EnTrends

So, you have a great idea for a
business and, more importantly, the
know-how to bring it into creation.
The only thing you're missing is the
cold hard cash to get started. What
are your options?

Assuming you don't have a ready line
of credit, an expansive bank manager,
wealthy relatives or a substantial

stash of retirement savings you're
willing to risk, you're going to have to
do some serious homework and
legwork. Fortunately, there are a
number of sources of finance for the

fledgling small business entrepreneur,
at least one of which may be right for
you.

SBA LOANS

Available only to U.S.-based
businesses (but look for similar

programs in your own country if
you're outside the U.S.), the SBA (the
U.S. Small Business Administration)
has assisted thousands of
entrepreneurs start their own small
businesses. The SBA doesn't issue
grants (money you don't have to pay

back) or make loans directly, rather, it
guarantees loans made by private
lenders thereby reducing or
eliminating the risk inherent in new
business ventures and making lenders
more willing to lend.

The primary consideration for the SBA
is repayment ability from the cashflow
of the business as well as "good
character, management capability,
collateral and owner's equity". You
will be expected to personally
guarantee your loan. This means your
personal assets are at risk.

As for the types of businesses eligible
for SBA loans, the SBA imposes the
following criteria: the business must
be "for-profit" (all that means is that
your business has a profit motive, not

that it has actually generated a profit
yet), be engaged in business in the
United States, there must be
"reasonable" owner equity (what's
reasonable will depend on the

circumstances) and you are expected
to use alternative financial resources
first, including your own assets where
practicable.

The SBA also imposes limitations on
the use of loan proceeds. For example,
although the proceeds can be used for
most business purposes (the examples
given by the SBA include "the
purchase of real estate to house the
business operations; construction,
renovation or leasehold
improvements; acquisition

of furniture, fixtures, machinery and
equipment; purchase of inventory;
and working capital"), you can't use
the loan proceeds for financing floor
plan needs, to pay existing debt, to
make payments to the business
owners or to pay delinquent taxes etc.

As a general rule, loans for working
capital must be repaid within seven
years and loans for fixed assets must
be paid for by the end of the economic
life of the assets (but not to exceed 25
years).

Interest rates are negotiated between
the borrower and the lender but the
SBA imposes maxima which are
pegged to the

Prime Rate.

Finally, the SBA charges lenders a
guaranty and servicing fee for each
loan approved, and there is nothing
preventing the lender on charging
these fees to the borrower. The
guaranty fee for a loan of $150,000 or
less is 2% of the guaranteed amount;
over $150,000 but below $700,000, it's
3% and above $700,000 it's 3.5%. The
annual servicing fee is 0.5% which is
calculated on the then-current loan
balance.

Where the borrower meets the SBA's
credit and eligibility requirements, it
will guarantee up to $85% of loans
$150,000 and less and up to 75% of
loans above that amount (up to a

maximum of $1,000,000).

For more information about the
various SBA loan programs, visit the
SBA website at http://www.sba.gov.

PRIVATE GRANTS

At present, there are no U.S.
government grants offered for

small business. If you're outside the
U.S. check with your own government
about the availability of small
business grants. You never know!

Various corporate grantmakers make
grants available for small business
though. For more information, visit

<http://www.fdncenter.org/funders/gr
antmaker/index.html>html .

ANGEL INVESTORS

Angel investors are good souls with a
healthy sense of self- interest.
Figuring they can get a higher return if
they're prepared to take a bit of a risk,
they're also often successful
entrepreneurs themselves and want to
give their fellow travelers a hand up.

Think of funding from an angel
investor as a bridge or gap-filler

between being a start-up and
qualifying for venture capital. The

kinds of dollars we're talking about
here are between about $150,000 and
$1.5 million. Beyond that point you're
in low venture-capital territory.

The SBA estimates that there are
around 250,000 angels in the U.S.,
funding about 30,000 companies a
year. So, how do you hook up with
one? Not an easy task, unfortunately.
It comes down to networking. Start by
talking to professional and business
associates - they will often know
someone who knows someone etc..
Also, check out ACE-net if you're
prepared to sell a security interest in
your company. It's an internet-based
listing service for securities offerings
of small, growing companies. The

website is at https://ace-
net.sr.unh.edu/pub/.

VENTURE CAPITAL