In a recent Los Angeles Times article titled ‘Bank of America severing some small-business credit lines’, the issue of Bank of America closing out small business lines of credits was addressed. This brought to mind how many small businesses are victims to this type of financing dealing. This is not new. What is new is the increased number of small business owners being affected by this process.

Small business credit lines are certainly monitored by banks. Banks keep an eye on all accounts and will check the business and personal credit of its clients from time to time. This is not just a practice by Bank of America, but is common practice amongst banks and other financial institutions. In closing small business lines of credit, the small business closure rate has increased and it has even impacted the bankruptcy rate of small businesses. With so many small business owners being affected by these credit line closures, instead of keeping quiet about it, they are now fighting back.

Risk Assessment

When small businesses start having financial difficulties or sudden growth, they rely heavily on their personal savings and their available lines of credit. They also tend to go the traditional route of asking family or friends. These are all great ways to raising much needed capital. On the other hand, using a business banking credit line for survival or growth can have positive and negative consequences.

With lending institutions being totally risk adverse, they are canceling lines of credit when their small business clients have exceeded the maximum base line usage or ratio the banks have put in place. This ratio varies per bank. It is the reality of banking sector, so expect to see more. What the lenders are monitoring is the business’ debt to income ratio and current spending habits, so do not take on more debt than you can handle.

Who owns the asset?

The problem many small business owners face is that often they do not have any viable assets except their homes and the business’ accounts receivables. These are the primary collaterals many use to gain access to their current credit lines. When banks use the collateral presented, they then file the applicable UCC or UCC1 (Uniform Commercial Code) form with the state. This document notifies all parties that the bank is in 1st position on the business assets, and their accounts receivables. All future creditors will have to get in line behind the bank in the event that the business owner defaults on paying back their credit lines and legal action is required.

Once the bank files this document with the state, the collateral the small business used, such as accounts receivables, cannot be used or pledged in any other financing transaction. In this case, any additional future access to capital will require some other form of collateral to secure the additional financing.

Cash flow challenges

Small business owners will have to take a closer look at how they use their current lines of credit. They also have to address the issue of their business cash flow. When banks start closing lines, it means that the affected businesses are having cash flow difficulties. Oftentimes, the business owner has their business banking account with the same bank as their credit line. Bankers can tell from the business checking account what is going on in and out of your business.

This is the yardstick with which banks measure and project what could happen with the business in the coming months. They are foreseeing upcoming issues with the business’ cash flow. Cash flow issues could result in the business defaulting on paying the line. Due to these issues, the bank can cancel the line.

Do not let this happen to your small business. Pay close attention to the company’s cash flow while keeping both personal and business debt as low as possible.

A year after launching her printing business, Sherry Stewart Deutschmann began leasing a new facility and needed large printing and sorting equipment. She had a business credit card with a $5,000 limit, but it would take hundreds of thousands of dollars to finance the kind of fast growth she saw for her business.

It was 2003, and she was generating about $2.5 million in annual revenues at the time, yet several banks and equipment suppliers all turned down her credit requests. “Nobody explained to me why,” says Deutschmann, the 51-year-old founder and CEO of Nashville-based LetterLogic, which prints business statements and invoices. ”They just flat out said no.” She suspected it was because she was still a new business with little track record.

Finally, later that year, she was introduced to a venture capitalist who offered $350,000 in exchange for a 25% equity stake in the business. He also guaranteed a $500,000 line of credit. Today, LetterLogic generates about $21 million in annual revenues with 33 employees. Banks now contact her regularly to see if she needs loans or new credit lines, Deutschmann says. “The interesting thing is we don’t need it anymore. We don’t really have any debt.”

As she learned, getting credit is much easier when you don’t need it. But there are ways to build your business credit to avoid the same rejections Deutschmann faced early on. Here are five options to get started.

1. Mind your personal credit rating. The biggest factor in many banks’ decision to initially lend businesses money is the owners’ personal credit ratings and they typically look for a personal credit score of at least the mid-600s, says Ami Kassar, co-founder and chief executive of MultiFunding LLC, a Broad Axe, Pa.-based company that helps businesses connect with lenders. To boost your credit score, be sure to pay personal bills on time, keep a low ratio of debt to available credit on personal credit cards and credit lines, and make sure any balances remain under 30% of your limit on credit cards. Moreover, lenders will also often check the personal credit of any investor or business partner with more than a 20% stake in the business, Kassar says.

2. Apply for credit before you need it. To begin building a credit history for your business, apply for at least some sort of credit soon after starting up, Kassar says. A small business will often have to establish itself for two years before a bank feels comfortable offering a sizable credit line. But there are ways around that, such as getting a business credit card or applying for a small bank loan. If you have trouble scoring even a small loan, consider opening a store-based credit line or getting a small secured credit card with a low limit. Some major retailers that supply to small businesses, such as OfficeMax or Home Depot, offer commercial credit accounts that can help build a credit history for your business.

3. Grow your credit and use it. Many businesses with enviable credit histories applied early for business credit cards and credit lines and used them as early as possible, says Wayne Sanford, owner of New Start Financial Corp., a credit consultancy in Allen, Texas. Once you’ve established a payment history, request an increased credit limit — even if you don’t need it right away. Also, check to see if you have a profile with Dun & Bradstreet, a business data and credit reporting agency, suggests Gwendolyn Wright, a San Francisco business consultant and former first vice president of the Bank of San Francisco, a community bank. If not, it may be worth paying a fee to set up a profile. You can then add credit references, such as suppliers you’ve worked with, to elevate your credit profile as a business.

Read More: http://www.entrepreneur.com

Due to the rising costs of obtaining a college and post-graduate degree, entrepreneurs and business-minded individuals have started to suggest that younger people may be better off spending their education dollars on starting a new business. With the total cost of a four-year college degree (including tuition and lodging) sometimes surpassing $100,000, and a graduate program costing about the same, that amount of money could be an incredible launching pad to open a franchise or other start-up. (To learn more, read The Small Business Jobs Act: Make It Work For You.)

See: Starting A Small Business

The need for creative ways to raise capital has become even more important these days. An anemic economy struggling to return to growth following the credit crisis has meant that credit is tight and that traditional avenues to raise funds, be it bank loans or government programs to fund small businesses, have limited resources. Lately, the entrepreneurial community has started clamoring for additional means to raise capital as an alternative to more traditional channels. Additionally, the recent crisis has sent unemployment skyrocketing. As a result, politicians are eager to find ways to create job growth.

Gaining Popularity
The down economy and the rise in social networking have given movement to the concept of crowdfunding (the term crowdsourcing has also been used interchangeably), which combines the resources of a large number of individuals to fund a single business concept. Traditionally, an entrepreneur has sought to scrape together enough seed capital by combining his or her own (usually modest) wealth with that of a small, close-knit network of friends and family to get a business venture off the ground. The advent of social media on the Internet has made it possible to scale business relationships even more. These days, it is common for an individual to have hundreds of relationships across a wide array of social media platforms, be it Facebook, Twitter or LinkedIn.

With the networking means largely already established by savvy social networking sites, the only thing holding back the widespread adoption of the crowdfunding concept has been uncertainty regarding restrictions on who can commit capital to a new business venture. Many state requirements stipulate that only accredited, or wealthy investors can contribute funds to such business startups. The thinking is that these investors have the experience and deep enough pockets to withstand losses, given that start-ups have a high failure rate.

This more limited mindset to entrepreneurism is slowly crumbling in the current economic environment. Right now, bills are being discussed and working their way through Congress that would clarify the uncertainty over who can fund a business venture. It is paving the way for smaller and non-accredited investors to contribute their hard-earned capital to entrepreneurs. The ability for a business to raise up to $1 million through a crowdfunding network has been discussed, as have restrictions that limit individual commitments to below $10,000 or 10% of one’s annual income, whichever is less. (For help on how you can fund your small business, see How To Attract Investors For Your Small Business.)

To further validate the use of online means to create businesses, last year an estimated $280 million was invested toward the creation of more than 30 sites dedicated to crowdfunding. More than $50 million is reported to have been committed to business ventures on sites that include Second Market on a national scale, as well as more local initiatives, such as local stake.com in the Indianapolis, Ind. marketplace.

Read more: http://financialedge.investopedia.com

One of the biggest challenges for startups and small businesses is that many have blank credit files.While it may be true that there’s nothing negative in there, there very well may be nothing positive, either. It’s just blank — and that’s a problem because an empty credit file is just as bad as having a bad credit file, according Erik Simon, director of marketing and communications for Dun & Bradstreet Credibility Corp, a business-credit monitoring service provider. “A blank credit file is to a bank like a blank resume would be to an employer,” he says.

The reason is so many different entities — from lenders to insurance companies to vendors — use that business-credit information to make decisions that can make or break a startup or even an established company. Just like your personal credit, a good credit rating can open the door for a business to borrow money, secure credit, get better payment terms or even obtain a contract.

So how do you go about establishing business credit? Simply pay your bills on time and start documenting examples of good payment history. That way, you’ll help your company boost its business credit scores.

While that sounds easy enough, not every credit bureau will let you self-report your good payment history. Dun & Bradstreet Credibility Corp offers one of the only products on the market that enables a startup- or small-business owner to proactively build and manage a commercial credit file, which in turn impacts a company’s popular and oft-cited D&B Business Credit Score.

Read More:  http://www.entrepreneur.com

“What we had here was a great Americana brand — the oldest manufacturing entity in the state of Minnesota,” Chuck Mooty said. “We had a very short window of time to take something and brush it off. We could have thought of all the reasons not to do it, but we took a leap of faith. We just had the feeling that someone had to step up and bring this thing back.”

Chuck and Paul Mooty aren’t the only ones giving manufacturing another shot. When President Barack Obama, in his State of the Union address, touted “an economy built on American manufacturing” and acknowledged the “huge opportunity at this moment to bring manufacturing back,” manufacturing went from boring to buzzword overnight.

But Obama’s examples of manufacturing success — auto companies and Master Lock — represent the old-school era of manufacturing. Instead, small manufacturers like Faribault and entrepreneurial thinkers like the Mootys may be the key to transforming manufacturing as we know it and bringing jobs back to the United States that big businesses handed off to foreign countries decades ago. Some experts believe that in this new wave of manufacturing, small businesses will be better able to compete with countries like China and with big U.S. companies, thanks to consumer demand for “made in America” products, groundbreaking technology, and the flattening of the global cost curve in terms of wages and production methods.

Vivek Wadhwa, academic, researcher, writer and entrepreneur, has no doubt that within two decades, the United States will return to manufacturing supremacy.

“China has, at the most, 10 years to enjoy the money it’s making off manufacturing,” Wadhwa said. “In the next five to 10 years, we’ll see a major disruption happening in China, and in 10 to 20 years, there will be a hollowing out of China’s manufacturing industry, just as there was in the U.S. If I were China, I’d be losing sleep right now.”

Chuck Mooty believes entrepreneurs are key to this disruption. “The Chinas of the world were wonderful places for people to get value, but the middle market players are frustrated with rising costs of labor, energy and transporting products,” he said. “This is the time for people to step up and take some risk and invest in ventures that can produce and manufacture products domestically. And it’s important that manufacturing be not just viewed as big business but also as small business.”

The Jobs Factor

With new technology like artificial intelligence, robotics and digital manufacturing changing the game, “the manufacturing of the past is gone,” Wadhwa said. “And so are those repetitive, boring factory types of jobs. They won’t exist. Manufacturing is coming back to the United States because we have the most skilled, creative, innovative people in the world.”

With new technology like artificial intelligence, robotics and digital manufacturing changing the game, “the manufacturing of the past is gone,” Wadhwa said. “And so are those repetitive, boring factory types of jobs. They won’t exist. Manufacturing is coming back to the United States because we have the most skilled, creative, innovative people in the world.”

Because of these advancements, Mark Perry, professor of economics at the University of Michigan-Flint, foresees a “pending renaissance in U.S. manufacturing,” including an insourcing of “Manufacturing 2.0″ jobs.

“The U.S. is still the world leader in terms of innovation, engineering design and patents,” Perry explained. “China is good at assembly, the labor intensive parts, but the creativity happens here. We still have the advantage in entrepreneurship and innovation. This won’t be like Michael Moore in ‘Roger & Me.’ 21st century manufacturing is headed away from heavy machinery and more toward robotics, design and high tech.”

According to Perry, 109,000 net new manufacturing jobs were added in 2010 — the first net additions since 1997. The turnaround continued in 2011 with another 225,000 net new manufacturing jobs added, although the current count of 12 million manufacturing jobs is still down about 7.5 million from its peak level in 1979.

The recent job growth has a lot to do with the narrowing of wages between the United States and China. “Until a few years ago, we had a manufacturing wage bubble in the U.S. that was clearly unsustainable,” Perry says. “Those wages were out of line with the rest of the world, but because of the recession, the U.S. is much more competitive from a wage standpoint.”

READ MORE…The Huffington Post

The Houston area is home to 90,249 small businesses.

It’s a big number that tends to garner little attention as analysts point to the region’s more imposing accomplishments – the Medical Center, the Houston Port, the energy sector – as what blunted the blow of the recession in this part of the country.

Yet, according to the Greater Houston Partnership, which encompasses 10 counties, including Harris, Brazoria, Fort Bend and Montgomery, 95 percent of its area businesses employ fewer than 100 people.

That’s a lot of jobs – perhaps as many as 1.3 million, accounting for total wages in excess of $45 billion a year, based on Bureau of Labor Statistics numbers.

“Well, I wouldn’t have thought it was anything like that many,” said Felix Garza, who works as a machinist at two small shops north of downtown. “That’s a lot of people buying things instead of out hustling around for food money.”

A lot of people buying things and keeping the unemployment rate relatively in check at 7.3 percent for December vs. 7.8 percent in Texas and 8.5 percent, nationally.

Tony Chase, GHP’s new chairman, describing himself as “bullish” on small businesses, announced recently that boosting smaller companies, as a source of jobs and innovative ideas, will be among his priorities during his tenure.
‘It makes sense’

“I think in Houston the prospects are pretty bright from a small-business perspective. Our energy economy is doing quite well, and that sort of filters down to small businesses,” he said. “It makes sense to promote them.”

He cited GHP’s recently launched Small Business Resource Center and the Hire Houston First guidelines at the city level as positive steps. Additionally, he said the partnership will advocate for an expansion of loan programs and other initiatives tailored for small businesses.

Along those lines, part of the Obama administration’s Feb. 13 budget package will call for a 10 percent federal tax credit for small-business owners who raise wages or add jobs.

Locally, it appears some employers with staffs of less than 500 workers have seen reasons to be optimistic about the coming year, based on a survey by the Memorial City-based staffing firm of Murray Resources.

When asked about the overall economic state of their company, 74.4 percent said they expected it to get at least “moderately better,” while 69.7 percent expected employment opportunities to improve during the coming year.

In fact, 60.5 percent of respondents from the 17 industry classifications said attracting qualified employees during the next 12 months will likely present more of a problem than the cost of health care (16.3 percent).

While not intended as a scientific study, the numbers are encouraging.

‘A brick wall’

“I can see why people are a little upbeat,” said Barton Smith, a University of Houston economist, who has done budget studies for both the city of Houston and Metro Transit Authority. “But when you look for hard data on small business gains, I think you are going to run into a brick wall.”

To a large extent, he was right.

READ MORE… YourHoustonNews.com

In this struggling economy, privately held small and medium-sized businesses are facing a rising threat of employee fraud. Studies have shown that small organizations with only 100 employees or less suffered higher median losses than did the largest organizations from fraud.

Employee fraud, such as check forgery or petty cash theft, often occurs when workers feel financial stress in their personal lives. Small companies often lack internal controls to property detect or prevent fraud. Though no business owner wants to feel that it has employed questionable people, sometimes temptation or personal pressures can push even the most trusted and hardworking employees into perpetrating fraud.

Employees who guard access to accounting software, live a lifestyle beyond their means, or never take a vacation should all raise suspicions. Employees who are committing fraud often do not take vacations because they are afraid of getting caught while they are away. The key is often to let employees know you are watching for it, as perception of detection is a powerful deterrent. Other than that, it begins with hiring the right employees. Conducting quick background checks for people handling inventory and money is often worth the time and money. A drug test may also be necessary (provided you follow state and federal guidelines), since employees often steal from a business to support an addiction. For cash situations, security cameras that monitor activity at registers and storage areas are effective deterrents for fraud.

READ MORE… Online Resources for Legal Services

The entrepreneurial bug appears to be spreading globally. According to the latest Global Entrepreneurship Monitor from Babson College, there are nearly 400 million active entrepreneurs around the world.

The annual survey polled 140,000 adults ages 18 to 64 from 54 different economies. GEM estimates that 163 million are women early-stage entrepreneurs, 165 million are young early-stage entrepreneurs (18 to 35 years old), 65 million entrepreneurs plan on creating 20 or more jobs in the next five years, and 69 million offer innovative products or services that are new to the market.

The study reviews entrepreneurship based on three standards: inclusiveness, industry and impact. The amount of opportunity entrepreneurs have, their gender, the industry they choose and how they affect their societies also help determine how successful entrepreneurial ventures might be.

“In an economy, you want to have some elements of stability, where firms maintain their businesses, despite facing ups and downs in their industry, their businesses or in the economy over time,” Donna Kelley, Babson College professor and the study’s author, explained. “At the same time, there needs to be some dynamism, where new ideas and new firms sprout up and replace in part those that have run their course.”

Across different economies, potential entrepreneurs may interpret a certain degree of opportunity to start a new business. GEM’s survey shows that even in places like Bangladesh, in which there is a high rate of perceived opportunity to start a business, many believe they do not have the capabilities or have a high fear of failure. Other economies in which potential entrepreneurs showed a high fear of failure or low capabilities included Japan, the Republic of Korea, Singapore and the United Arab Emirates. In light of the recent European economic downturn, survey participants in Greece, Hungary, Portugal and Spain all perceived very low levels of opportunity. Alternately, prospective entrepreneurs in the U.S. showed a moderate perception of opportunity, but great confidence in their abilities and a low fear of failure.

At 55.8 percent, Colombia reported the highest rate of non-entrepreneurs with entrepreneurial intentions, while more than 86 percent of Brazilians felt that entrepreneurship was a good career choice.

One of the most significant findings in the GEM survey was the steady increase of total entrepreneurial activity (TEA) across all the different economic levels despite a worldwide economic struggle over the past few years. Countries in the efficiency-driven category saw an average increase of 25 percent. Many of these economies, including China, Argentina and Chile, already had high rates of entrepreneurial activity and saw further increases in 2011. Of the 20 innovation-driven economies, there was an average 22 percent increase in activity, driven mostly by a big jump in nascent entrepreneurship, which saw almost 36 percent more startups. Kelley noted that “the talk of job loss and jobs not coming back from the recession may not be painting a complete picture. Our GEM results provide some indication that startup activity may be a missing part in these reports.”

Growth projections vary greatly. While most of the 54 economies have a high rate of low-growth projections, several economies, including China and the United Arab Emirates, display significant plans for high-growth potential, in which a company plans to add 20 or more employees over a 5-year span.

ARTICLE SOURCE:  http://www.huffingtonpost.com/2012/01/20/global-entrepreneurship-is-on-the-rise_n_1216921.html?ref=small-business

To many of you reading this, it is probably not news at all. Small and mid-size businesses are finding it very difficult to secure the working capital, let alone growth capital, they desire for their businesses. This difficulty for small businesses to secure capital has been growing for years, now exacerbated with the recent credit crisis and recession. As many of our readers are in staffing or contingent workforce businesses, the problem is particularly acute, since banks have always been reluctant to lend to businesses with no hard assets and inherent swings in capital needs.

As if we needed more proof that life was tough for an entrepreneur trying to raise capital, we recently read an interesting study. Twice each year, Pepperdine University’s Graziadio School of Business updates and publishes the Pepperdine Private Capital Markets Project Survey Report. The summer 2011 report derived some depressing – although not altogether surprising – findings from its over 2,500 participants:

• Nearly 95% of privately-held businesses owners report having the enthusiasm to execute growth strategies, yet just 53% report having the necessary financial resources to do so.
• While many are desirous of securing bank loans, 54% were unsuccessful in obtaining financing at all, and only 27% were able to obtain bank loans.

And it is quite a shame. When asked where they are focusing their primary efforts today, business owners responded they:

• will increase revenues from current products/services (55%); and they
• will expand product and service lines (21%).

So, here we are in a struggling economy, small business owners want to grow and are willing to take risks and invest, but they cannot find the financial support to do so. This is clearly a story we hear over and over when talking with entrepreneurs in staffing.

The federal government has in fact noticed….although I’m not sure they are able to do anything about it (as shocking as I know that sounds). In June, Sam Graves (R-Missouri, US Representative and Chairman of the House Committee on Small Business), clearly acknowledged the ongoing disconnect between bank credit policies and the critical need for growth capital by small businesses. “This Committee has heard, on multiple occasions, that entrepreneurs cannot get credit and small businesses face significant cuts to their existing lines of credit. Bankers have told this Committee that they have capital but are nervous about lending because regulators might question the safety of loans to small businesses.”

So where does this leave us? What options are available to entrepreneurs who dream of creating and growing their own small businesses? In her 2010 book, The Small Business Owner’s Guide to Alternative Funding, author, Karlene Sinclair-Robinson, debunks the taboo images often associated with financing obtained through any means other than traditional banking, and explores various alternative methods to obtain capital. From family and friends, to asset-based loans, and factoring and accounts receivable financing, this guide offers a path toward stability and growth for the small business entrepreneur. We think that she is spot on and that you will find her book very helpful.

We’re always interested in learning more about how entrepreneurs are handling this challenge. So please comment with your thoughts/ideas/questions. What is your recent experience with accessing capital to grow your business?

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Source: http://advancepayroll.blogspot.com/2011/08/finding-alternatives-to-traditional.html