5 methods few business owners consider to obtain financing
5 Methods Few Business
Owners Consider to Obtain
This is an abridged compilation of
subjects covered in my new book: The
Funding Is Out There! Access the Capital
You Need to Impact Your Business. –
The Funding Is Out There!
book available for early purchase
The definition of a small business
depends on who you talk to. Even then,
the size criteria changes. Even the Small
Business Administration (SBA) has
definitions and classifications that depend
on the industry. For the SBA, a small
business ranges from $0.75 million to
well over $35.5 million. (See below for a
link to the SBA’s size reference chart.)
For small to medium businesses, finding
the right mix of operating cash flow and
external capital is critical for growth.
What type of funding source SMBs
consider and where SMBs go to obtain
financing depends on the actual size,
growth stage, structure and industry the
companies are in.
Many entrepreneurs and business owners
express frustration and concern about
the difficulties they encounter when
Here are five of the myriad ways business
owners can obtain financing, taken from the
informative new book, The Funding Is Out
There!. These five funding sources apply
whether your business is closer to the lower
end or the higher end of the SBA small
business designation range. If you are
currently seeking funding for your business,
you can put these sources to immediate use.
Otherwise, you can use these sources to
generate ideas and spark your creative
thought process to access the cash you need
to impact your business.
Barter/Swap. When I was at Enron, we
entered into swaps to trade space on one
telecom network for space on
another. As a business owner, you have
a product or service that someone wants.
GAAP recognizes barters and swaps as a
legitimate revenue source or expense.
Your business recognizes the revenue
when it delivers the service or good and
the expense when it takes delivery of the
service or good.
If you are in business, you have
something to barter or swap or you
wouldn’t be in business! The concern is
whether or not there is another party
that will participate on the other side of
your barter/swap transaction without
money changing hands.
For example, if you want to expand your
company from Atlanta to Charlotte, and
you have excess office space at your
Atlanta location, you can find a
Charlotte-based company that wants to
expand to Atlanta.
You can swap space in your respective
offices. Does this sound difficult? It’s
amazing what opportunities you can find
by keeping abreast of what’s going on in
the communities in which you operate
and in your industry.
If this direct barter / swap still sounds
difficult, you can use a barter exchange.
These exchanges typically charge a
membership fee, then a small percentage
of the monetary value of each
They allow you to barter your services
with multiple entities without worrying if
those entities have exactly what your
business needs. Bartering impacts your
bottom line while conserving your
operational cash flow.
Tap your suppliers. For certain service
companies and most distribution and
manufacturing companies, payments to
your companies’ suppliers are one of the
largest, if not the largest, expense your
company incurs. You can turn this
around and make it work for you. You
can use a direct public offering (DPO) if
you are only trying to raise $1 million or
more and tap your suppliers (or your
customers) to purchase a small stake in
If you are rapidly expanding your
business, you can approach your
suppliers and ask them to advance you
some of the funds….or finance the goods
they supply you with. If a supplier is a
key supplier, your growth may
significantly impact their growth. Think in
terms of how your success will help your
supplier’s revenue and/or profitability
increase then make the case, especially if
your company’s suppliers are financially
stable and have access to financing.
Some suppliers may provide a loan in
excess of the goods or services you
purchase. Other suppliers may provide a
loan with a one-to-three year payback
This obviously goes far and beyond the
30 – 90 payment terms, yet this option is
more available than you think. Suppliers
do not advertise their receptivity to do
this. You must ask and make your case
by highlighting and stressing the benefits
to your supplier.
If your request fails the first time, you
will likely obtain 90-day payment terms
at a minimum. If your supplier opts not
to provide financing due to specific,
expressed concerns, you can address
those concerns and circle back in 3-6
months with a follow-up request.
Form strategic partnerships. Siebel
Systems, Inc., now a part of Oracle, is an
excellent example of how strategic
partnerships were used to build a
business quickly and reduce the actual
amount of upfront cash needed.
Tom Siebel and his executive team made
the decision to rely on the big consulting
firms – Accenture, Deloitte, PWC and
other smaller firms to penetrate and
grow the market.
Consequently, Siebel Systems did not
have to build a large in-house consulting
team. Instead, Siebel focused on building
the partnerships, educating the
consulting firms and providing material
and internal support to these
Strategic partnerships are a greatly
overlooked funding source. Remember, it’s
not simply about the money. To obtain
financing that best meets your business’
needs, you need to focus on the use of
those funds. Tom Siebel’s focus was on
building a CRM product and service that
rapidly penetrated and grew the market.
What’s your focus? Your business can use
strategic partners and partnerships to
access marketing, accounting, management
expertise, and other services or expertise
that your company would need to pay for.
Ask yourself the following questions:
What companies are already reaching
your customer base?
What companies offer complementary
products or services that your customers
want but that your firm does not
currently offer? Which of these
businesses offer products or services that
may appeal directly to your client or
customer base? What companies have
the functional expertise or skill set your
All of the companies you identify as a result
of asking the above questions make viable
prospective strategic partners. Once you
identify them, research their culture and
goals to determine which companies appear
to have the best potential fit. Approach their
senior management or ownership team, if
the companies are SMBs, or the head of the
department that best matches your
business, if the companies are large
corporations. Focus on the benefits your
prospective partner will derive from the
Strategic partnerships, when well defined
and focused on a win-win, can provide
you with significantly more benefits than
many other financing sources.
Find a strategic investor. Strategic
investors often operate similar to
strategic partnerships but a strategic
investor also invests actual funds into
Many large corporations focus on
tweaking their product and services.
They spend their research and
development dollars on refining that
what they’ve already determined to be
With this mindset, it is often much less
risky for these companies to make
investments in smaller companies that
have developed or are developing a new
technology, methodology, service, or
Ask yourself the following questions: Is
there one or more larger companies or
Fortune 1000 corporations that could
directly benefit directly from your
company’s product or service offering?
Is there a large corporation in your
industry that has expressed an interest in
going in your company’s direction but
either hasn’t done so or hasn’t gained
any traction? Reach out to those
You will need to convince your strategic
investor candidate(s) that you
can directly or indirectly positively
impact their strategy, top line or bottom
Strategic investors typically invest using
one of the following methods: direct
equity investment; a low or no-interest
loan; specified usage of the corporation’s
credit; prepaid contracts; direct payment
of development costs to another entity or
absorption of those costs.
If you think you would like to sell out to a
large corporation, seeking and finding a
strategic investor will help. Cisco, Xerox,
IBM and many other large corporations have
made small strategic investments in
companies they eventually acquired.
Don’t want to be acquired, just want the
funding and support? That’s fine, too. Your
strategic investor will still benefit from its
association with your firm and obtain a
return on its investment. Look around.
Potential strategic investors abound.
Seller finance. If your company intends
to grow through acquisitions, then seller
financing is a viable option.
Most of the companies and company
owners who provided seller financing did
not advertise this fact with the broker or
M&A firm that represented them.
You typically have to ask. Sellers, of
course, want to sell their business to
viable candidates who will operate their
firm as good or better than they did.
Therefore, to obtain financing from
sellers, you have to sell the seller on how
great you and your business are and how
the seller benefits from providing the
From the buyer perspective – you, the
question is “Who knows and understands
the business better than the person or
entity selling it?” If the seller balks when
you broach the subject of seller financing
after you’ve established a base
relationship, run! Unless the seller is ill,
the seller is likely hiding something.
There may be new competition entering
the field or the seller intends to open a
competitive business or the business is
months away from failure.
Seller financing can take many forms. It
can be an installment loan, an earn-out,
a buy down of the equity over time, a
consulting contract or employment
agreement. That’s the good thing about
seller financing. You can arrange the type
and terms of the financing to best fit
your business’ and the seller’s needs.
Not sure how to make the approach? You
can offer the seller a lien against the
business so the current owner gets the
business back if your company defaults
on the arrangement.
Equity buy downs also work. Tell the
seller that seller financing provides you
with comfort that the seller believes in
the business and, therefore, assurance
that you will get what you pay for.