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Lenders That Lend a Hand

Q: I have been in business for 19 years and would like to start over after a divorce. Will you please tell me where to look for legitimate small-business funding sources? -- R.L., Cedarhurst, N.Y.

A: Emerging from the emotional and financial devastation of a divorce is not easy, so I commend your determination to pick yourself up. You don't say whether you are staying in the same industry or embarking on something new. Either way, your years of entrepreneurial experience should help in the search for funding -- and with the startup process in general.

Before you begin, you'll need to update your business plan or write a new one. If you are seeking a relatively small loan (less than $50,000), you may not need a full-scale business plan. What you will have to present is a general overview of your business -- how it will operate until it turns a profit -- and some market information demonstrating why and when you believe the business will achieve positive cash flow.

TEMPLATES FOR SUCCESS. Any potential funding source will need to know about your (and any partner's) background and experience. Prospective lenders will want assurances that you can make your new venture a success, so be sure to emphasize your past accomplishments.

"The plan should spell out how much this venture will cost to start, its possible sales results, and its cost of doing business -- rent, employees, etc.," says Martin Lehman, a counselor with the New York City branch of SCORE, a small-business advisory group. "It usually is a good idea to plan at least three years out," Lehman notes. "This means costs, sales, and the important element of cash flow."

A SCORE counselor in your area can assist with writing a solid business plan. Or you can download templates or software online that will help get the job done.

MICRO-LOAN. The business plan should identify how much money you'll need. Of the total, any lender will expect you to come up with 10% to 25%, experts say, and most will want you to produce collateral -- such as property -- to secure around 50% of any loan. The majority of entrepreneurs raise money themselves from friends and family, personal savings, or a loan against property or other assets.

That's what Elissa Breitbard did in 1999, when she needed funds to open Betty's Baths and Day Spa, her Albuquerque-based wellness and relaxation center. "The process took a couple of years," she recalls. "We were rejected [for a business loan] by a lot of banks. They told us we needed a 30% cash injection on our own, and even then many of them said they didn't lend to startups."

Breitbard gathered gifts and loans from relatives and friends, then located a nonprofit micro-lending organization that offered a course on writing business plans. The group, WESST Corp. (Women's Economic Self Sufficiency Team), facilitates the launching and growth of women- and minority-owned businesses throughout the state of New Mexico.

VESTED INTEREST. After she took the course, WESST gave her a $10,000 micro-loan, "because they could see we would fall through the cracks without it," she says.

A larger loan came through after she took her business plan to a small independent bank that specialized in Small Business Administration-backed loans. Keep in mind that locally owned banks, which have vested interests in the economic well-being of their communities, may be more amenable to supporting small businesses than their larger national counterparts.

Breitbard now has a completely renovated facility, a five-year track record, and 40 employees. When she went back for a second loan to expand her company three years after opening, the process went much more smoothly and quickly, she says.

SPECIAL INCENTIVES. Gene Fairbrother, a small-business consultant with MBA Consulting in Dallas, suggests commencing the funding search at your own bank. Over the past decade, banks have grown more willing to provide entrepreneurial lending -- and your chances are better if you already have contacts with bank officers.

"If that is not an option, you will have to look at other lenders, particularly those that work with small businesses," Fairbrother says. Contact your local Small Business Development Center for a list of local financial institutions that participate in SBA loan programs. Ask about special incentive programs available if you are a woman or minority.

"Local small-business groups like chambers of commerce, minority-business groups, and women-in-business groups are also good places to find out what resources may be available," Fairbrother says.

COMMUNITY VENTURE CAPITAL. Searching for a nonprofit economic-development operation in your area, like Breitbard did, is another good idea, says Peri Pakroo, a consultant and author of The Small Business Startup Kit.

"These funds are often called community-development loan funds or community-development venture capital funds," she says. "Small businesses that are seeking smaller amounts of financing or that don't meet the criteria of traditional lenders or venture capital firms may qualify with these community-oriented lenders. While many of these funds focus on financing businesses in economically distressed communities, others have broader criteria, such as supporting women-owned businesses."

Resources for finding these funds include the Community Development Venture Capital Alliance, a trade association, and the National Community Capital Assn..

SOUNDING BOARD. These so-called alternative lenders fill a niche that commercial banks were ignoring a couple of decades ago. They make loans to small businesses and nonprofit groups that cannot get money from traditional lenders. Such agencies lend between $5,000 and $100,000 and tend to favor businesses that will provide jobs for low- to moderate-income people in their communities, says Daniel Puccetti, the lending coordinator at the New Mexico Community Development Loan Fund.

"We were formed to make capital available to small businesses who have no collateral, are minorities, or have had credit problems," Puccetti says. "Those small businesses will provide employment in our communities, which is our priority." Community development organizations can also serve as sounding boards. "We want to understand things like how a divorce or the loss of a job contributes to credit problems or business failures," he says.

In your search for funding, you just might find a sympathetic ear, too.

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