Wired. “Having that divider will make people feel safer. That shield between desks will be really important.”

Extra sanitation

Health concerns remain top of mind while the threat of COVID-19 remains, so many businesses that are reopening are touting extra cleaning and sanitation. Bed Bath & Beyond, for example, has said its locations will provide cart wipes and hand sanitizer dispensers in its stores as part of its enhanced cleaning protocols. Its employees will be also be required to wear masks and practice social distancing.

COVID-19 testing for employees

One way some large employers plan to reopen with some sense of security is by providing COVID-19 testing to employees. For example, Station Casinos in Las Vegas has announced a free testing program with the intention to test all 14,000 of its employees before they return to work. On a larger scale, Seattle-based Amazon has announced it is setting up a system for testing workers around the U.S.

One strategy to open offices around the country is to do it slowly, with waves of employees allowed to come back at a time.

Gradual re-entry to the workplace

One strategy to open offices around the country is to do it slowly, with waves of employees allowed to come back at a time. West Palm Beach, Fla.-based clothing brand U.S. Polo Assn., plans to invite five or six employees back in its first wave.

“We’ll start with a handful of people, and evaluate the week, and add a few more people,” J. Michael Prince, President and CEO of U.S. Polo Assn and U.S.P.A. Global Licensing Inc., told WWD. “I don’t think we’re fully functional until mid-June.”

Staggered work shifts

One way reopened companies have made social distancing easier has been to create staggered shifts, so fewer people are working or socializing in tandem. One high-profile example of a company using modified shift scheduling is Boeing, which has implemented staggered shift times for employees returning to aircraft assembly plants in Washington state. The aerospace company also said it would spread out workers more to allow them to socially distance and require them to wear masks.

Requiring workers/customers to wear masks

While various state and local governments are requiring masks for people who can’t social distance, some stores and offices are requiring masks for workers and customers as well in order to safely reopen. For example, Dunedin, Fla.-based Achieva Credit Union said it will require all employees to wear masks in all communal areas, but face coverings won’t be necessary in cubicles.

Temperature and health checks

As fever is one of the most common symptoms of COVID-19, temperature checks are a relatively simple way to make sure sick employees can’t come into the office or sick customers can’t come into your place of business. While this has not been widely adopted yet, some businesses have added or announced temperature checking.

Southfield, Michigan automotive parts supplier Lear Corp., which has developed a manual for safely reopening manufacturing facilities, said all of its employees will receive health screenings and contactless temperature checks when entering buildings at the start of their workdays.

One prominent example of temperature checks for customers comes from Frontier Airlines, in order to attract people back to a safer environment. Travelers flying on the airline will have their temperatures checked before boarding starting on June 1.

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Opportunity: Own Sign of the Pampered Maiden

Sign of the Pampered Maiden in Santa Fe for SaleSign of the Pampered Maiden is an iconic, enduring brand and luxury fashion destination in the heart of downtown Santa Fe, and it could be yours. A dramatically reduced price and supportive SBA programs make this a perfect opportunity to become part of the Santa Fe retail and fashion identity.

Now listed at only $180,000, Pampered Maiden’s 2019 gross revenue was $615,266, with a cash flow of $74,417. Find more information about this exceptional opportunity here.

Pampered Maiden’s collection of organic, eco-sensitive and locally-sourced clothing has won it a loyal customer base. The classic sensibility and emphasis on quality has attracted women of multiple generations. Visitors and locals alike have made a regular habit of shopping at Pampered Maiden to seasonally refresh their wardrobe.

The shop’s reputation for customer service also sets it apart. Staff is skilled at providing a personalized shopping experience and expert at visual merchandising. Santa Feans consistently rank Pampered Maiden as one of the top stores for women’s clothing, jewelry, fashion accessories, and gifts. It has been featured in the pages of The Santa Fe Guide, The Essential Guide, Trend Magazine, In-Art Design Magazine, and other local publications.

Additionally, the current owner has invested in upgrading Sign of the Pampered Maiden’s online presence. A newly updated e-commerce site and enhanced social media are important adaptations and bring the brand great sustainability and growth potential.

To help secure a smooth transition, the Seller will make personal introductions between vendors and new owners. If desired, she will accompany new owners on the initial trade shows and major buying trips. A top-notch staff also helps make this business easy to operate.

 

 

 

 

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Resource Roundup – PPP Loan Forgiveness Updates

The United States Chamber of Commerce has shared the following updates on PPP loan forgiveness amidst some confusion on the subject.

For employers whose employees have chosen not to return to work, the Treasury Department has clarified its position on loan forgiveness. Specifically, if you’re an employer and want to bring an employee back who had previously been laid off, you will not be penalized if the employee chooses not to return. If you issue a written invitation to invite the employee back to work and the employee declines your written offer, you will not be penalized in PPP loan forgiveness application.

There is still PPP loan money available and businesses should continue to apply.

It is not known yet whether the window for loan use and forgiveness will be expanded beyond June 30, 2020, or if terms will be extended to more non-payroll expenses. While some of these rules could change, businesses are advised to assume the current program guidelines will not change.

 

 

Note: This is a summary of aggregated information from other parties and does not express the direct advice of Sam Goldenberg & Associates.

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Resource Roundup – Reopen Checklist for Businesses

Gov. Michelle Lujan Grisham announced last week that some businesses can begin to reopen (in modified form) and that others might be able to on May 15. To help businesses prepare, the Santa Fe Chamber of Commerce shared this useful checklist:
  • Determine the square footage of your business and know how many customers can be inside the space at one time. Under possible new guidelines, businesses could be limited to 20% of your maximum capacity.
  • Consider how you will control access. How will you control deliveries, customers and visitors? Develop a plan for different areas of your business with safety and cleaning protocols. Under possible new guidelines, businesses could be asked to have designated entrances and separate exits.
  • Create a social-distancing plan to decrease density and rethink traffic patterns. Consider the possibility that you may have to install plexiglass shields at each point of sale area and/or floor signage that designates the appropriate wait line distancing.
  • Reduce touch points by leaving doors open, not requiring signatures on transactions, etc. There may be a need for additional cleanings between shifts or even between customers based on foot traffic into your business.
  • Will you need PPE for your employees, and can you purchase them?
  • Consider signage encouraging customer facial covering.
  • Have sanitizers available at entrances to your business.
  • Prepare to train staff for any new protocol.
These are just a few suggestions to consider, as we move forward in opening Santa Fe businesses.
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Resource Roundup – NM Lenders Available for SBA Loan Applications

Lenders in New Mexico are still able to help businesses with loan applications for the U.S. Small Business Administration’s Paycheck Protection Program (PPP), Economic Development Department Cabinet Secretary Alicia J. Keyes said in a recent virtual roundtable discussion.

As reported, Congress appropriated another $310 billion for crisis relief funding last week. As part of that bill, about 20 percent of the money ($60 billion) was reserved for small banks and community lenders. Applications reopened on April 27.

During the roundtable last Friday afternoon with the EDD Cabinet Secretary Alicia J. Keyes, U.S. Rep. Ben Ray Lujan, D-New Mexico, said there was about $200 billion left for PPP loans, “but this will go quickly.”

Rep. Lujan added that nearly all the community banks and credit unions in New Mexico “have completely cleared their backlog, and most of the community lenders are soliciting new loan applications and taking on new customers.”

“There are still lenders in New Mexico that have lending capacity, especially among the community banks and federal credit unions,” said John Garcia, New Mexico District Director for the U.S. Small Business Administration.

“For New Mexico to have a full recovery we need businesses to be healthy,” Secretary Keyes said. “I would urge any businesses who have not yet applied for SBA assistance, to do so.”

As of April 29, the U.S. Small Business Administration (SBA) has approved over 960,000 loans in the second round of the PPP. The dollar value of those loans was $90 billion, with smaller banks accounting for 587,000 loans or 61 percent of the volume.

The average loan size for round 2 of the Paycheck Protection Program is $95,000 compared with $206,000 in the first round of the program, according to the SBA’s New Mexico Office.

For SBA program information go to SBA.GOV

For a list of qualified SBA lenders in the state go to the EDD COVID-19 Resources page or click here.

For information on all the state and federal emergency economic assistance, go to the EDD website, GoNM.biz

For comprehensive statewide information on the COVID-19 health emergency, visit NEWMEXICO.GOV.

 

 

 

Note: This is a summary of aggregated information from other parties and does not express the direct advice of Sam Goldenberg & Associates.

 

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De Facto Disruption and True Transformation

A Harvard Business Review article titled To See the Future of Competition, Look at Netflix resonates strongly just now. “As more and more of us turn to Netflix for entertainment, the company bears watching as a source of insights about the future of business and work,” writes author Bill Taylor. That seems to apply in the time of quarantine even more than when he wrote it. As the inventor of “binge watching,” Netflix has likely played a larger than usual role in many lives lately.

“Netflix could be the dictionary definition of a Silicon Valley disruptor, a new entrant that reshaped the logic of an entire industry,” says Taylor. “Yet what’s truly remarkable about the company’s trajectory over the last two decades is how dramatically it has disrupted itself in service of its mission.”

This is a time of de facto disruption, so why not use this moment to reflect intentionally and envision future courses of action that create and apply strategic change, not just forced adaptations?

Netflix regularly updates its manifesto on culture. The statement outlines the values to which people in the company are held to account. Taylor summarizes salient, inspiring points:

“Many companies have value statements,” it begins, “but often these written values are vague and ignored. The real values of a firm are shown by who gets rewarded or let go.” So what kind of people get rewarded at Netflix? “You say what you think, when it’s in the best interest of Netflix, even if it is uncomfortable,” the manifesto says. “You are willing to be critical of the status quo” and “You make tough decisions without agonizing.” Moreover, “You are able to be vulnerable, in search of truth.”

Now, while life and work is disrupted anyway, could be a great time to “hit pause” and ask the tough questions that lead to transformative innovation.

 

 

 

 

 

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Resource Roundup – 6 Tips Protect Your Business in 90 Days

There can be no way around it, Inc. contributor Brian Hamilton’s April 2020 COVID-19 centered article, “6 Actions to Take in the Next 90 Days to Save Your Business,” isn’t pulling any punches. Hamilton, Founder of the Brian Hamilton Foundation, believes that the next 90-days could be make or break days for business owners looking to navigate the choppy waters of the COVID-19 pandemic. His latest Inc. article provides readers with 6 actions they should take now to survive the economic fallout of the COVID-19 pandemic.

Tip #1 Vigorously Control What You Can

Hamilton’s first tip is to “Vigorously control what you can. Vigorously ignore what you can’t control.” As Hamilton points out, you can’t control the economy; instead, you need to focus on what you can control. His view is that there has never been a more important time to focus, “More than ever, you’ll need to go to war with things within your control.” Now is the time to exercise control.

Tip #2 Guard Morale

During tough economic times, employee morale can be a real issue. This brings us to Hamilton’s second point, “guard employee morale.” Significant drops in employee morale can lead to serious problems with your business, which is exactly what you don’t want to see right now. Hamilton notes that you have to be the general that helps his or her troops rise above potential panic.

Tip #3 Preserve Cash

Hamilton’s third tip is to “preserve cash where you can.” He states, “Right now, your motto should be: Live to fight another day.” The pandemic means that you need to keep expenses down and watch every dollar. No one knows what the next few months, or the next couple of years, could have in store.

Tip #4 Be First in Line

“Be first in line,” is Hamilton’s fourth point. Hamilton wisely pushes business owners to be the first in line for government assistance. This is very good advice, as SBA and other funds are likely to be limited.

Tip #5 Get Back to the Basics

Fifth, Hamilton recommends, “Get back to the basics…starting with monomaniacal customer service.” As always, customers, whether existing or new, are the lifeblood of your business. You can’t afford to lose customers now and for this reason, you need to have a laser-like focus on customer service.

Tip #6 Pivot your Product or Service

Hamilton’s sixth tip is to “Pivot your product or service to new conditions.” Small changes to your business can open up new streams of revenue. Even if these streams of revenue are comparatively small, they could mean the difference between sink or swim! Try to step back and look at your business with fresh eyes and strive to find ways to offer something new to your customers. Whatever you offer should be based on your existing goods and services and not require a new, large expenditure.

The COVID-19 pandemic is obviously disruptive, but it won’t last forever. Hamilton’s advice of focusing intensely on the next 90 days is sound advice. You won’t regret looking for ways to safeguard your business for the next 3 months.

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Resource Roundup – PPP and Business Support 2.0

President Trump signed the legislation today to replenish business relief programs and support hospitals and COVID-19 testing.

The package totals $484 billion and includes:

  • An additional $310 billion in funding for the Paycheck Protection Program (PPP), with $60 billion reserved for small banks and lending institutions
  • $75 billion for hospitals
  • $25 billion to support testing efforts
  • $60 billion for emergency disaster loans and grants (EIDLs)

In a recent virtual town hall hosted by Inc., U.S. Chamber of CommerceExecutive Vice President and Chief Policy Officer Neil Bradley advised applying for this second round if you own a business and need support, despite frustrations shared by many about the first round’s allocations. “I would apply for the loan. If you look at loans already pending, I think the $310 billion is going to go quickly,” he says. “If you get it, great. If you don’t, there might be another tranche. You’re going to want to be in line.”

The funds reserved for smaller lending institutions are just under 20% of the PPP replenishment. It is hoped that portion will prevent more of the stories we’ve been reading in the last week in which large businesses with stronger bank relations were allocated maximum loans while small businesses wait in Limbo.

Credit unions, Community Development Financial Institutions (CDFIs), and FinTech lenders are potentially a good place to start for small businesses, says Michelle Sourie Robinson, President and CEO of the Michigan Minority Supplier Development Council. If you plan to apply through such a lender, be sure to call ahead to make sure the lender has been approved by the SBA to participate. Not all institutions are involved and some that wish to be are still awaiting approval, cautions Bradley.

The EIDL program is a good option for businesses with non-payroll related needs. Unfortunately, with the extremely high demand, Bradley anticipates the grants will remain capped at the recently adjusted rate of $1,000 per employee, as opposed to the original $10,000 per approved business.

If you are concerned about rent (which EIDL money is well suited to cover if you get it), Bridget Wetson, Acting CEO of SCORE, suggests negotiating with landlords. They would likely prefer to deal with current tenants rather than seek new ones, she reasons. Rent reductions, deferrals, or (for retail businesses) switching from base rates to percentage rates may be possible. Be sure to formalize such agreements in writing.

 

 

Note: This is a summary of aggregated information from other parties and does not express the direct advice of Sam Goldenberg & Associates.

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Resource Roundup – Approval for Second Small Business Funding Package

Congress and the White House have reached an agreement for the second round of funding for business relief programs. Details are forthcoming.

It’s expected that the package will total $450 billion and include:

  • $300 billion for the Small Business Administration’s popular Paycheck Protection Program (PPP)
  • $50 billion for the Economic Injury Disaster Loan (EIDL) program
  • $25 billion for testing
  • $75 billion for hospitals

Notably, $125 billion of the PPP money will be set reserved for small businesses that don’t have strong relationships with local banks. (Hopefully this will address one of the primary problems with the first round.)

The replenishing of the EIDL program is coming sooner than some expected. This program is potentially a good fit for businesses with non-payroll related needs.

Many businesses find themselves in a  Limbo state, having applied for PPP assistance before the first round’s funding was depleted and not having heard if they were approved. The SBA generates a unique loan origination number upon approval.

“If you’ve already gotten that loan origination number from the Small Business Administration or your lender has that, you are part of that [original round of funding] and you should be getting your loan disbursed,” said Executive Vice President and Chief Policy Officer at the U.S. Chamber of Commerce Neil Bradley said. “The thing to check on is where you are in that approval process.”

Stay tuned for updates!

 

Note: This is a summary of aggregated information from other parties and does not express the direct advice of Sam Goldenberg & Associates.

 

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