Raising capital in a tight local credit market

Money makes the world go round, as the saying goes.

The same can be said for small business ventures. You have to have adequate capital to keep your small business engine running on all cylinders. Raising capital can be an especially challenging proposition in today’s tight credit market. With a little ingenuity and the help of a savvy business banker, however, you can find ways to save and build the capital you need to take your business to the next level. Here are some tips that can make a big difference.

Find New Investors. If you are not able to raise the capital by trimming expenses or through traditional means of generating new business such as new product development or marketing to existing or potential clients, look into partnering with another investor or establishing a joint venture to inject capital in your business. Consider expanding your network through professional or civic organizations to find these potential opportunities.

Build a Strong Credit Profile. Lenders can provide you with working capital or long term financing to purchase new equipment or acquire long term assets. Developing a solid business and personal credit history is vital even if you have no immediate plans to apply for a loan. When you do apply, a strong credit profile can help facilitate the application process and may help you secure a lower interest rate. When approving loans, lenders increasingly rely on credit history and clear demonstration that you have the ability to repay the loan. Be open and honest about past credit issues and take the necessary steps to resolve any blemishes on your personal and business credit history. One easy way to improve your credit score is to always pay your bills on time. Online bill payment services enable you to automate recurring payments, making it easier to stay current with your liabilities.

Maximize Cash Flow Efficiencies. Identifying and correcting any cash flow problems will help you trim expenses, save for your next big project and improve your ability to secure financing from lenders. Talk with your banker about financial services that can help improve cash flow. A thorough analysis of your business’s cash flow will help you identify opportunities for cost savings and pinpoint areas to improve operational efficiencies. By using online banking tools to regularly monitor your accounts, you can simplify processing payables and receivables, pay employees and contractors easily and more effectively manage your finances.

Alternative Financing Options. If you are unable to obtain a conventional loan at this time, ask your lender about the possibility of alternative financing through micro-lenders, the U.S. Small Business Administration (SBA) or state or municipal government agencies. You should also check with your local SBA Office to see which lenders are SBA Preferred Lenders (PLP) and which have qualified for SBA Express status – which allows the lender to offer SBA Express loans which are often easier to obtain for small businesses.

Recent changes in two Small Business Administration (SBA) loan programs mean many businesses may now have more opportunities to obtain financing. The new program enhancements could help business owners continue to manage and grow their companies and get their financial dreams back on track. SBA is a federal program dedicated to helping small businesses with loans made available through local lending institutions. Recently, the SBA announced it is:

• Temporarily waiving 7a loan guaranty fees and 504 loan program fees.

• Temporarily increasing the 7a loan guaranty to 90 percent from the previous 75 percent level on certain loans.

These changes provide an economic incentive for small businesses to obtain a loan, and they allow SBA lenders to offer an immediate cost savings to businesses. For example, a customer approved for a $238,000 loan could save up to $5,400 in fees. The new provisions add to the already substantial benefits small businesses often can realize when they choose an SBA loan to buy real estate, acquire a new business or franchise, purchase equipment or increase working capital. Those benefits include:

• Longer maturities than most conventional bank loans.

• Lower down payment.

• Lower monthly payment.

If you do pursue a loan, make sure your finances are in order and you’ve done your homework to determine what financial institutions require for consideration and approval. In today’s economy, keeping a long-term perspective, maintaining prudent money management practices and finding new investors can help your business ride out the economic storm and build a platform for growth.

Taka Tsukada is Wells Fargo’s business banking manager for the Mat-Su. He may be reached at 376-6612 or tsukadat@wellsfargo.com.