Alternative Financing Alternatives for
Your Tour GuideYour Tour Guide
District Center Manager for Ohio
SBDC at Columbus State since 2002
SBDC State Star for Ohio in 2007
Won the SBA Innovation and Service
Center of the Year for Ohio and SBA
Region Five in 2007
Striving to accelerate the growth of
entrepreneurship and small business
innovation. #RunNerds Marathoner.
What's worth doing is worth doing for
Visit my small business blog atVisit my small business blog at
Financing All About CustomersFinancing All About Customers
“In preparing for battle I have
always found that plans are
useless, but planning is
- Dwight D. Eisenhower
Who is out there to buy our
How do we get them to buy our
product at YOUR price?
Can You Answer This?Can You Answer This?
Bootstrapping is building the business from
internally generated funds.
• You need to establish a foundation for your
• Build credibility and show that your business has
customers and a product that people want to buy.
• Focus on customers and cash flow.
• Work hard and be creative in seeking ways to drive
revenue while holding expenses down.
Friends Family & FounderFriends Family & Founder
Angel investors are high net worth
individuals who are interested in investing in
Two Types of Angel Investors
Angel InvestorsAngel Investors
The underlying reason that they will
invest is return on their investment.
They invest in spaces they know.
They invest with people they know
They invest based on referrals from
people they know.
Invest based on due diligence.
Will require professional terms.
Looking for a big payout based on a
Professional InvestorsProfessional Investors
More interested in the product than
Invest based on gut reaction.
May take common stock
May not look for a liquidity event.
May be the friends in FFF (or referred
Strategic InvestorsStrategic Investors
If you take someone else’s money you
have a partner. They will want to
have some influence on the company
to protect their investment.
You will probably have to relinquish
some level of control over the
If you are unwilling to share
leadership of the company, investors
are not the option for you.
Key Points About InvestorsKey Points About Investors
The only reason that they will invest is return
on their investment.
They only invest in spaces they know.
They only invest with people they know
They only invest based on referrals from
people they know.
Invest only based on due diligence.
Will only require professional terms.
They are only looking for a big payout based
on a liquidity event.
Institutional Venture CapitalInstitutional Venture Capital
The Value of FundingThe Value of Funding
Is DrasticallyIs Drastically
There Is No SuchThere Is No Such
Thing As “Free”Thing As “Free”
Banks are in business to:
• “Make money” not to make loans.
• Lending is a tool to make money
not a moral obligation to help
Banks ~ Why They Say NoBanks ~ Why They Say No
• Commercial banks typically lend for
• There is no 100% financing from a typical
• Working Capital is short-term money to
operate the business. Typically financed by
a Line of Credit.
Commercial BanksCommercial Banks
SBA is not in the business of making bad
Once the bank has agreed that the loan is
good but in some way outside their
guidelines they will seek an SBA guarantee.
The SBA is there to help you with your cash
• Longer term
• Lower down payment
Small Business AdministrationSmall Business Administration
Credit Score should strive to be over
Guard Your Credit Score
What Do Banks Look For?What Do Banks Look For?
The business plan shows you
“Ability to Repay” the loan.
If you can’t show you can cashflow
you can’t get a loan.
Plan for yourself then put into
whatever format the lender wants.
Build A BusinessBuild A Business
Security for a good credit
Incentive to get you to repay
There is no 100% financing
To a bank collateral is real estate or
What Do Banks Look For?What Do Banks Look For?
These are direct loans between a business and
investors. They are typically facilitated by a third party
intermediary that collects information on loan amount,
purpose, the credit and business strength (financial
statements, bank accounts, etc.). Investors are able to
look at the opportunities and select what they are
interested in funding.
What attracts investors to participate is return. Typically
rates will be above 10% depending on the strength of
Peer To Peer LendingPeer To Peer Lending
Factoring ~Factoring ~
Accounts Receivable FinancingAccounts Receivable Financing
Business sells its accounts receivables/invoices to a third party at a
discount. The "Factor" provides a cash advance, often 70-85% of the
value of the accounts. When the customer pays the bill the check is
typically sent to “Lock Box” in the name of the business and the factor.
Upon collection of the receivable the factor takes their principle and their
accumulated fee with the remainder going to the business.
The fee is typically based on a percentage rate to be paid to the factor
based on the number of days the receivable is outstanding. This can get
expensive if the receivable drags on and is not paid in a timely manner.
With factoring the strength of the vendor paying the invoice is just as
important as the strength of you as the business owner (actually the
strength of the vendor is probably more important).
Merchant FinancingMerchant Financing
If you are accepting of credit cards in the course of your
business this may work for you.
You need to be able to show your historic card activity
and that you have a reoccurring volume of credit card
purchases to secure cash advances from your merchant
You are getting a loan based on what you have done in
credit cards in the past. Repayment/fee is deducted from
your merchant account as you do business and generate
credit card sales.
Vendor FinancingVendor Financing
Sometimes what you deliver is so important to your
customers that they will help finance your growth capital
Look at who your customers are and if they may be willing
to fund some of your working capital needs.
When preparing to approach your customers for funding
you need to consider if they are strong enough financially
and have a strong cash position that will enable them to
provide support. In the ask you should connect how your
business growth will help their business grow.
Crowdfunding is exactly what the name implies:
Raising small chunks of capital raised from a large number
of people that will eventually total to the amount you need.
This type of funding is a numbers game. You need to reach
a large number of prospective funders so it is well suited to
use social networking and internet funding portals like
Kickstarter, Indiegogo and Fundable.
Currently, crowdfunding is based on a rewards model
where if someone contributes they get a reward such as a
t-shirt or an early release of the product instead of
repayment . Eventually you will be able to seek investors
and sell equity on crowdfunding sites.
Ohio SBDC http://www.sbdccolumbus.com/
Twitter @MichaelBowers and @Ohio_SBDC
Google + http://gplus.to/MichaelBowers
Where You Can Find MeWhere You Can Find Me
Everything is always impossible
before it works.
That is what entrepreneurs are all
about – doing what people have told
them is impossible.
The Ohio SBDC at Columbus State
For Information on SBDC ActivitiesFor Information on SBDC Activities