Anyone can tell you that banks have tightened their belts. So how can a small business or entrepreneur get the cash needed to ignite their businesses? Depending on your business' needs and industry, you might be able to tap into some of these traditional and non-traditional funding options.

If you're working on starting up an innovation-based business, it may be worthwhile to look into chamber-member Ann Arbor SPARK's programs. The organization offers a pre-seed fund, helps connect local entrepreneurs with angel investors and its Business Accelerator program can fund services that companies need.

"Being able to fund those needs that companies have is a definite challenge, but we've been trying to address it in a number of ways," says Amy Cell, managing director of talent enhancement at Ann Arbor SPARK. "All of the programs we come up with are for cash strapped entrepreneur in mind."

SPARK won't write you a check, but its programs and services can help cut down on your spending. Young businesses in Ann Arbor or Ypsilanti enrolled in the SPARK Business Accelerator can get help with business plans, intellectual property reviews and marketing for free.

SPARK also helps businesses across the state apply for micro-loans and Michigan's Pre-Seed Capital Fund, which specifically caters to high-tech start-up companies nearing commercial viability. The Pre-Seed Capital Fund grants $50,000 to $250,000 per company with an investment partner providing, at minimum, a half dollar for dollar match - in other words, with a $125,000 match they can apply for $250,000. And micro-loans range from $10,000 to $50,000.

"Once you get initial pre-seed funding, then oftentimes you can develop a prototype, and that'll help you get a first or second customer," Cell says. "At that point, you are more eligible for a seed funding round from venture capital or private equity. Around that time, your balance sheet might look strong enough where you can get traditional bank financing."

Non-traditional Funding

Before you hit the bank, non-traditional funding like Hennessey Capital can help boost your business and make it more attractive for a traditional bank loan in the future.
Hennessey Capital provides financing to businesses that have sales, but do not have traditional bank financing available. Its factoring product and working capital lines of credit supported by accounts receivable and inventory are used by B2B companies with $100,000 to $15 million in annual sales.

"Asset-based lending and factoring is being viewed today as a valid way to finance businesses because the traditional banking environment has changed so much," says Mike Semanco, president and COO of Hennessey Capital. "A year ago, companies that fit the profile for traditional banking may no longer qualify even though they may be in the same financial position."

But Hennessey Capital's underwriting structure has not changed, and its financing can help small businesses and entrepreneurs obtain the capital needed to grow their business. There are three components to Hennessey Capital's evaluation process: can their client produce the product or deliver the service; can the client's customer validate that they are receiving the product or service they purchased; and do they have the capacity to pay.

"We leverage the cash tied up in accounts receivable and inventory for a client" Semanco says. "Our client can get access to 85 percent of accounts receivable today, instead of waiting 60 days or longer to get paid."

And Hennessey Capital typically serves as a bridge for businesses to transition from the start-up stage to bank financing.

"Some of our clients will transition from our financing products to traditional bank financing once they develop a history and a track record," Semanco says. "Many clients stay with us even after they develop a track record because our financing requirements are less involved then a traditional bank. Some do make the transition due to cost considerations."

SBA Loans

Along with banks, the U.S. Small Business Administration's (SBA) loans have felt the pang of the credit crunch. More than ever, small businesses must present well-thought out business plans and solid business prospects to get lenders to consider investing.

Recently, under the 2009 Recovery Act, the SBA began offering the America's Recovery Capital (ARC) loan program to "viable" small businesses suffering "immediate financial hardship." Small businesses can use the ARC loan of up to $35,000 to make payments of principal and interest loans and existing debt. Top candidates for ARC loans are struggling small businesses that were profitable in the past, which keep up with loan payments or are just starting to miss loan payments. See "Surviving to Thriving," next page.

Businesses should also look into regular guaranteed loans, which have more flexibility than the ARC loan. Al Cook, the SBA's assistant director for lender relations in Michigan, suggests that businesses find out what lenders want to see before trying to get an SBA loan. He says that while lenders are similar, they aren't going to be exactly the same.

"They need to be prepared to provide information to the lender, financial statements and projections," Cook says. "[They need] the latest financial statements, including interim statements if the year-end statements are older than 90 days; and then projected statements for up to the next two years, particularly income and cash flow demonstrating how financially the proposed loan would help them to generate the revenue and cash flow to pay the loan."

Julianne Mattera is a freelance writer.