Funding for Startup Entrepreneurs

For most new startup businesses the task of securing some startup funding capital can be extremely daunting and in reality where to start is the most difficult thing to know.  Most new entrepreneurs immediately think of going to their local bank and seeing if they will qualify for some money, let’s begin by looking at that experience and then other options after that.

When you go and see your bank it’s important to understand that most banks do not lend to brand new businesses since they are unproven and a high risk.  That means the only option you will find at a bank will be the infamous SBA option.  SBA has 3 loan types, the 7(a), 504 and the express.  The 504 and express almost always are exclusively for established businesses with 2 to 3 years of profitable business tax returns.  The 7(a) is the only option that can realistically be used for startup businesses.

Qualifying for a 7(a) loan can be a difficult task, in reality it comes down to a lot of things like your business plan, industry type, your personal credit, but indeed the most important factor will definitely be whether you have any assets or collateral.  Acceptable collateral types will generally be significant equity in your home or other real estate properties, newer equipment with a strong value and generally a 401k or IRA.  So if you have those types of collateral then you stand a good chance at securing a startup SBA 7(a) loan.

You will also need some type of down payment usually 10 to 25% is what most lenders want, for new businesses the percentage is usually much closer to 25%.  So you have to ask yourself what percentage of new startups actually have that type of collateral and down payment available for their business to secure startup funding?  Since I have personally spoken with thousands of new business owners in my experience it would seem that less than 5% of new entrepreneurs have those kinds of qualifications, assets and collateral.  So if you don’t possess those items then what other options are there?

In reality the best option will be a mixture of unsecured credit lines.  These credit lines do not require extensive income documentation or collateral, in most cases you just need a 680 credit score to qualify for them.  The monthly payments are low and affordable and they are flexible tools.  Even if you are successful at securing an SBA loan, an SBA loan will often not be able to go towards working capital, so in reality you will still need additional funds for working capital like paying payroll, marketing and other costs.  For most startups unsecured credit lines are your best bet.

ABOUT THE AUTHOR:

Leo Kanell teaches entrepreneurs how to secure affordable capital for their new or existing businesses.  For more info go to www.leokanell.com 

The Truth about Credit Inquiries

Over the years my clients have secured over $120 Million in funding and since I have had the task of assessing thousands of credit reports I have learned a little about the role that credit inquiries play.  One of the most misunderstood concepts that is constantly be spread across the country is the idea that a few credit inquiries aka “hard credit pulls” are going to drop my credit score 100 points and ruin my life.  Today I’m going to tackle this common misconception with the facts of when credit inquiries do negatively impact you and when they are irrelevant to your funding options.

DO CREDIT  INQUIRIES AFFECT YOUR CREDIT SCORE

So let’s look first at how credit inquiries can affect your credit score, first of all credit inquiries make up about 5 to 10% of your credit score, in most cases the percentage is closer to 5% so will 6 to 8 inquiries drop your credit score 100 points, the answer is definitely no, it might lower the score by 15 to 20 points and that is about the biggest impact.  Of course if you go hog wild and have your credit pulled 25 to 30 times in a 30 day period then that could lower your score a lot more, in reality though most people have 2 to 4 credit pulls every 2 months and that is not going to make a big impact on your credit score.

WHAT ABOUT SECURED LOANS

Secured loans are not affected much by credit inquiries.  Here are some examples, let’s say that you are looking for a mortgage or an auto loan and you go to a few different mortgage and auto lenders to look for financing.  The good news is that the three major credit bureaus will actually count most inquiries that are mortgage or auto loan related as one inquiry when they are pulled within a 2 week window.  The credit bureaus understand that you are looking for the best deal and as such they don’t punish you.  Now regarding the effect inquiries will have on actually securing the mortgage or auto loan, well the answer is there is really no impact, secured lenders like mortgage lenders and auto lenders know that they have collateral and so in case of a client not making their payment and defaulting on a mortgage or auto loan they can take back the collateral, so what that means is they don’t generally take credit inquiries as an important factor in underwriting your loan.  At most a mortgage lender will require a letter of explanation for what the inquiries are.  In reality credit inquiries rarely have much of an impact on your ability to qualify for a mortgage or auto loan.

UNSECURED LOANS ARE MOST AFFECTED BY CREDIT INQUIRIES

Unsecured credit lines, loans and credit cards are affected much more with inquiries.  Unsecured lenders take on more risk than secured lenders so if you try to get a credit card or two and already have several other inquiries on your credit report in the weeks prior to applying for a new credit card then the credit card lender will assume you already secured financing elsewhere and in many cases they will automatically decline your request for a new credit card or credit line.  Thus in all of lending the biggest impact that credit inquiries can have on you as a borrower is when you apply for any type of unsecured credit lines or loans.  Some lenders nowadays will actually do a soft pull on your credit report which will have no impact, but most lenders will do a hard pull.  Either way you will want to pay special attention to hard credit pulls.

Why Mark Cuban is Wrong about Starting a Business with a Business Loan

Shark Tank has become one of the most fascinating shows on tv regarding Business and Money. One of its current stars is Mark Cuban, he is an entrepreneur who I respect a lot in terms of business development, entrepreneurship and creating wealth. He has also been noted as saying that he would never start a business by securing a business loan. Why would he state that so emphatically? There is the fact that it is better for himself and his show to give capital to entrepreneurs for ownership and equity instead of teach these business owners how to secure business funding, if the entrepreneur figured out how to get business loans then clearly that would not benefit the premise of the show. That said, he may really believe that is an important aspect of starting a business. I think he is completely wrong and I'm going to prove it with some concrete examples. I have started multiple multi-million dollar organizations and each of them got going with some sort of loan or funding that I had to creatively secure in order to get these businesses off of the ground. So from my own unique experiences I can tell you that in order to begin and at several turning points in my businesses the ability to secure capital for them has been a tremendous key. Let's look at a more powerful example of a business loan launching a transformational company.

Ever heard of Walmart, it's highly likely that you have been to Walmart and have witnessed its growth first hand. Years ago it was begun with one store by a great man named Sam Walton. Sam started his first store with a loan of $20,000 and $5,000 he had saved up. He continuously made adjustments and innovations with the discounting methodologies that he would develop over the years to create the largest world retailer in the world and he would never have succeeded at growing it the way he did without constant financing. At one of his first stores he went to a lender for $1,800 to finance an ice cream machine that he used to sell ice cream outside his store and attract new customers. Uneasy he was about the loan, nevertheless it ended up increasing his sales significantly. As he began to grow from his first variety stores to his first full fledged actual big box store Walmart he went around looking for capital from investors. Each investor passed on his business model believing it would not succeed long term. So Sam "borrowed to the hilt" and risked all of his personal assets in order to build Walmart and grow it exponentially. Walmart now has thousands of locations worldwide and had annual sales recently of nearly $500 Billion Dollars. It all started with a loan and was grown with significant funding. Additionally if Sam were still alive today he would be the world's richest man and be valued at 160 Billion nearly double what the current richest man Bill Gates is worth (about $80 Billion) so suffice it to say understanding how to start a business with a loan can be one of the best decisions that a business owner ever makes. Comprehending the best methods to secure growth capital as your business expands can be vital to long term growth and success.

When Your Daughter Hacks Your Social Media

So currently I have been working for the past few weeks on creating a brand of sorts for my name and connecting it with the development of startup businesses and entrepreneurship.  Part of the process has included putting together various social media pages, a website, blog site and a news press release.

The press release came together pretty well I have used press release services for other companies I have started and this one looked like it would be pretty effective.  So the press release was scheduled to go out early Tuesday morning and as part of the press release I connected the article to my twitter, facebook fan page, linkedin and other social media pages to boost the awareness.  The next day as I was looking at the news organizations that had picked up the release I noticed that one of them had a small picture of my twitter page and instead of a picture of myself oddly it was a picture of my 10 year old daughter.  Next I logged on to my youtube channel and noticed all sorts of likes and comments about various mermaid shows that my daughter watches religiously.  It was at that time that I realized that my press release which had gone out to over 200 organizations and had thousands of views after the first day had probably clicked on my social media pages and wondered why there was a pretty, little 10 year old on the profile picture as well as some odd posts about mermaid shows...

The moral to this story is to make sure that you communicate with all of your kids about the power of social media and how it should be used effectively especially as they grow up.  Social media can have powerful positive and negative effects for us all.  So this little blog will be posted on each of my social media sites and may it serve as a lesson for us all to be more aware of our need to talk with our kids about social media.

Leo Kanell Explains Why You Can Still Start A Business While You Have a Job

In the United States, less than 9% of the population are classified as business owners.  That's important because this group controls the majority of the wealth and makes the highest amount of income as well.  Often times we mistakenly think that wealth in this country is found with movie stars, professional athletes and famous singers, but in reality the majority of the wealth is controlled and earned by business owners.

In reality the old line that the "rich are different from you and me," isn't true just because they have more money, it's actually true because they have taken the risk to start businesses and reaped the rewards of their vision and massive actions.  Of the tax payers in the US that make over $1 million per year, over 72%, the vast majority have a business entity that files a separate tax return.  Of people who are considered the "super wealthy" meaning that they earn over $10 million per year over 9 in ten of them, an incredible 90% are business owners filing a separate business tax return.

So that said what should be the average person's thought process as they evaluate why the wealthy in this country are wealthy while the majority of people are not?  For starters, if you have never operated or owned a business you should take the plunge and try it.  Running a business requires an inordinate amount of time, focus and energy in order to succeed.  Many businesses fail, but for those entrepreneurs that succeed the reward is definitely worth the risk as they build wealth.  Wealth is the equivalent of true freedom in today's world, with capital you can increase not only your monetary contributions to humanitarian projects that matter, but more importantly your time also.  Indeed the freedom to control your time is probably one of the greatest benefits of wealth.

The conclusion is simple, if you want financial freedom and freedom with your time, then start a business.

3 Keys to Double Your Business

Whether you have recently started a business or have been successfully running your business for several years there are 3 key elements to focus on when it comes to growing your business.

1.  Increase Sales Through Distribution Channels

If your business is a Starbucks location, then to double business you need to set up another location to double sales, if your business is a monthly subscription service then you need double the amount of subscriptions you have, at the end of the day business is not rocket science, but one of the most important factors for doubling your business is to increase distribution channels, if you aren’t sure what distribution channels are then you need to figure that out quickly.  We recently helped a client in Silicon Valley secure money who literally doubled his business from 2012 to 2013, for his business to double he simply needed larger clients who paid more.  His business provides cloud and database services for medium size and large companies.  They recently landed a big client, maybe you’ve heard of them, Facebook.  In order to double their annual sales he focused on working in networks with larger companies and therefore larger needs, the end result was he doubled his annual sales, profits and overall business.

2.  Increase your Sales force

Whether you sell insurance or technology service or tires, at the end of the day people and human capital are often your most valuable resource, in order to grow and double your business, you must increase your sales force.  Recruiting and properly training your Sales Force is a definite key when it comes to doubling your business.  When thinking about how best to strategically grow your sales force, each business and owner are different, some owners will say be very selective about hiring the right sales person and still others will say take quantity over quality and hire as many as possible and fill the market with your sales reps.  Typically I would take the position of neither extreme, you want to hire quality Sales Reps, but if you try to attract only the best and brightest you will surely miss out on other sales people that would have done well and helped to boost your company’s bottom line, at the same time there must be some qualifying formula that you follow when bringing in sales people based on the criteria that you use to hire sales reps.  Focusing on a down the middle approach to bring in qualified, but also an adequate number of representatives to build more brand awareness and reach for your business is paramount to doubling and growing your business in a short time.

3.  Make Sure you Are Well Capitalized

In order to grow and double your business you must have adequate growth capital and cash on hand to finance it, whether that means securing a better location, purchasing more inventory, increasing advertising investment or dramatically increasing your sales force, each of those actions will require significant capital needed to grow your business.  We are all aware that most businesses fail due to running out of money and capital so securing lines of credit, working capital loans and financing for a new location or much needed equipment is essential for a company to double their sales/revenues.

When you increase your distribution channels, increase your sales force and secure growth capital you are well on your way to growing and even doubling your business!

Freedom is the Key

You may ask yourself how is it that in the last 240 years has the world in general progressed so incredibly with technology and improving the way we live as humanity.  Well the truth is it all begins with freedom, there is a reason that technology did not evolve quite so rapidly under certain elements of time versus others.  For example, much of the development began with the Italian renaissance where there was sufficient freedom to develop new products and inventions.  Many great artists and scientists like Leonardo Da Vinci and Michaelangelo came during that time.  Where there is true freedom the opportunity to prosper exists.

So with such unprecedented freedom in existence in society today in the year 2015 how is it that so many people really still live with so little freedom.  To me freedom is the ability to make our own choices, maybe that means I'm not going to work tomorrow, but will instead go wakeboarding on the lake with my family all day.  Perhaps it means that I will travel to learn more about a new culture or way of life.  In reality though the majority of people are not free to make such decisions and we all know exactly why that is.  It is because the majority of the population is subservient to those that control and mange their own enterprises.  I'm not telling you anything you don't already know, but to obtain true freedom it all begins with one question, are you an employer or an employee?  It really is that simple, either I work to create my own freedom through wealth creation or I am working to help someone else create their freedom through my efforts.

In the Count of Monte Cristo novel, Napoleon Bonaparte truthfully states, "in life we are kings or pawns."  Truer words were never spoken, so which will it be for you, king or pawn?