Liza Whiting, a graphic arts company owner, started with 3 employees and plans to increase this to 50 next year.  To do so, she has to expand her business by buying additional equipment, but banks would not lend her the money.  CBSNews.com reports that Liza’s credit score, like other entrepreneurs, dropped despite their on-time payment history with credit card companies.  Marilyn Landis, CEO of Basic Business Concepts, explains, ” computer scoring and computer-based decisions, and … million-dollar loans are being done on credit scoring”.

The Labor Department reported Friday that employers added 120,000 jobs last month. It is encouraging but still leaves a long way to go. Small businesses play the leading role in job creation, provided they can get the bank loans they need to expand. CBS News correspondent Russ Mitchell visits a businesswoman who’s been finding the credit window shut.

Wisconsin native Lisa Whiting created a graphic arts business.

Using loans from the county for hiring special needs workers, Whiting grew “Imagination Trends,” making floor signs and logos for major sports teams and other clients. In 2009, the staff grew from 3 to 36.

Whiting met expenses using credit cards and savings. Soon she had enough orders to grow into a multi- million dollar business. But then a snag.

“Now we have additional orders and additional projects that are huge,” she said. “We’re putting our hands up in the air because the banks aren’t able to lend us the money to buy this additional equipment.”

Whiting discovered that the banks weren’t lending because her credit score had suddenly dropped.

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Porter Gale, former Vice President of Marketing at Virgin America, asked top venture capitalists tips on how to pitch your company to a venture capitalist as worthy of investment.  Among the DOs are to be forthright about the business, focus on the company culture, and to have a long-term vision for the company.  This article in Huffington Post provides a guide to to help you in your pitch to venture capitalists.

I turned to several venture capitalists and asked them their “do’s and don’ts” of pitching. Below are DO and DON’T tips from five leading VCs. Please take note.

Tony Conrad
Partner, True Ventures
DO get your entourage onboard from the beginning.
DON’T get caught up in the current funding environment and overly value your company.

David Hornik
General Partner, August Capital
DO get introduced to VCs by a trusted friend or advisor, if possible.
DON’T hide the ball. There is no point in hiding any portion of what you are doing when you are pitching. Full disclosure isn’t just the best policy, it is the only policy.

Mike Hirshland
Founder, Resolute.vc
DO focus on company culture
DON’T believe your sales guy’s projections

James Joaquin
Partner, Catamount Ventures
DO act small and think big.

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QSRMagazine.com reports that Wingstop has been granted $15 million financing by Franchise America Finance (FAF) and The Bancorp Bank which it can use to develop new restaurants.  This will be available to both new and existing franchisees said Dave Vernon, vice president of franchise sales.  Wingstop, a fast-casual restaurant chain, is soon to open its 500th location.

Wingstop, the rapidly expanding wing chain with almost 500 locations in the U.S. and Mexico, announced a new program designed to provide financing for franchisees. The financing will be provided through Franchise America Finance (FAF) and The Bancorp Bank, a wholly owned subsidiary of The Bancorp, Inc.

Under the terms of the partnership, Wingstop has $15 million available to assist with financing franchisees in the development of new restaurants.

“This collaboration allows us to provide national funding for our current brand partners and new franchise candidates,” says Dave Vernon, vice president of franchise sales for Wingstop. “Wingstop is adding new stores on a regular basis, and will open our 500th location this month.

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Many business owners who need to refinance their commercial loans for working capital are unaware that there is an SBA program that provides funds for this purpose.  The 504 Loan Refinancing Program—implemented under the Small Business Jobs Act of 2010— also allows small businesses to use excess equity to obtain working capital that can be used to finance eligible business expenses, explains Steve Smits, associate administrator for the Office of Capital Access at SBA, to Inc.com. Small businesses have until September 2012 to access this fund.

The SBA wants to put some extra money in your pockets. To do so they’ve implemented a temporary program to help small businesses refinance commercial loans and restructure their debt. The SBA recently expanded the program and increased eligibility so that more people can take advantage of it before the program ends in September 2012.

The 504 Loan Refinancing Program—implemented under the Small Business Jobs Act of 2010—allows small businesses to refinance not only existing debt but use excess equity to obtain working capital that can be used to finance eligible business expenses, explains Steve Smits, associate administrator for the Office of Capital Access at SBA.

Some such expenses are utilities, insurance, and salaries. Though the SBA site simply states: “Any expense directly related to business operations.” It’s hoped the expansion will alleviate financial stresses while both protecting and creating jobs.

The temporary refinancing program is intended to aid the large number of small businesses that are expected to have their loans mature.

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Several groups that include the banking sector and business organizations have written to Congress to ask for more funding for the Small Business Administration, reports Portfolio.com.  But it seems Congress will retain the current figure of $1.4 billion compared to $2.6 billion during the same period a year earlier.  The former are hoping that the lawmakers at least restore the available loans to the amount of the previous year.

More than 20 business groups urged Congress today to increase funding for the Small Business Administration and restore incentives that led to a record level of SBA lending last year.

The SBA approved a record $19.6 billion in government-backed loans through its flagship 7(a) program in fiscal 2011, which ended September 30. That was up from $12.5 billion the year before. Much of this lending occurred in the first quarter of fiscal 2011, when the Small Business Jobs Act provided additional funds that enabled the agency to increase its guarantee on 7(a) loans to 90 percent and waive fees on these loans. These breaks made the loans less risky to lenders and more affordable to borrowers.

Those breaks are gone—and they’re missed. So far this fiscal year, the SBA has approved $1.4 billion in 7(a) loans, compared with $2.6 billion during the same period a year earlier. This year’s total also is below the pace set two years ago, when these loan breaks were funded by the economic stimulus bill.

Twenty-one business groups, ranging from the American Apparel & Footwear Association to the Travel Goods Association, sent a letter to Congress today urging it to restore these SBA loan breaks.

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It is difficult to get a business loan to start a small business.  Family and friends are typically the initial sources of funds for most entrepreneurs.  But as an entrepreneur, how will you get financing while preserving the relationships with these people who are close to you?  Entrepreneur.com shares some tips on how to ask for money from family and friends.

In 2010, 5% of U.S. adults polled said they had provided funding to someone starting a business in the past three years, according to a survey by the Global Entrepreneurship Monitor, a research consortium which includes Babson College. Of those respondents, 32% said the funding went to a friend or neighbor, 26% to a close family member, 11% to some other relative and 8% to a work colleague.

1. Choose a strategy.
Do you want to solicit large chunks of money from a few investors, or small amounts from many?

There’s less pressure associated with small sums. “You’re less likely to ruin a relationship over $25,” says Cornelius McNab, founder of Atlanta-based 40billion.com, which facilitates friends-and-family loans and gifts. Most of the site’s fundraisers target a few dozen people for sums between $100 and $500 apiece.

2. Choose an investment type.
When you accept money from others, strings will be attached, no matter how you structure the transaction.

Consider whether you want to accept and pay back loans, have your friends and family own an equity stake, or offer up a token of thanks – say, some amount of free access to your product or service in exchange for a gift.

If you take on investors, you may have to give up a portion of your company, and perhaps make one or more board members.

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Small businesses are having a difficult time borrowing money for expansion from big banks, says the Los Angeles Times.  Big banks are reluctant to lend to small businesses and are more comfortable lending to large corporations. In October, small banks and other lending institutions approved 46.3% of loan applications compared to 9.3% from big banks.

Despite ads by Bank of America and others touting their records of helping small businesses, some merchants say their loan applications are routinely rejected. They have more success with small banks and non-bank lenders.

Paul Boettcher, the co-owner of Ye Olde King’s Head pub in Santa Monica and four other L.A.-area restaurants, said he wants to open more restaurants but has had difficulty getting a bank loan. (Genaro Molina, Los Angeles Times / October 27, 2011)

“The smaller banks are the only ones who will even entertain the idea,” said Boettcher, a slim man with Clark Kent-style glasses and a graying soul patch.

Economists have put forth many reasons the nation’s economy isn’t creating many jobs. They say that businesses aren’t hiring because there’s not enough consumer demand, because jobs have been outsourced, because regulations or “uncertainty” are killing businesses’ interest in expanding.

But business owners such as Boettcher say they’re not hiring for another reason: They can’t get the money to expand. The very same banks that had loose lending practices before the recession are now too hesitant to lend.

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Franchising grew significantly in the past decade and the Small Business Administration has lent small businesses more than $30 billion this year.  Of this amount, $25 billion went to SBA’s popular 7(a) and 504 programs.  Now that Congress is working on the appropriations, it should prioritize funding to help small businesses create jobs. The following appeared in Politico.com.

During the economic downturn, the Small Business Administration has been a lifeline for the small-business community. Now, as Congress moves forward with the appropriations process, members should consider three top priorities to help small businesses create jobs.

First, the SBA’s funding should be increased for fiscal year 2012 to ensure it has the resources to provide quality service to small businesses and small-business lenders.

Second, Congress should provide funds to extend loan guarantees for SBA’s 7(a) program, which allows private-sector lenders to make loans guaranteed by the SBA and has been a program vital to small-business lending during this economic downturn.

Third, Congress should include funding to extend fee waivers for the 7(a) and 504 programs, which range from 2 percent to 3.75 percent on the portion of the loan that is guaranteed, since they were key to SBA having its strongest year in FY 2011.

Under Administrator Karen Mills, SBA lent small businesses more than $30 billion in 2011, the most ever. This is because of the Small Business Jobs Act and increased loan guarantee levels and fee waivers for SBA’s popular 7(a) and 504 programs, which accounted for $25 billion of the SBA’s record lending.

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Brett Palmer, president of the Small Business Investor Alliance, credits SBA’s Sean Greene for shortening wait times for SBIC licenses to less than 6 months and as a consequence, the annual rate of new licensees has more than doubled over recent years.  The SBA grants licenses so private entities can provide money to small businesses.   In the year ending September, a total of $2.59 billion was distributed, a rise of 69% from the previous year, as reported at BusinessWeek.com.

Tonka Bay Equity Partners, a private equity firm in Minnetonka, Minn., applied for a license from the federal government in early July to create a fund to funnel capital into private businesses. Last week the U.S. Small Business Administration granted that license, enabling the firm to start investing $150 million in promising ventures.

The four-month turnaround time doesn’t sound remarkable. But just a couple years ago, licensing times were so unpredictable that the wait could be up to 15 months, spooking investors and delaying the distribution of vital funds to waiting companies, says Molly Simmons, a principal at Tonka Bay who has worked in private equity for 15 years.

The Small Business Investment Company program Tonka applied to participate in, commonly known as SBIC, was created in 1958. SBICs are for-profit venture capital firms, privately owned and managed but licensed and regulated by the SBA. The program has been setting a blistering pace, distributing a record $2.59 billion in the 12 months ended in September, up 63 percent from the previous year.

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Most small business lenders now require borrowers to put up hard assets to be granted loans, and the most common collateral used is real estate or one’s home.  Take the case of Craig Holman who put up his share of the family farm as collateral to get an $85,000 loan to buy into an AdvantaClean franchise.  “Having the farm on the line has made me pretty focused,” says Holman.  This has also been the reason for his success, according to SmartMoney.com.

Craig Holman is betting the farm on his new business – literally. After getting laid off from a high-level job in the steel industry, the 58-year-old engineer put up his share of the family farm as collateral for a loan to open an emergency home cleanup service in Columbus, Ohio. “Having the farm on the line has made me pretty focused,” says Holman, who launched the business early last year with his wife as a partner. The hardwood tree farm has been in Holman’s life for years.

It’s also the key to Holman successfully opening his AdvantaClean franchise. Small-business loan brokers say collateral is now king among risk-averse lenders. Loans to small companies have decreased by some $60 billion since the 2008 financial market crisis, according to the Small Business Administration. Much of that decline reflects the near extinction of unsecured loans, which were fairly common among small-business borrowers before the recession.

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Steven Grossman, Treasurer and Receiver General of the Commonwealth of Massachusetts, and Robert Baker, President of the Smaller Business Association of New England (SBANE), in a Huffington Post article, urge the government to extend the highly successful federal initiative to December 31, 2012.  They claim that the effect of the previous funding was dramatic.  SBA hit a record $12 billion in loan guarantees for fiscal year 2011.  A federal loan guarantee is very important for financial institutions to step up lending.

With the economy still struggling, there could not be a worse time to abandon a highly successful federal program that has created at least 650,000 private sector jobs throughout the country.

In 2009, and again in 2010, the federal government acted to increase lending to small businesses. The most effective elements of this legislation, according to Small Business Administration (SBA) data and a study by the nonpartisan Congressional Research Service, were an increase in federal guarantees for SBA loans to 90 percent (from 75-85 percent), the elimination of loan fees, and an increase in the ceiling for each loan from $2 million to $5 million.

Regrettably, however, the initiative ran out of money back in January, and there is no pending effort to fund it. We call on a bipartisan coalition in Washington to extend the program until December 31, 2012 and provide enough funding to allow the incentives to continue uninterrupted until then.

Based on the data for the average level of weekly loan activity when the incentives were in effect, we estimate that about $2 billion will be required to extend and expand the effort.

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Howard Schultz, CEO of Starbucks, will launch a “Create Jobs for USA” program that asks the American public to donate $5 at any of its stores for small businesses.  A Pepperdine poll showed that less than 50% of small businesses obtained loans from lending institutions .  This lack of credit results in less jobs being created and decreased manufacturing output.  It is hoped that this initiative by Schultz will prod stakeholders to address this problem, the Huffington Post reports.

Today, Starbucks CEO Howard Schultz will launch “Create Jobs for USA,” a program where a $5 donation at any Starbucks will provide $35 in financing for small businesses. This is real money that will be loaned to small businesses to create real jobs – something our economy desperately needs right now.

Schultz knows our economic recovery depends on small business success. His program asks the American public to stand behind his efforts to remind lawmakers of the unique potential small business holds. With someone this high profile taking action to put small employers back on the hiring track, hopefully the problems small businesses have accessing credit will get some much needed attention. Schultz’s work should be applauded, and imitated. We hope leaders of all stripes are listening to what he is saying: small businesses can’t get credit.

Small employers are struggling; lack of demand and weak sales are part of it, but one of the key barriers to their success – hindering their ability to help remedy the economy’s malaise – is the inaccessibility of credit.

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Obtaining loans from traditional lending institutions such as banks is more difficult these days.  With the recent recession, a number of banks have gone out of business while others have merged.  Today, there are new regulations and criteria for these financial institutions to provide financing.  Business lawyers Ruth Miijuskovic and Jim Shnell, in a talk with Smart Business, discussed alternative sources of financing.

Business attorneys Ruth Mijuskovic and Jim Shnell of Jackson DeMarco Tidus Peckenpaugh note that financing methods have changed with the economic times and that the growing demand for funding has also created new sources and forms of financing.

Smart Business spoke with Mijuskovic and Shnell, who have broad experience in negotiating and closing business financings, to get their insights on the issue.

Why is it so difficult to arrange financing today?

During the recent recession, a number of banks and finance companies that had traditionally provided financing to businesses went out of business, and others merged in order to survive. The financial institutions that survived are now governed by new regulations that impose new procedures and constraints on their ability to provide financing.

What can a business do when it finds that it can’t get a line of credit or that its line of credit can’t be increased or has been reduced?

Many banks (and bank regulators) have raised the bar as to the companies that qualify for a line of credit, even when guaranteed by the principals. A company that is on the borderline of eligibility may find that a bank familiar with its industry is more willing to provide credit.

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GE Capital, Franchise Finance, specializing in financing restaurants and hospitality industries with over $10 billion assets, has agreed to refinance the existing debt of BAJCO Group, a Papa John’s Pizza franchisee.  Papa John’s is the world’s third largest pizza company where BAJCO owns and operates 74 units in various states of America.  This news was reported by Market Watch.

GE Capital, Franchise Finance recently completed a $9.5 million transaction with BAJCO Group, a Papa John’s Pizza(R) franchisee for the refinancing of existing debt. Funding was provided through GE Capital’s bank affiliate, GE Capital Financial Inc.

“We were highly impressed with the expertise and industry knowledge of everyone on the GE Capital team,” said Faisal Bajwa, CFO, BAJCO Group. “We have been a customer since 2010, and this latest financing was another very professional execution. We look forward to working with GE Capital again.”

Based in Niles, OH, BAJCO currently owns and operate 74 Papa John’s units in Ohio, Indiana, Michigan, Pennsylvania, and Florida.

“The BAJCO team is a pleasure to do business with,” says Paul Cantieri, senior vice president, GE Capital, Franchise Finance.

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Shelly Sun of BrightStar shares her experience regarding financing franchises.  She says that the most common cause “for failure for franchisors is under-capitalization”.  In her article in Enterpreneur.com, she gives advice on where and how to get a franchise loan.  Banks, government programs, friends and family can give you the financing you need.

The No. 1 reason for failure for franchisors is under-capitalization.

If you’re thinking about franchising, it’s important that you have enough capital to launch and enough capital to sustain the operation until recurring royalties can cover your overhead.

Many franchisors wrongly assume that the amount they collect from selling franchises in initial franchise fees will cover overhead. But often the franchise-fee revenue does not fund the necessary infrastructure, leaving the emerging franchisor scrambling. If you’re not sitting on a cash war chest of $500,000, you may run out of cash.

When I was launching my health-care staffing franchise, BrightStar Care, in 2005, we estimated we needed to invest $300,000. I contributed $100,000 of our own money and accessed $200,000 in debt financing. We were about 18 months in when the cash began to get painfully tight.

We had overspent on unnecessary or ill-advised hiring.

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Network Solutions reported that the US Small Business Administration announced a record volume of loans in fiscal year 2011.  This volume is the highest in its history.  The first quarter of 2011 was also the most active single quarter ever for SBA-backed loans with over $12 billion.  This is more than double any quarter in the past four years.

SBA Administrator Karen Mills said the loan growth continued a trend started in 2009 and that SBA-backed lending has reached pre-recession levels.

“SBA-backed lending continued the upward trend we saw last year,” Mills said in announcing the total loan volume of over $30 billion.

In fiscal year 2011, which ended September 30, the SBA approved $30.5 billion (61,689 loans) to small businesses and startups through its two largest loan programs.

Mills says loan enhancements created under the Small Business Jobs Act, which allowed the SBA to raise the guarantee on its 7(a) loans to 90 percent and waive fees on both its 7(a) and 504 loans, helped contribute to the growth in lending.

Despite the overall good news, the SBA says, there are still some gaps in the marketplace and small businesses that need access to capital. To help fill these gaps, in 2011 SBA created two new lending programs: Community Advantage and Small Loan Advantage.

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After meeting with Vice President Joe Biden, major lenders are increasing loans to small businesses. According to American Banker, Biden met with executives from 13 banks including Citigroup, KeyCorp and M&T Bank.  Citigroup pledged $24 billion in loans to small business in the U.S. over the next 3 years.

 President Barack Obama has said that small-business lending is a key element in the economic recovery, and several banks have announced initiatives to increase their lending. Vikram Pandit, Citi’s chief executive, said in a press release, “We recognize the vital role small businesses play in our economy.”

Citi said it committed $7 billion in loans to small business this year, $8 billion next year and $9 billion in 2013. Last year, the company made $6 billion in small-business loans, and in 2009 the amount was $4.5 billion.

U.S. Vice President Joe Biden and Small Business Administration Administrator Karen Mills met with 13 banks in Cleveland on Tuesday. After the meeting, KeyCorp, a big regional bank in the Midwest and Alaska, said it would provide $5 billion to small-business owners over the next three years; M&T Bank Corp. of Buffalo, N.Y., said it would increase small-business lending by $50 million from 2010′s level in each of the next three years.

J.P. Morgan Chase & Co. pledged in April to provide $12 billion in small-business loans this year alone — 20% more than last year’s commitment.

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Many small business owners envision “more revenue” as the key to a higher selling price.  But, is that really true?  Is it really more revenue that the owner needs, or just better, more profitable revenue?

It can be an enlightening experience to understand what tasks create value in your company and which ones simply keep you busy.  It can also be devastating if you’ve spent years focused on the wrong activities.

There’s a tremendous difference between bringing money into your company and putting money in your pocket (adding value).  You’re not in business to be a conduit for money.  You want to either keep it for yourself, use it to pay down debt, or use it to finance your company’s growth.  If the revenue is merely passing through your fingers, what’s the point?

It’s time to take a closer look at your business; not as a whole, but by each individual product or service line.  Calculate revenues for each product or service, then take a look at the costs that you incur in order to generate those revenues.  Subtract the cost to produce that product / service from the revenues as well your cost to deliver it to the customer.  Are all your product / service lines profitable?  There’s more…

Don’t forget to allocate your overhead!!  There are certain functions in your business that you can’t reasonably allocate to just one product or service, such as accounting, rent, and utilities.  For these expenses allocate them to your product or service lines based on the same percentage split as your revenue.

For example, if service A accounts for 30% of your company’s revenue, assign 30% of your rent, 30% of your utilities, and 30% of your accounting expense as a cost needed to generate this revenue.  Now, are all your product / service lines still profitable?

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Collecting sufficient capital for small business can be a laborious task for new owners. The banks usually turn down the loan application of new entrepreneurs as they avoid taking risk of lending money to companies without an established financial record. But do not worry as there are options that you can rely on to finance your business.

Here are some other ways that you can employ to finance your business:

1. You need to have a proper business plan as it will help you to operate your business strategically. It should contain details of the principal owner along with the information on the operations of the initial years. The plan should also deal with the analysis of the business opportunity along with the niceties of financial projections. Your business plan will be incomplete without the inclusion of the estimated expenses and revenue. The facts that are incorporated in the plan needs a meticulous research that will benefit your future business prospects. Setting a proper plan can prevent the business from getting into debt.

2. According to the community reinvestment act you can seek for grants, funds or any other similar program. You can look for available local, state or federal funds. Disadvantage of a grant is that you need to be a part of a challenge in order to get your grant application approved. The reason behind this contest is that, the grants for profit enterprises might be limited. You can browse through Grants.gov website to locate grants for your business.

3. Angel investors can be helpful if you are looking for finance for a business loan at this moment. Usually a family member or friend is considered to be an angel investor who trusts in your plan for investment.

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The current small business credit crunch is getting much attention and rightly so. We know very little about the overall small business universe because it is so huge and diverse. Most discussions about this topic focus on credit and lending, but the issue is much more complex than that. A more broad-based discussion is necessary to understand the full extent of the current crisis. The crisis encompasses both types of financing, debt and equity.

Personal Wealth
In good times or bad the top source of small business capital is the personal wealth of the owner. Even beyond startup, owners often tap into their personal wealth like a line of credit, on an ongoing basis. If available, personal wealth is easier to access than other forms of financing and may be the only source available. The primary sources of personal wealth are typically real estate and retirement accounts. Since 2008 both of these sources have taken a huge hit, so the amount of personal wealth available has plummeted. Most owners are experiencing the worst economic times in their lifetime. So even if they have personal wealth available, they are less likely to invest it in their businesses. Instead, they are cutting back or forgoing expansion.

Friends & Family
Another common source of capital has essentially dried up – friends and family. For the reasons discussed above, friends and family have less wealth available and are less willing to invest.

Creditworthiness
The ability of a private company to borrow funds depends on the cash flow of the company, the available collateral, and the credit of the owners.

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