We’ve refocused this blog on small business financing, exit planning and merger/acquisition activity for businesses with less than $50 million of annual sales.

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Todd

While this is an important question, a better question should focus on enemies of the Dow Average maintaining the 10,000 mark reached yesterday after a terrifying market free fall.  So, these three career politicians represent just three very dangerous threats to continued economic and financial recovery.

Barney Frank:

If there is one person who bears responsibility for the mortgage meltdown, it is clearly Barney Frank.  Not convinced?  You can watch this C-Span video from 2003 when he tells his colleagues in congress that there is not a significant problem with Fannie or Freddie, or its lending policies.  Turns out he was completely wrong.

This man and his failed economic policies are a very serious danger to our economic system and a healthy investment environment.

Stephen Lynch (another Massachusetts Democrat):

This member of the house financial services Committee has decided that a new tax on all financial transactions will be a great way to support new government give aways.  So, every time you buy a mutual fund or stock in your IRA, 401k, college fund or investment account, your government will take “a small piece” of that transaction.  The Economic Policy Institute estimates that will suck up to $150 Billion a year from American investment accounts.

Career politicians do not seem to grasp well that in the real world, additional costs typically lead to lower incentives to buy.  Lower demand leads to lower economic results and lower market results.

Barack Obama:

Our economy, our markets, even the “American Way” is predicated on hard work, risk taking and the ability to take advantage of opportunities presented by a vibrant economy.  Regardless, President Obama suggested yesterday that we spend $13 Billion dollars (which we do not have), so we can give those on Social Security and extra $250.

Why?

Because 1) he’s a career politician and 2) because stagnate prices will otherwise prevent Social Security from increasing benefits over last year.  You heard correctly, our President wants to spend $13 Billion dollars so people who are not working can get a raise during the worst economic environment in a generation.  Are raises now guaranteed?

These are just 3 of the dangers to our continued economic  and markets recovery and  there are surely others, who can you name?

Clearly this is a very bad question and one I wish Ken Feinberg would have asked. Let me explain…

As taxpayers, you and I own about 34% of Citi Group Inc with a value of just under $35 billion dollars. Our most profitable employee is Andrew Hall who runs the energy trading operation. His old boss told the Wall Street Journal that “he has made money every year for the company he works for – a lot of money.”

His department has had earnings (not revenues, but earnings) of $1.86 Billion over the past 5 years. If you had an employee whose average annual earnings are $375 million per year, would you pay him $100 per year? I would. In fact, his department was one of the very few profitable operations within Citi over the past few years.

Enter government bureaucrat Kenneth Feinberg from the treasury department who “urged” CitiGroup to sever ties with its (our) star employee or he would issue an “embarrassing ruling” if CitiGroup honored Mr. Halls Contract.

Pause and reread.

Citi Group is being pressured to not honor a legally binding employment contract with an individual who has been generating steady, reliable profits for the bank, our bank.

With little option, Citi officials sold this highly profitable business for just the net asset value of the unit’s assets. Not the net asset value of the business, just the assets on its books. In essence, it gave away the business, and our star. “If you’ve got to sell, why should I pay a premium?” asked Steve Chazen, the CEO of Occidental Petroleum and buyer.

Mr. Feinberg made it very clear that he thought CitiGroup should make a clean break. “Something like that would probably be best.”

Best for whom? We gave away a very profitable business, lost our star employee and a reliable money maker, how is that best?

These are the same people who want to manage our health care…

I am a long time subscriber of Fortune Magazine and am a fan of their Fortune Small Business magazine.  So I was really pissed when I read “Where’s My Stimulus?” which asked “The government is giving billions to companies that make billions… Why don’t they give that money to small business?”  It reduces small business owners to spoiled, incompetent children.

Here is the simple answer…You do not employ millions of people who would lose their job, further damage the economy and drain government unemployment funds.  However, that is not the issue, attitude is the issue.

Where is my stimulus?  This is a terrible question from a magazine for and about small business.

This article states that 75% of entrepreneurs say the government hasn’t supported them enough (poll by Intuit payroll).    Are you kidding me!?!

Entrepreneurs complaining the government is not doing enough for them?  I’ve never heard such a thing.  Entrepreneurs know better than anyone they GET nothing in this world.  If they want a company, an opportunity, more income, personal wealth, they have to create it, it is not given.    Not by customers, vendors, competitors, suppliers and never from the government.

This article tells the tale of a catering business owner who is struggling and can’t get financing to help her business.  She says she was turned down by four banks because she did not have an existing credit line.  I’m in small business finance and  doubt that is real reason  she was declined.

True, banks are very tight today, but strong business with strong credit find money, even in this environment.  The article also reveals she has had “borrowing woes”.  When did Fortune go so soft and decide to make the facts fit a story.

If she got her money (she only needs $15,000) she intends to hire 10 full time employees and expand into mail order and personal chef services.  Are you kidding?  If she asked me for that amount with the specific objective of hiring 10 people and expanding her business into two areas she has not been before guess what I would say?  NO!

If she went to the government or the SBA for a small business loan, with the same plan, guess what I’d want them to say…?  Remember, it is our money they lend.

Another owner in the article said (this is a direct quote) “If the government gave me money, I’d go out and buy a new car. The car companies would make some money and I could keep people working.”  Since when do small business owners fanaticize about government handouts?

Here is the worst part, Joseph Tirella ends his article with; “And what’s wrong with that?”  Short answer, everything.  What really scares me is that Fortune magazine would publish such a condescending article based on a couple business owners who should probably be employees somewhere rather than hoping for government money.

Truth is, not every business should be in business.  If this owner is struggling enough to wish for free money from Uncle Sam, its time to close the doors.

Small business owners will contribute to our economic rebound the way we always have, not by wishing for money from President Obama.

Business cash advance, also know as merchant cash advance has played a growing and changing roll in small business finance and is probably the most popular business loan alternative in the market today.  Certainly it is the fastest growing.

I spend a large part of my day talking with business owners designing strategy of how best to get the capital they need for the growth, expansion or emergency in their business.  The standard decision tree is fairly simple and focused on a few specific points.

1 – Is there another alternative that will provide a business loan or working capital.  If the answer is yes, that will likely be a less expensive option.  It may be more complicated and time consuming, but the cost savings will reward you for the aggravation.

In today’s environment, you should be the proud owner of a 700+ credit score, plenty of collateral and free cash flow more than double (or more) your debt service.

2 – Do you have a personal credit score (FICO) that is 690 or better?  If yes, are comfortable with a personal guarantee, a “non-bank” business loan will reduce the cost of your business cash advance by 30% – 50%.  Additionally, many of these program allow for repayment over 12 months rather than 6-8 months which is the standard in the business cash advance industry.  You can expect a fixed daily or weekly repayment rather than a percentage of your credit card sales for repayment.

3 – Funding amount required?  Even in a “normal” lending environment, no banker wants to be the only financing source.  You may want to consolidate your loans and debts in one simple payment, but no banker wants to be that lender.  So, expect to find the pieces and put create your funding from several sources.

You can expect to receive about 5% of the total annual sales you can prove (tax return) or about 1.5 times your monthly credit card sales.

4 – Do you have a FICO score between 525 -700?  Been in business less than 2 years?  In food service or retail?  Sick or providing a personal guarantee for yet another business need?

Well, if you accept credit cards, business cash advance will likely be an alternative that provides you working capital without a personal guarantee or collateral.  Business cash advance is great because it really works for real business owners, and most qualify for financing (about 80%).

As you get an understanding for the risk these financial firms take, you can begin to appreciate the cost structure that makes this capital expensive.  Like most business decisions, it become a cost benefits analysis.

There are many players in this industry now who will not be around in another hear or two.  Be sure to do your homework to protect yourself and get the best possible rates or hire a broker who will do all the research and leg work and allow you to make the final decision.

It will be a while before bank lending gets back to traditional acceptance rates which will create strong demand for business loan alternatives.

Have you had any experience with business cash advance or merchant cash advance you can share?

Part II: Non-bank business loans.

Do you remember how frustrating he was?  He was the cause of problems, putting the Robinson family in danger because of his greed, stupidity or fear.  After the crisis passed, he would deflect blame and grab credit.

That is exactly the feeling I got last night when I saw an American Express ad forecasting a light at the end of the economic recession and the rebirth of a new and better small business economy.  Clearly, their Dr Smith moment.

Reality is that American Express cut credit limits to small business owners in their moment of need.  This not only limited available credit, it cause credit scores for many to drop and their cost of capital jump.  In other words, Amex was part of small business’ problem, not a solution.  When times were tough and the recession was scaring many business owners, Amex cut their risk and ran for cover.  Owners were looking for small business loans and working capital while Amex was taking them away.

Now that things are looking brighter, they want to be a resource and a friend.  Until when…?

I understand weakness and fear, we’ve all experienced that at one time or another.  I understand Amex wanting to protect their balance sheet.  What I do not tolerate well is Amex boldly proclaiming they are part of the solution now that the future looks brighter.  I did not like it when I was a kid watching Lost in Space and I do not like it now when my business is on the line.

America’s Got Talent is one of the top rated shows on TV this summer and I suspect a lot of people will tune in to see if he does win, but that’s the wrong question.

Better Question:  Why do you like him so much?

At some level, business revolves around working with people we like.  Being likable is an important business asset.  Knowing this, I’m trying to identify why I like this chicken catcher so much and why his performance was so moving.

Was it song choice?

My expectations?

His mannerisms and accent?

His presentation and clothing?

A lot of the acts on this show seem staged and contrived, but Kevin Skinner seemed authentic.  Because of that, I want to learn and hear more, I wonder what is his thinking, what song he’ll do next, if he’ll advance to the next round?

He has my interest, affection and attention.  In a crowded world, that is very valuable.  I suspect AGT producers have already figured this out and fully expect he will reach the finals (remember, this is a business).

There is a valuable business lesson here, but I can put my finger on exactly why I like him so much, can you help…?

So, what do you do?

Sales are down, the economy has people to nervous to spend and your advertising is not working.  Yellow Pages is dying (or dead), direct mail is more expensive and less effective, and “pay per click” advertising cost are increasing while results are slipping.  There is no longer a single, simple solution that reliably brings in a steady stream of new customers, it takes multiple sources.

Here’s a quick history of advertising:  It will place your current marketing into historical context and help you a better understanding of why all small business advertising is less effective in the new world we live in today.

Scholz & Friends from BUBBLECLOT on Vimeo.

Fortunately, there are a lot of smart people thinking about how to make the web effective for business owners without taking a lot of time or effort.  Bythezip.com is a great little company in Philly that allows business owners to be found online, develop customer loyalty, distribute coupons virtually for free and rank very well in organic Google search.  They are a turn key solution that becomes even more effective with more effort.

SMBLive is a Washington DC area company and lust launched their CloudProfile.com which helps small business owners become easily interactive online.  They automate the process to be found locally and on Google maps, allow for automatic interaction with your Twitter and Facebook accounts (if you don’t have them you need a cloud profile even more urgently)and make it easy for new clients to contact you directly.

Here is what I like about both of these programs; ease.

Cloudprofile.com is elegant, easy and effective.  You can sign up in about 10 minutes and for about $50 per month you’ll be much more effective and profitable on the web without any web or IT skills.  Bythezip.com will cost a bit more per month and will give you a lot more.

The important point is to recognize the shift that is occurring before your eyes.  It is affecting your business now and will have an even greater impact in the future.  Prepare now.

Small business sales and revenues have declined over the past few quarters, motivating many entrepreneurs to take a critical look at their traditional marketing, business development and advertising – most are asking why it is not working.  Many are wondering if it every really worked that well at all?

Halting your advertising is not the answer, so the search for a better solution begins.  Perhaps we need to begin with a Better Question:  Why did my advertising ever work?

Seth Godin put this question into historical context which is very helpful when analyzing this question.  You can read “All Marketers Are Liars” (strong recommendation) or get the highlights from a seminar presentation last month.

Once you “get it” you realize that relying on interrupting and/or annoying people as the core strategy to grow your business is flawed.  You will always be disappointed with the results of your advertising and business marketing if that is the most creative solution you can develop.

A successful business development strategy may be the most important ingredient to your long term success.  So, at this point you have two options.  First, become part of the conversation, interact with customers and prospects.  Let them find you.

Proper internet marketing is very good way facilitating this process.  To be successful you need to realize it is a process, you’ll need to spend a bit of time to find your voice and engage your audience (future customers), just like you do in the real world.   You’ll want this to happen overnight, but it cant.

In 5 years all businesses will have a regular strategy to become apart of the conversation their clients and prospects are having.  It will be common sense like a listing in the yellow pages was 10 years ago.  For now, it is still an innovative concept and a powerful tool to grow your business.  There are a couple great tools I’ll outline in my next blog.

Option two, entertain.  Do you want to see the future of advertising?  Take a look at these two videos:

I loved and watch the entire video. I told others and forwarded them to friends. Other than the Mac v PC commercials, I can’t remember the last commercial I watched completely. Did you also notice they did not mention the product? In fact, the Post-It is not even a commercial (or is it?).

Both of these are viable business development options.  However, it is far easier and more effective for most business owners to engage in the existing conversation than develop creative web videos. You are doing it every day in the offline world.

What is the future of business marketing?  Don’t advertise, entertain.  Don’t interrupt, intrigue.  Don’t annoy, engage.  You’ve got a 5 year head start on your competitors who are slow adopters, how will you handle your opportunity?

What is your most successful business development strategy?

PS: I’m finishing research on great tools that will allow you to interest, motivate,  intrigue and engage.  Results on next post.

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There are multiple reasons, and if you have every looked for working capital or a small business loan for your business, you know how frustrating the process is.  Today is even more difficult.

However, once you become a business owner, the challenge becomes even greater.  Your credit score typically drops, debt load increases and your attractiveness to traditional lending and credit companies drops like a rock.  that, combined with a very tight credit market is putting the squeeze on millions of business owners.

My last post discussed why you can not rely on the ARC program, however, you need capital to take advantage of an opportunity or get through a rough patch.

So, let’s ask a better question: What really works?

Access to small business working capital is constantly changing and two of the most popular form initial equity capital that fueled small business growth are now effectively closed.  Business Credit Cards and Home Equity loans have all but disappeared during this credit crunch. Access to small business capital was a problem in September 2008 and working capital is still a problem in July 2009.

As business owners are forced to become more creative, there are  effective options that are getting working capital into the hands of small business owners.

Business Cash Advance is a great solution because it really works and will over look tax liens, debt load, “credit issues” and other problems traditional banks can not get past.  Business cash advance offers funding without any personal guarantee or collateral, and, given they are taking 100% of the risk in the financing transaction, the cost of capital is significant.  If you get a $50,000 you can expect to repay about $65,000 – $70,000 and payments will come directly from your credit card processing or bank statement.  Expensive capital, but effective, quick and often successful.

Streamlined Business Loan is an evolution of business cash advance (also known as merchant cash advance).  This program allows you to use a personal guarantee and cut the cost of your working capital loan significantly, perhaps as much as 40%-50%.  They funding is quick (two weeks) and easy to apply for though you’ll need to have a credit score of 690+ and 2 years worth of tax returns to qualify.  In many cases this option is cheaper and easier on cash flow than the business cash advance, but you need better credit and must feel comfortable with a personal guarantee.

Equipment Collateral Loan is an effective way to get a well priced loan if you own equipment (completely paid) or will be buying some soon.  Either will require a personal guarantee and the equipment will act as collateral for your loan.  If you are buying new equipment you can finance almost all your purchase.  If you are using equipment you already own, expect to borrow about 50% of the current value of the equipment.  Rates and terms are typically better than the two options above due to your good credit, collateral and personal guarantee.

SBA Secured loans (both 504 and 7A) are great loan products if you have strong credit, lots of collateral and plenty of patients.  These loans are made by your local bank and the SBA will guarantee the loan in the event you default.  The process is long (60- 90 days) and frustrating at times.  In today’s environment they are even more difficult to qualify for but represent the best pricing you will likely qualify for.

Business Credit Cards are very difficult to acquire today and many that have been issued over the past year are being withdrawn.  They are not a very good option for small business working capital in the summer of 2009.

Working capital today requires thinking outside the box, a trait traditional lenders are not know for.  If you have had success recently with working capital, please share your comments.