WHEN BANKS WON’T LEND — Alternative Financing for Small and Micro Businesses by Rich Streitfield, CPA

I don’t know where people get the idea that accountants are conventional types. All the ones I know are hipsters. Rich Streitfield, CPA, shares his expertise in his blog Peace Love and Business Planning. If you, like this writer, break out in hives when the W-2’s come in, you need to talk to someone who is not afraid to face the numbers, and win. Here is Rich with some starting points on how to finance your dream…

You have a great product. A detachable shower head that runs on solar energy to vacuum your floors and discipline your children. You’ve done the prototypes and only need $10,000. Chump change for the banks, right?

The credit landscape has changed dramatically since 2008. (A reputable accounting firm that owns its building finally got approved this year to expand its line of credit; accounting is not known as a high-risk enterprise.)

Banks want air-tight financials, proven multi-year success, collateral and (often) a personal guarantee. What’s a start-up with limited resources to do?

Even some cash-strapped municipalities have programs to invest in/lend to micro businesses.*
Explore large non-profit lenders such as SEED Corporation in Rhode Island and Mass.
Ask family or close friends for loans. It’s awkward and we might fail. But you are 46 and you really must move out. Use a third-party such as Circle Lending** to prepare documents and collect payments so the process is not personal. Insist on paying at least a nominal rate of interest and agree on a repayment schedule – do not leave it open-ended.
Investigate 3rd party “peer to peer” lenders such as Prosper and Lending Club that offer unsecured loans at higher rates, funded by investors willing to take more of a risk. You pitch your enterprise on-line and see if enough investors are willing to back it. (Some analyses have concluded the funded rate is only 10%-15%).
Consider a partner. Find someone who is willing to take an ownership stake by pitching in some capital for a promise of a percentage of future earnings. Make sure this written agreement is structured so you have control over the day-to-day operations.
If your venture has public appeal you may want to consider “crowdfunding”. Kickstarter and others are no longer solely focused on creative ventures. In fact, many of their most successful campaigns have been for products.
Your retirement plan was made to be used for that purpose and early withdrawal may trigger a penalty and/or adverse income tax purposes. But what if this is your best shot at constructing a retirement? $10,000 is not enough for retirement but may be enough to jump-start your dream. But consider carefully for any amount.

None of these routes is a guarantee. But with traditional financing all but closed off, new avenues continue to arise.

*Some lenders may require that you be declined for traditional bank financing before considering your application.

** I have not had personal experience with many of these companies. Do your due diligence.

NOTE: This article is presented exclusively for informational purposes and is not intended to substitute for obtaining tax or financial advice from a tax or other business professional.

More words of financial wisdom can be found on Peace Love and Business Planning, April is always closer than you think.

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