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Small Business Pam Watson Korbel

Small Business Pam Watson Korbel
Pam Watson Korbel is an expert on small business and revenue growth. She personally managed exponential growth in two companies: a software firm that grew by 500% in four years and a health care firm that grew by 1800% in eight years. In addition, she has been advising fast growth companies as a coach and consultant since 1996.

How to Fund Growth in Your Small Business

How to Fund Growth in Your Small Business

Ready, set, grow? But first – did you check your bank account. Growing a company requires cash causing some entrepreneurs to struggle with the decision to grow, how fast to grow, and where to access the capital necessary to grow.

A wide variety of methods are used to raise capital for growth and some might surprise you.

Bootstrapping – The most common form of financing is “bootstrapping,” meaning acquiring funds internally or without formal external sources. Trends show that more and more small business owners are relying on themselves and family for sources of capital. According to U.S. Small Business Administration (SBA), some of the bootstrapping sources of capital include:

13% - personal loans to the business

13% - family and friend’s loans to the business

11% - credit cards

Other forms of bootstrapping could include improving your internal cash flow through such activities as slowing down outbound payables, speeding up inbound receivables and improving your profit margin, which generates cash internally.

Commercial Lending - Experts note that the gradually improving economy has helped more small businesses secure loans or credit lines from traditional banks. In 2013, nearly $1 trillion was loaned to small businesses through banks. In addition, surveys show that fewer loans are being declined. However, commercial lending practices and policies only eased slightly since the recession.

Loans typically are used for inventory, expansion or to strengthen a company’s financial position, according to the U.S. Small Business Administration (SBA). In monthly data reported about loans that the SBA guarantees through commercial banks, 2014 trends show that more loans to small businesses have been made in every category.

The SBA offers a program to commercial banks whereby it guarantees 90 per cent of a loan to a qualifying small business based upon its criteria, which vary by type of business. Importantly, note that the SBA does not make loans directly; it encourages commercial banks to make loans and then guarantees them in the event of default.

The largest percentage of loans guaranteed through the SBA are valued at $100,000 or less. Banks still back credit lines (16%) and loans (19%) but these sources of capital do not add up to even half of the capital provided to small business.

Angels - Meanwhile, venture capitalists and angels only account for 6 % of the total capital provided to small businesses. An angel is an informal investor who registers with the Security and Exchange Commission (SEC) having an interest in investing in seed-stage or very early-stage companies that are not yet mature enough for formal investment like venture capital. Investments can range from a few thousand dollars to a few million. Five per cent of small companies receive angel funding, that may come with various forms of professional advice and management assistance.

Venture Capital - Interestingly, the SBA research shows that angels and venture capitalists are investing less in start-ups and more often in later stage or expansion businesses. Only 1 percent (or less depending on the economy and year) of companies receive venture funding. Generally, venture capitalists are interested in accelerating the commercialization of new products and want to invest in companies that are past the initial concept and development phases.

Considered the most complicated form of financing, companies with strong management teams, target markets, innovative products, competitive position, financial returns and a business plan are considered the best candidates for venture capital.

Crowdfunding - Provisions within the Jumpstart Our Business Startups (JOBS) Act of 2012 authorized the sale of stock by small businesses and startups over the Internet (crowdfunding). A small business will be able to collectively raise up to $1 million a year. Across the world, crowdfunding projects raised more than $5 billion in 2013 with more rapid growth expected.

Positioning for Financing - With the tightening economy over the past six years, most business owners have found the need to “sell themselves” when seeking growth funds. With credit requirements being more stringent and fewer capital dollars available, an owner is well advised to:

  • Scrutinize their financial needs carefully with full justification needed to win over bankers;
  • Learn the language of banking and present their business plans from the banker’s point of view;
  • Maintain top-notch financial records covering revenues, expenses, cash flow, assets, liabilities, etc. The more detail the better.
  • Develop an outstanding business plan.

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