Making the Leap: How to Jumpstart Your New Business

When the owner of a local gift andcoffee shop retired, an employee offered to buy her business. But theirinitial contentment with the arrangement soon turned to despair afterthree banks turned down requests for financing.

Intoday’s struggling economy, when lenders have tightened their pursestrings, this scenario is an increasingly common and brutal reality,making it a challenge for new companies to borrow capital and forexisting businesses to expand.

“Theslowdown in the economy is so widespread that it affects almost everysegment of the business world,” says Mike Miller, senior vice presidentfor Valley Bank. “It is difficult [for small businesses], but notnecessarily because lenders have tightened their lending requirements.”

What Miller and other lenders are seeing is that small businesses—companies with 500 or fewer employees—often lack adequate cash flow to cover operating expenses, are overextended on lines of credit and credit cards, or have experienced a combination of lower revenues, business losses and increased expenses. When lenders see these red flags, they are more cautious about making loans.

In addition, some banks are making their lending criteria and underwriting guidelines more strict because secondary markets like Cantor Fitzgerald and SunTrust no longer buy commercial loans. This means that the originating lender holds the entire risk for loans it can’t resell, says Lyn Hamilton, vice president and Small Business Administration (SBA) loan manager for Heritage Bank in Tacoma. Local bankers expect this trend to continue through 2009 as they await changes from the Obama administration.

However, the coffee shop mentioned earlier was not totally without options. After seeking the help of the Small Business Development Center (SBDC) at Green River Community College, the shop owner was able to negotiate a fair price with the buyer. The seller herself also helped the deal come together by agreeing to finance the loan, facilitating the sale with mutually advantageous terms.

Despite the gloomy outlook from economists this year, small businesses such as this coffee shop still have viable lending options available to them. From traditional bank financing and SBA loans to alternative funding sources, such as private investors, venture capital and seller-financed sales, startups in Washington state still have a wide variety of funding mechanisms that can help carry them through the tough times.
     
Community banks & credit unions
When searching for ways to finance your big idea, sometimes it’s best to start small. Community

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