Where to Go When the Bank Says No. Finding Alternative Funding for Your Small Business

SmallBizChat on TwitterEvery week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with @KarleneSinRob.  Karlene Sinclair-Robinson is the Managing Member of KsR Solutions LLC, a business consulting firm focused on strategic business solutions, including financing and diversification. She has been successful in assisting numerous clients in accessing millions of dollars through non-traditional financing, even those with less-than-stellar credit. In addition, she teaches entrepreneurship and alternative financing at local small business development centers and community colleges in Northern Virginia and Maryland. For more info, visit http://www.spankthebanknow.com

SmallBizLady: How do you finance a business in a tough economy?  

Karlene Sinclair-Robinson: Get clear with what is going on with the economy & how it has or will affect your business. Use what you have to finance your business by showing lenders logical ways as to why you need their money. Look at issues affecting your business and implement changes or add solutions that help you gain access to capital. Don’t get stuck on one way of financing your business or on the amount you figure you need. Lenders & investors are looking for logical business ideas to finance; stop worrying about them stealing your ideas.

SmallBizLady:  How do you define the right financing solution for your business? 

Karlene Sinclair-Robinson: Look at your business and industry first. This is a key factor to accessing capital. The right financing solution should be a good fit for you and the lender.  Make it a WIN-WIN situation. Lenders provide ‘Niche’ financing.  If they do not think your business is a good fit, look elsewhere. Financing is a people business. Lenders should want to do business with you. Don’t try to fit a square peg in a round hole. The same goes when seeking a financing solution.

SmallBizLady:  What are some key factors stopping the flow of money to business owners?

Karlene Sinclair-Robinson: Credit issues – fix them ASAP. Seek financing that does not focus on credit if you have this problem. Negative cash flow affects borrowing power. Lenders want to know how you will repay them. Your debt-to-income ratio is a major drawback if you have more debt than income. Industry type and issues affecting it will present its share of access to capital issues. Your commitment to the business will affect your financing opportunities. Not addressing negative internal factors affecting the business, such as employee issues or year-over-year decline.

SmallBizLady:  What can business owners do to help boost their financing success?

Karlene Sinclair-Robinson: Know your financial position and do not just leave it up to your CPA/CFO.  Show you know your business inside out. Be able to verbally demonstrate that knowledge. Make sure you know why you need to borrow ‘Other People’s Money’ (OPM). Be honest and upfront when responding to a lender.  Do not lie. It will derail your financing. Provide all applicable documentation per lender’s request. Be willing to make appropriate changes if this will make the deal work in for you. Present solid financials or projections that were not just be pulled out of ‘thin air’.

SmallBizLady:  What is alternative business financing?

Karlene Sinclair-Robinson: Alternative business financing are solutions outside of traditional (bank) lending sources. These sources are individuals, business owners, investors who prefer to invest their money in this market. Think of them as non-FDIC governed lenders. Remember, banks have more stringent guidelines. Alternative lenders do not rely on a board or committee to make lending/investing decisions. Alternative Business Financing fills the gap that banks cannot finance or will not touch. It is the driving force behind the success of many brand name companies you know today.

SmallBizLady:  Why is alternative financing necessary to today’s business owners?

Karlene Sinclair-Robinson: This type of financing is necessary to bridge the financing gap for business success. With the issues affecting business owners today, many would not make it without the help of these sources. Banks are lending though many cannot qualify, so we end up with a huge amount of business owners in financing limbo. When balance sheets and Profit & Loss statements are not in-line for bank financing, it is critical to have options. High risk, cash & collateral poor business owners need other financing options to deliver their products or services to market.

SmallBizLady: Why is there so much emphasis on a business plan when seeking financing?                      

Karlene Sinclair-Robinson: The business plan tells the past history and/or future story of the business or idea. It gives the lender or investor an understanding of why you need their money.  It tells the lender how much you know about your business, industry & financials. The plan should give the lender a clear picture of how you will make the business work. Lenders want to know how you plan to repay them. This should be in the plan and must be logical – provide exit strategies. Never forget that the business plan is your ‘road map to success’.

SmallBizLady:  Why are so many financial documents needed to access capital?

Karlene Sinclair-Robinson: This may seem redundant to many; however, would you lend your money without any financial data? Your financial records determine your RISK level to any lender. RISK tolerance is a key factor to a lender. These records tell the story of your financial history & your level of responsibility where money is concerned. Financial underwriters will deny a loan request faster if they encounter problems getting these documents. If you drag your feet when submitting financials, it will convey a message that something is wrong. Like buying a house, these documents help to determine the interest rate you’ll pay.

SmallBizLady:  Is credit truly necessary to accessing money for my business?

Karlene Sinclair-Robinson: Credit is the driving factor behind traditional bank financing, while not necessarily so in the alternative market. Your credit is your ‘report card’ for life. Use it wisely. PLEASE, PLEASE don’t hide from it. Our current credit system is the gage to your borrowing power, be sure to understand it. No matter what your score is, stop being afraid of what is on your credit report. Understanding a particular lender’s method of financing will decide if credit is necessary.

SmallBizLady:  Why is it important to diversify my business to meet today’s challenges?            

Karlene Sinclair-Robinson:  Operating any business in today’s market can be a challenge; use those challenges to grow your business. Create ways to build your business by understanding who your clients’ are – consumer, business or government.  Using feedback from your clients and market research, add services or products.  Develop a niche for your business that is in-line with your mission. When adding clients, define who is more likely (guaranteed) to pay you. Lenders look at who your clients are. This will help you with access to capital.

SmallBizLady:  How do your true feelings towards “money” determine your success in life & business?

Karlene Sinclair-Robinson: It is often noted that we go into business for the wrong reasons, making it just about money. Not good. When your money views are not in true alignment, you will not succeed as quickly or be prone to fail. Your “Why” must be based on serving others, filling a need or solving a problem. Your personal money beliefs always come out in everything you do. Take a serious look & be true about it. When you face the true issues affecting you, personal and business, you will start seeing the success you desire.

SmallBizLady:  How do I attain the level of success I’d like to see in my business?                           

Karlene Sinclair-Robinson: STOP making it about you! It’s not all about you, your idea or what you think is important. Being in business is about serving others. Operate your life and business with that in mind.  Listen to the needs of others and line them up with your core values to find the success you seek. Success comes to those who’ve given of themselves without the “What’s in it for me” mentality. Where you are spiritually, mentally and emotionally will either stop or accelerate your success rate.

If you found this interview helpful, join us on Wednesdays 8-9 pm ET; follow @SmallBizChat on Twitter. Here’s how to participate in #SmallBizChat: http://bit.ly/S797e

For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com.

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  1. says

    I like every all the answers of Karlene and also I congratulate you Melinda for bringing this out here. Indeed so many great ideas to learn from this post. This post is very timely and I know most of our fellow marketers especially those SMBs can gain insights and helpful ideas out of this.

    Investors do invest in you if they feel they can trust + you have a great business idea. That explains that the lack of capital is not a hindrance to build your own small business. Your skills and intelligence can be your great capital also. 🙂

  2. says

    I agree with Belinda, great interview and insightful answers from Karlene. It is positive to read something like this and to see that there are other solutions to gaining finance other than the bank loan, particularly at a time like this where it is becoming increasingly difficult to secure bank loans.


    Mel @ Capiota

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