SmallBiz: Borrowing In Unbankable Times

A small business owner needs three things to get bank financing: two years of profit, substantial equity in their home and great credit scores.

That was one of the takeaways from aTuesday morning workshop hosted by the entrepreneurship committee of the San Leandro Chamber of Commerce.

The problem is, said Andrew Krone, one of the alternative financing specialists who spoke at the event, few business owners can qualify on all three counts, rendering them unbankable.

Krone is a vice president at Marble Bridge funding group, a Walnut Creek firm that advances working capital secured by a client's accounts receivable.

Marble Bridge only works with businesses that have government or other business clients -- considered more reliable payors than consumers. Examples include architects, engineers, contractors, trucking firms, staffing agencies and manufacturers.

Krone said Marble Ridge generally takes a one to two percent cut out of the money advanced for every 15 days that the obligation remains unpaid. So if the borrower took 30 days to repay an advance, Marble Ridge could take two to four percent, and so on.

"We've been around 14 years," Krone said, "and last year was the best year we've ever had."

The other speaker at the session was Ken Silva, a former banker turned financing consultant. 

Silva mentioned one source of financing that applied to a narrow slice of the business community -- firms that want to buy or refinance a commercial building of whose space they occupy at least 51 percent.

Commercial borrowers who can jump through that little hoop can get Small Business Administration financing under a special program that expires September 27. To take advantage of that program, a borrower would have to find an SBA lender and master the loan paperwork lickety-split.

Silva also advised businesses to rethink the way they keep their books, showing a profit on paper but a loss on their tax returns to minimize payments to Uncle Sam. He said banks were demanding to the see tax returns of business borrowers which meant that aggressive tax-accounting practices could come back to bite a firm when it sought to a loan.

Borrowing from family and friends was another suggested way to get money when banks won't lend, but it takes thought and clarity to keep such deals from ruining relationships.

Another new type of financing not mentioned at the Chamber event but growing in popularity is peer-to-peer lending -- would-be borrowers hooking up with would-be lenders through Internet-based finance companies. A Wall Street Journal article discusses some of the promises and pitfalls of this options.

Finally, there are always credit cards for businesses that need modest amounts of short-term working capital -- and can justify the interest rates with the potential for growth and profit. Among the options in this category is American Express Open which has sought to tailor its cards to business borrowers.

Businesses that have experience with any of these options or other financing ideas, please share them in the comments.

The coordinators of the Chamber event were Rene Mendieta of Legacy Real Estate (510-338-4092) and Jerry Garcia of State Farm Insurance (510-940-2450).

Silva can be reached at 925-831-9774 or krsfinance@gmail.com.

Krone's contact information is andrew@marblebridge.com or 925-977-8220.

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