Lilliputian Loans
When it comes to financing, bigger isn't always better. Have you tried an SBA microloan on for size?
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You need a little dough to get your business off the ground, and
traditional bankers won't give you the time of day. We've
heard this story before, and the SBA has a program for you. Welcome
to the wonderful world of microloans, where the maximum amount is
$35,000 (a figure that wouldn't get you a second look from most
major banks). Even a few past credit woes might not disqualify you
from the SBA Micro-Loan Program. The SBA isn't the actual lender, though-an SBA-approved
subsidiary lends the funds to entrepreneurs in any stage of
business. "[The SBA's] intermediary lenders [have]
experience making and servicing small loans and providing technical
assistance to the borrowers," says the SBA's Michael
Stamler. There are about 150 approved lenders nationwide serving
all types of new business owners with the capital and guidance they
so desperately need. Jonathan Reese and Jason Salfi, owners of Comet Skateboard, a
skateboard manufacturer in Oakland, California, got a big helping
hand from their lender, the Oakland Business Development Corp.
(OBDC). Lending with funds from the SBA as well as a number of city
and county sources, the OBDC made Reese and Salfi two $20,000
microloans in March. Because the two entrepreneurs had almost no
credit history and very little collateral to speak of, Reese says,
"Our banks didn't want to touch us." Content Continues Below
To get the money, Reese, 32, and Salfi, 30, were required to
write a near-complete business plan and show what the funds were to
be allocated for. According to SBA guidelines, funds can be used
for working capital, inventory, supplies and other equipment but
may not be used to purchase real estate or pay down existing
debt. One of the best incentives for working with a microlender is the
one-on-one attention that small companies receive. Reese and Salfi,
for instance, worked closely with Robert Gebauer of the OBDC. So
close, in fact, that they're on a first-name basis.
"Robert got us all the money he could," says Reese. With sales projected at $750,000 for this year, Reese and Salfi
are working toward growth for Comet Skateboard in the next few
years. Though they want to secure a line of credit from a major
bank someday and are actively seeking venture capital, the
microloan provided just the help Reese and Salfi needed right now-a
cash infusion for production and equipment costs. "We
don't want to grow too fast," says Reese. To get your hands on some microloan money, stop first at the
SBA Web site or
call (800) U-ASK-SBA for a list of requirements and intermediary
lenders in your area. | | BEGGARS
SHOULD BE SAVERS | | | Before you approach
lenders for quick capital, be ready to show them you've pinched
your pennies. When on the hunt for a microloan, you'll need to save as
much money as possible on your operating expenses. We asked Linda
Saggau, a communications and business consultant and founder of Mr.
Wolf Ltd. in Minneapolis, for tips on how to tighten your belt
during start-up: - Before you buy anything, write a viable and complete
business plan that details your core purpose. Cut expenses that
don't relate directly to your core business.
- Barter or trade services with another professional, such as
a PR person.
- Don't spend money on image items like a fab location or
fancy furniture.
- Share technology services, such as a T1 line, with
neighboring businesses.
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Contact Sources - Oakland Business Development Corp.
(510) 763-4297, www.obdc.com
Originally published in the October 2001 issue of Entrepreneur Magazine
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