For months now, most commercial lenders have been making things rather difficult for future and current small business owners who’ve needed capital.  The Obama administration has been putting the heat on, but so far, that’s failed to produce the results needed to turn the credit situation around. 

Even the franchise industry, with its “business in a box” type of setup, is feeling the pinch. Franchise concepts that are known to have a proven system for success, (which used to translate into fairly quick loan approvals), aren’t getting them like they used to. A recent article in Franchising World magazine states that, “financing for franchisees continues to be an obstacle to the growth of franchise brands. Conventional lenders have pulled out of franchise lending unless the concept meets very stringent criteria.”

Until recently, all the lenders that I’ve ever worked with (to help get my franchise candidates a small business loan) have been pretty easy to work with, and were looking for ways to approve the loans.

As a matter of fact, I only remember 2-3 instances in which candidates of mine were ever turned down for a loan. It’s a lot different now.

It may be time for all of us to stop living in the problem, and start living in the solution.

Since traditional ways of obtaining start-up loans and expansion loans aren’t working anymore, I’m thinking that it’s time for some deep exploration of some non-traditional routes.  

Folks that are finding it difficult to get the “approved” stamp on their loan applications are starting to approach specialty lenders.  The Wall Street Journal’s Emily Maltby just posted an article about these types of lenders, and suggests that, “business owners who approach specialty lenders have an advantage. The loan officer already knows the revenue potential, financing and cash-flow needs of that industry, particularly in the context of the broader economy, and can advise with keen awareness of any snags in the business plan.”

She gave an example of an entrepreneur who wanted to open an emergency animal clinic, but was turned down numerous times by conventional lenders. (She ended up getting financed by a specialty lender.)

Is your future or current business in a niche that may have some specialty lenders that can give you a real shot at obtaining a loan?

Another “specialty lender” could be your Uncle Mort. He’s the one who told you years ago, “You’re going places kid. When you’re ready to go into business for yourself, I’ll back you.”

If there was ever a time to cash in that chip……

I’m thinking that there are a lot of nephews, nieces, sons and daughters around who are going to their families for business loans.  I wonder if their loans are getting the “approved” stamp.

If you do end up going the family loan route, it may be wise to consult with a business attorney.  There could be legal ramifications for you, and the family member. There may even be issues relating to taxation, too.

If your business start-up is one that has equipment needs, there’s pretty good news for you. Companies like Direct Capital have been expanding their financial capacity for a while now, and may be able to provide some leasing options for your business. Leasing your equipment can be a good way to free up some of your up-front loan requirements.  (Maybe even enough for your lender to approve your small business loan.)

There is another way to get a business off the ground, but it’s a bit controversial. It involves using a portion of your 401(k) money.

Jeff Schnepper from MSN.com, explains the process:

“First, get yourself a lawyer and an accountant. This is not a do-it-yourself project. Though the structure is relatively simple, the implementation can be complex.”

Then he describes how this works:

“You set up a corporation. You'll become an employee of the new corporation. The new corporation sets up a 401(k) plan that allows the rollover of existing retirement funds into the new account. This is a self-directed plan -- you run it and make all the investment decisions.”

Here’s where it gets a bit more complicated:

“Under your direction, the 401(k) then buys stock in your new corporation. The corporation uses those dollars as seed money to cover your wages and other working capital needs.”

Finally:

“You're not taxed on any of the money that goes to your new corporation. And there's no 10 percent early-distribution penalty either. The key here is that your new 401(k) is making an investment, not a distribution. But what you've done is convert your retirement account into instant business capital by using the rollover process. And you've done it without a tax hit.”

Read the entire MSN.com article about using funds from your 401(k) to start a business.

I’ve had a few candidates of mine go this route over the years, and they seemed comfortable with the process.

Determined current and future small business owners will continue to use creative financing arrangements to reach their goals. Are you determined, too?

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