The
Library of Congress >> Researchers
Financing Small Business Enterprises: Sources of InformationA
Business Brief Compiled by: Angela Wilson, Carolyn Larson, Shari Jacobson Contents
SCOPE OF THIS GUIDEThis publication is intended as a guide to representative sources of information on obtaining funding for the newly formed or expanding small business. As such the focus has been on sources that will be of immediate, practical use to the practitioner rather than on sources intended for the scholarly study of small business.LCSH SUBJECT HEADINGSSmall business--financeHome-based businesses New business enterprises--finance Family corporations--management Self-employed Minority business enterprises--finance Venture capital Small business investment companies Business incubators Entrepreneurs Federal aid to minority business enterprises Federal aid to women-owned business enterprises -- Search Also under specific groups or industries such as: -- Indians of North America--business enterprises -- Mexican American business enterprises -- Afro American business enterprises -- Women-owned business enterprises -- Handicapped-owned business enterprises -- Student-owned business enterprises -- Retirees--employment -- Minority-owned architectural firms INTRODUCTIONSmall business and entrepreneurship form an integral part of a healthy national economy. In recent years various factors, such as the impact of privatization and specialization in industry and corporate restructuring and downsizing as influenced by new management theories such as Thomas Peters'"Liberation Management: Necessary Disorganization for the Nanosecond Nineties" (New York, A.A. Knopf, 1992), have combined to encourage the emergence of more small and medium-sized companies. At the same time new opportunities for such companies are seen in the wooing of small business into exporting and international trade, and the creative efforts of major corporations in the area of business community development. The valuable contributions of such small businesses are widely recognized by all sectors of society, as can be seen by the many efforts to aid small businesses taking place at the federal, state, and local level. Such efforts range from new rulings of the Securities and Exchange Commission simplifying its filing requirements for small businesses making stock offerings to the public to a revamping of business school curriculums to include the study of small business entrepreneurship.Yet, in spite of this increased awareness, recent news coverage, while acknowledging a current economic climate of low interest rates and available money supply, indicates that access to capital continues to be the most difficult challenge for small business owners. Recent newspaper articles point to several reasons why even under optimal conditions, entrepreneurs are still not successful at getting financing: banks, by the very nature of their business, are resistant to the high-risk loans which many small businesses represent; potential entrepreneurs may lack the business savvy to articulate what they need in business terminology; and such inexperienced business persons may also fail to present a well-thought out long-range alternative plan to cover emergencies and other contingencies. Factors such as these all contribute to the decision of a would-be financing source not to commit money to a particular business. To help small business owners meet these challenges, the Library of Congress Business Research Center, with the generous assistance of the Lowe Foundation, has prepared this BusinessBrief on financing small business enterprises. Planned as the first of a series of BusinessBriefs targeted to the entrepreneur, this brief is intended as a guide to representative sources of information on obtaining funding for both the newly formed and the expanding small business. As such, the focus has been on recently published books and current journal articles that will be of immediate, practical use to the practitioner. While this brief is intended to provide accurate information regarding sources of information about obtaining financing for small business, it is not intended as a substitute for professional legal, accounting, or other services, and users of this list are encouraged to obtain the services of competent professionals in these fields as needed. A variety of sources is included in this BusinessBrief. In some cases, financing is the topic of entire books, while in others only certain chapters or sections, which have been noted, are devoted to the topic. The audiences to whom these volumes are addressed likewise vary. For example, the business person considering a start-up is the focus of a number of these titles including Timmons' "Planning and Financing the New Venture", Berle's "Raising Start-Up Capital for Your Company", and Lindsey's "Start-Up Money: Raise What You Need for Your Small Business", which is specifically addressed to business persons seeking to borrow less than $100,000. At the other end of the scale is "The Ernst & Young Guide to Raising Capital", which covers in detail the problems and capital requirements of companies moving out of the start-up phase and considering various options for expansion, while Blechman and Levinson address "Guerrilla Financing" to any new or established small business seeking $1 million or less. These publications outline an array of sources for financing available to the small business person. A number of the publications included on this list are useful starting points for anyone looking for an overall picture of the traditional sources of small business funding--such as family, friends, personal funds, banks, and venture capitalists. These discussions of the major features of debt and equity financing, or some combination of the two, range from brief overviews such as the two page pamphlet "How To Raise Money for a Small Business," (FF1) issued by the Small Business Administration to extended discussions such as those in Timmons' volume "Planning and Financing the New Venture" or Berle's "Raising Start-Up Capital for Your Company". In the section on "Avoiding Scams" a number of titles such as Graham Mott's "How To Recognize and Avoid Scams, Swindles, and Ripoffs" and M. Allen Henderson's "Rip-offs and Swindles: Money for Nothing", outline financing schemes which the small businessman would do well to recognize and avoid. Reflecting the economic realities of the 1990s, many recent books and articles note the growing difficulties which small businesses face in obtaining traditional bank and equity financing and include financing strategies variously described as "atypical," "alternative," "avant guarde," or "creative." Some of these have combined important elements from traditional methods with alternative methods to form a synergistic approach to acquiring start-up capital. Examples include networking by banks at community and business association meetings, micro-loan programs which are mostly offered to low-income borrowers and usually require little or no collateral, and mentor-protege programs by major corporations that provide technical assistance for small business. Also discussed in current news articles are "temporary co-ownership" programs sponsored by corporations that provide funding needed to open up "outlets" for the corporation, thereby promoting community business development, often with options for the entrepreneurs to begin buying back the stock as soon as the business becomes profitable. Other creative sources for funds mentioned are lotteries and contests designed by enterprising individuals to raise money for their businesses. In addition, there are grants and loans available from various nonprofit and government sources as described in some detail by Blum in "Free Money for Small Businesses and Entrepreneurs". Such funds are often restricted to specific areas of need in a state such as disaster relief or to specific groups needing assistance, such as the elderly. Finally, mention is made of various "guerilla-type" financing methods such as the use of one's personal credit cards as sources of funds. "The Ernst and Young Guide to Raising Capital", with chapters on going public, exempt offerings of securities, venture capital, joint ventures and licensing, leasing, government loans and grants, divestitures, special techniques for financing research and development, cash management, management buyouts, employee stock options, franchising, and tax planning, provides an overview of current trends in small business financing. Several other titles in this BusinessBrief focus almost exclusively on alternative financing strategies. These include Tuller's "When the Bank Says No! Creative Financing for Closely Held Business", Lindsey's "The Entrepreneur's Guide to...Capital: Over 150 Proven Ways to Finance New and Growing Businesses" and Blechman and Levinson's "Guerrilla Financing". Tuller looks, as his title promises, at a variety of ways to raise capital that do not involve incurring debt through a commercial bank loan. Lindsey's volume, directed to executives of companies with annual revenues of under $25 million, includes discussions of incubators, going public overseas, factoring, bartering, and commercial paper, and various stock options. Blechman and Levinson in "Guerrilla Financing" place a strong emphasis on "partnering" or finding an "angel" who is interested in investing in particular types of businesses. These authors also briefly describe 101 nontraditional financing techniques. Techniques especially useful for rescuing the troubled company form the basis for Woeltjen's book "Surviving the Credit Crunch of the '90's; Rescuing Your Small Business from Meltdown and Making It a Success". To illustrate his points, Woeltjen follows the actions of the executive of a hypothetical company as he moves his firm from near insolvency to financial success. Woeltjen leads his fictitious executive through emergency measures to regain cash control while he buys time to do a thorough analysis of what went wrong, followed by financial planning for the future utilizing a variety of techniques similar to those mentioned above. Another title covering similar ground is Silver's "The Turnaround Survival Guide: Strategies for the Company in Crisis". In addition to creative financing techniques, several other trends can be seen in these publications. One is the number of titles addressed to specific groups of individuals such as retirees, women, or members of various ethnic groups, who may seek to satisfy a life-long dream by becoming entrepreneurs. Essays which speak directly to the special problems and opportunities of particular groups include the chapter on "Special Groups" in Klein's "Handbook on Building a Profitable Business", articles such as Sharon Nelton's "On the Horizon: More Investment in Women," and Gustav Berle's book, "Retiring to Your Own Business: How You Can Launch a Satisfying, Productive, and Prosperous Second Career". Another trend seen in a number of these publications--discussions of offshore, or foreign, sources of financing for the American entrepreneur--reflects the increasing globalization of the American economy. Lindsey, for example, in "The Entrepreneur's Guide to--Capital" discusses offshore financing sources involving licensing, venture capital, partnerships and going public in overseas contexts. A number of other titles in the section on "Export Financing" in the BusinessBrief are devoted exclusively to this topic. Also well represented in these volumes is information on government programs available to small businesses. In addition to the titles devoted entirely to this topic which are listed under the sections on "State Funding" and "Federal Funding/Programs" of this brief, the "Small Business Sourcebook: the Entrepreneur's Resource", contains extensive listings of federal and state programs available to assist the small business person. The U. S. Small Business Administration (SBA) is the primary source within the federal government for financial assistance to small business. The agency administers a loan guarantee program for those small businesses meeting its criteria and has a number of other programs available for veterans, handicapped persons, minorities, and disaster victims. The SBA maintains an 800 number, the SBA Hotline, which responds to approximately 250,000 calls per year from business persons around the country, (see Gustav Berle's "SBA Hotline Answer Book" (New York, Wiley, 1992) and issues numerous publications of interest to small business. In cooperation with the states, the SBA also helps fund Small Business Development Centers (SBDC's), located in each state, to provide direct assistance to entrepreneurs. The SBA also sponsors the Service Corps of Retired Executives (SCORE), a national organization of retired executives who volunteer their time to counsel small business persons. In addition to the SBA, other government agencies also administer specific grant or loan programs of interest to the entrepreneur seeking funding. Detailed information on these programs can be found in the "Catalog of Federal Domestic Assistance" published by the U.S. Office of Management and the Budget. A number of the titles included under the section Federal Funding/Programs in this BusinessBrief identify and discuss some of the governmental programs of greatest interest to the small business person. Laurie Blum, in "Free Money for Small Businesses and Entrepreneurs", includes the number of each program from the "Catalog of Federal Domestic Assistance" for easy reference should additional information about any program be sought. Many other programs, such as those sponsored by colleges and many trade associations, are also available to assist new business enterprises. Additional information can be found in numerous books, magazines, audiovisuals, and other non-print items that have been produced by these organizations as well as by individual business executives and entrepreneurs. An extensive listing of such sources can be found in the "Small Business Sourcebook: the Entrepreneur's Resource". Regardless of the specific financing techniques discussed, certain themes are repeated throughout many of the publications listed in this brief. Chief among these is the emphasis on the importance of self-assessment in determining what it takes to be an entrepreneur coupled with admonitions to those seeking financing to expect rejection before finally winning approval of their financing proposals. These sources are in general agreement that entrepreneurs need to start their search for financing with a close examination of themselves and their own companies or proposed businesses. To this end, there are frequent discussions of the importance of developing business and/or finance plans, of placing one's existing business in the best financial position possible by effecting economies in the day-to-day operations of the company, and of obtaining competent legal and financial counsel. Likewise stress is placed on the importance of comparing one's business or potential business to industry standards for the same or a related industry or to a public company in the field which has disclosed financial information. Along with the importance of analyzing one's own business is the importance of analyzing one's requests for financing from the point of view of the potential funding source. Tuller, in "When the Bank Says No! Creative Financing for Closely Held Business", urges the entrepreneur to learn the language of finance and devotes a chapter to the topic. He and Lindsey, in "Start-Up Money: Raise What You Need for Your Small Business", along with others, address the purpose for which the loan is intended and discuss types of financing sources most suited for those purposes. Several volumes, including "Lending to Different Industries: Practical Articles on Making Loans to Selected Industries and Businesses--a Collection Taken from the Journal of Commercial Bank Lending" and "Credit Considerations: Financial and Credit Characteristics of Selected Industries," discuss loan criteria by industry from the point of view of the lender. Many of the sources included in this Business Brief contain examples of forms required for IRS, SBA and other organizations, sample business loan applications and proposals, various checklists for buying or starting a business or franchise, worksheets for calculating your own resources, and numerous charts, tables, and glossaries that may be useful to the business person moving through the various levels in the financing process. To cite just a few examples, Schilit, in "The Entrepreneur's Guide To Preparing a Winning Business Plan" and "Raising Venture Capital", includes extensive worksheets for developing a business plan; Timmons, in "Planning and Financing the New Venture", includes appendices on "Business Plan Guide," as well as an "Outline of an Investment Agreement," "Sample Terms Sheet," and "Sample Vesting and Stock Restriction Agreement." Blum, in the introduction to "Free Money for Small Businesses and Entrepreneurs", includes sample grant proposals for profit and nonprofit organizations, while Woeltjen provides a "Sample Offering Memorandum for New Stock Issues to the Public." A few titles, such as Fred Fry's "Entrepreneurship: a Planning Approach" and Arthur H. Kuriloff's "How To Start Your Own Business- and Succeed", include software to assist in preparing a financial plan for the business. As these sources make plain, acquiring seed money and initial capital for start-up is likely to be only the beginning of an on- going process of financing one's business; the need to acquire financing becomes especially critical for the survival of existing and growing companies as they move beyond seed money and start-up, and seek other types of financing such as second round, mezzanine, and initial public offerings. Moreover, while some businesses may go through only one or two phases in their search for financing, others may go through all phases of the process more than once as the company grows. Finally, because there is no magic formula, method, or program that will automatically secure financing for a new or growing company, The process of seeking funding can be challenging and sometimes frustrating. It can also be exciting and rewarding. Choosing the appropriate methodology for gaining financial backing, utilizing the best information gained from research, and developing well thought-out business and contingency plans are the best strategies to facilitate the successful acquisition of funds.
GENERAL GUIDES TO STARTING A SMALL BUSINESS WHICH INCLUDE SECTIONS ON FINANCING OR EXPANDING SMALL BUSINESSES
Applegate, Jane. Succeeding in Small Business: the 101 Toughest
Problems and How To Solve Them. New York: Plume, 1992.
pp. 69-97. HF5386.A626 1992
91-39508
Berle, Gustav. Planning and Forming Your Company. New York:
Wiley, 1990.
pp. 19-55; Appendix I-II.
HD62.5.B4815 1990
89-22430
Clark, Scott A. Beating the Odds: 10 Smart Steps to Small
Business Success. New York: AMACOM c1991.
pp. 1-205.
HD62.5.C59 1991
90-56187
Cohen, William A. The Entrepreneur and Small Business Problem
Solver: an Encyclopedic Reference and Guide 2nd ed. New York:
Wiley, c1990.
pp. 28-66, 90-103, Appendix II-VII
HD62.7.C63 1990 SSRR B&E
89-32064
Eyler, David R. Starting and Operating a Home-Based Business.
New York: Wiley, 1990.
pp. 209-213, 227-231.
HD62.5.E95 1990
89-36240
Fallek, Max. How To Set Up Your Own Small Business. Minneapolis,
MN: American Institute of Small Business. c1991.
Vol. 1, section 5-1.
HD62.7.F35 1991
89-84218
Fry, Fred L. Entrepreneurship: a Planning Approach.
Minneapolis/St. Paul, MN: West Pub. Co., 1993.
Parts 5-7.
Includes 1 computer disk (3 1/2 inch) System requirements: IBM PC
or compatible; 512K MS-DOS)
HD62.5.F79 1993 MRCRR
92-26326
Jacobson, Ruth. Your Own Shop: How To Open and Operate a
Successful Retail Business. Blue Ridge Summit, PA: Liberty Hall
Press, c1991.
pp. 10-17, 168-176.
HD62.5.J33 1990 SSRR B&E
90-40307
Klein, Fred. Building a Profitable Business. Seattle, WA:
Entrepreneurial Workshops Publications, c1990.
pp. 3-1 - 3-20; 4-1 - 4-57; 5-1 - 5-41.
MLCM 93/03015 (H)
89-83407
Kuriloff, Arthur H. How To Start Your Own Business--and Succeed.
2nd ed. New York: McGraw Hill, 1993.
Chapters 10, 11, 14, 15 and Appendix A.
Includes 1 computer disk (5 1/4 inch)
HD62.5.K86 1993 MRCRR
92-25288
Luther, William M. The Start-Up Business Plan. New York: Prentice
Hall, 1991.
pp. 189-202, Appendix.
HD62.7.L88 1991
91-25659
Maul, Lyle R. The Entrepreneur's Road Map to Business Success, by
Lyle Maul and Dianne Craig Mayfield, rev. ed. Alexandria, VA:
Saxtons River Publications, 1992.
pp. 127-177.
HD62.5.M37 1992 SSRR B&E
92-50275
McLaughlin, Harold J. The Entrepreneur's Guide To Building a
Better Business Plan: A Step-by-Step Approach. New York: Wiley,
1992.
pp. 207-220.
HD30.28.M3853 1992
91-34353
Merrill, Ronald E. The New Venture Handbook, by Ronald E. Merrill
and Henry D. Sedgwick. New York: Amacom, 1993.
pp. 207-227; 259-286.
HD62.5.M46 1993
92-27378
Schmoke, L. Joseph. Vital Business Secrets for New and Growing
Companies, by L. Joseph Schmoke and Richard R. Allen. Homewood,
IL: Dow Jones-Irwin, 1989.
pp. 120-161.
HD62.5.S353 1989
88-21762
Timmons, Jeffry A. New Venture Creation: Entrepreneurship in the
1990's. 3rd ed. Homewood, IL: Irwin, 1990.
pp. 399-489.
HD62.5.T55
89-37898
Vesper, Karl H. New Venture Mechanics. Englewood Cliffs, NJ:
Prentice Hall, 1993.
pp. 137-205; pp 310-[362].
HD62.5.V46 1993
91-43340
|
 Top
of Page
|
| The Library of Congress >> Researchers November 9, 2010 |
Legal | External Link Disclaimer |
Contact
Us: Ask a Librarian |