Don’t Use Retirement Funds to Start a Business

BusinessWeek’s SmartAnswers columnist, Karen E. Klein was recently asked: “I’d like to start an independent…business and have $50,000 in IRAs. Should I cash in my IRAs or get an ERSOP?”

To which, Klein responded:

“Cashing out your retirement savings, or investing it in a startup venture…is inherently risky and ill-advised. If things don’t work out…not only will you have no income, but you’ll also have no life savings.”

Here are some ways Klein suggested this entrepreneur raise startup capital:

  1. Ask friends and family
  2. Research commercial lenders who specialize in your company’s industry
  3. Reach out to nonprofit microlenders
  4. Consider angel investors

Another financing option entrepreneurs should consider is invoice funding. With this type of financing, a business owner sells his/her invoices to a factoring firm, who then advances up to 90 percent of the invoice immediately. Business owners can use the cash immediately to cover payroll, taxes and equipment costs instead of waiting weeks or months for their customers to pay them.

Click here to see the rest of Klein’s advice on using retirement funds to start a business.

American Cash Flow Goes Bankrupt

On October 9, Telligenix (parent company of Dynetech Corp) filed Chapter 11 Bankruptcy to shield itself from creditors. According to an article on The Orlando Sentinal: “The company blamed the economic slump and recent suit by Texas, which accuses the company of deceptive trade practices in its training-seminar business.”

For those of you who went to the American Cash Flow Institute, this article is a must read: Dynetech parent company files for Chapter 11.

Moreover, the B2G Institute is under fire as well.  A Huntsville, Alabama TV-News station recently did some digging into this business and found out that the Better Business Bureau of Central Florida has had a lot of complaints. Check out the startling report here: B2G Institute Investigation.

Banks Review Business Owners’ Personal Credit Before Lending

Smart Answers Columnists, Karen E. Klein, recently addressed an important question: Do business loans show up on personal credit reports? in a BusinessWeek article. Her response will come as a surprise to most business owners…Yes.

Banks are starting to report small business loan payment histories to some of the top credit reporting bureaus, however, there’s no uniform policy in place yet. Plainly put, banks are starting to rely more heavily on consumer credit scores because personal repayment history has proven to be predictive of how likely a business is to pay back its loans.

“It will depend on what bank you’ve got a loan with and what kind of reporting they do,” Jordan Peterson, senior vice-president for business banking at PNC Financial Services Group  said in the article. He suggests that small business owners ask their bank loan officer or bank manager about your bank’s policy on sharing business loan data with credit bureaus.

Click here to read the entire response: Personal Credit Reports Reflect Business Loans.

CA Facing Allied Health Shortage

According to a report issued by The California Wellness Foundation, by 2030, the state of California will need 988,000 allied health professionals.

Similar to the nurse faculty shortage, the allied health workforce is experiencing problems with retaining educators because instructors get paid more money to work than to teach the profession. In addition, California’s state budget crisis is reducing the systems’ ability to offer classes due to high equipment and material costs.

There is one positive note…About half of the allied health professional jobs that will be required in the state by 2030 are entry-level positions, meaning a high school education is all that’s needed.

For all those allied health staffing agencies out there, it sounds as though CA is a good place to start marketing your services.

Click here to read the entire article: Dire Shortage Seen in Allied Health Professionals.

Pinpointing Slow Hospital Job Growth

Is the recession responsible for the flat job growth in the hospital sector? Or, is something larger at play? Are we seeing a fundamental shift in the way healthcare is being delivered in this country? Is the idea of the single, monolithic brick-and-mortar hospital giving way to a more fluid contract where hospitals play a less-centralized role?

Reporter, John Commins, attempted to answer these questions and more in his recent HealthLeaders Media article: What’s Behind Slow Hospital Job Growth?

According to the Bureau of Labor Statistics preliminary August 2009 data, the overall health sector reported 27,900 payroll additions in August, while hospitals lost 700 jobs.

One explanation for the trend is that the recessions has accelerated a long-term trend away from hospitals and toward the outpatient setting, senior healthcare analyst, David Bachman, said.

Still, Kurt Mosley (VP of business development for Merritt Hawkins & Associates) blames hospitals’ slow job growth on the economy. However, he thinks the Obama administration and health care reform will really benefit hospitals. He said that  most of the $20 billion that will be set aside for electronic medical records will be funneled through hospitals.

Business Owners Find Ways to Finance in Tough Times

A report for Business First recently wrote an article about entrepreneurs in Columbus, Ohio who are finding unique ways to obtain financing in a down economy. We’ve summarized some of the key points below:

One business owner applied for a Wheeler Entrepreneurship Enterprise Program grant from The Ohio State University’s Fisher College of Business, which cover the costs of interns. In addition, the interns brought a lot of their own equipment (i.e.) laptops, so the business owner didn’t have to pay for computers.

The same business saved on office space by setting up shop in German Village’s Qwirkm which is a collaborative for independent professionals can work together for a low monthly membership.

Another business owner saves on office space by having it’s employees work from home and communicate virtually. In addition, the owner often barters for services with other companies.

Some small companies can also take advantage of an incubator, which is a way for people to advance their ideas and get a funding stream, according to the VP of Park National Bank.

What’s more, small business owners can take advantage of accounts receivable factoring to help even out their cash flow during this tough economic times.

Click here to read the entire article: Small-business owners find ways to buck financing trends.

58 Million Credit Card Holders get Credit Lines Cut

According to an Associated Press article, credit card companies, pressured by the faltering economy, cut credit limits to 58 million card holders from April 2008-April 2009 even those these card holders didn’t necessarily have bad credit scores. 

In fact, FICO, a company that produces credit scores, reported 73% of the 33 million card holders whose lines were cut between October 2008-April 2009 had no new negative information in their files.  Craig Watts, spokesman for FICO, speculates that lenders probably accessed different information to base their decision on whose credit lines would be cut. 

Consumers, who are already feeling the pinch of the economy, are questioning why they are being punished. 

Gail Hillebrand, senior attorney with Consumers Union, said, “The consumer perception is that ‘I did everything right and my limits were cut’ is true.”

FICO’s explanation was that some card holders had negative information, such as late payment histories, that affected their credit lines.  Late payments are a sign that a consumer is a higher credit risk. 

More than just the individual consumers depending on credit cards are the business owners who depend on personal credit cards for everyday business expenditures. 

Hillebrand said these small business owners are having severe cash flow problems.  Without a smooth cash flow, a small business struggles to pay their employees on time as well as buy new inventory and/or equipment to expand.  Luckily, accounts receivable factoring can help these business owners when their credit lines are cut.

To read the entire Associated Press article, click here: Banks Cut Credit for 58M Card Holders in 1 Year

Entrepreneurs Struggling to Get Tradition Funding

John Tozzi, a writer for BusinessWeek, wrote a piece recently describing alternative sources of funding for entrepreneurs…

As the economy slowly improves, banks that have severely tightened their lending standards won’t be loosening them any time soon.  In fact, a recent survey conducted by the Federal Reserve of senior loan officers shows that banks will maintain high lending standards for another year and a half.  Paired with a terrible job market and a credit card industry that has significantly lowered limits and increased interest rates, entrepreneurs who wish to start a business are finding it more difficult than ever.

Luckily for these funding-starved businesspeople, there are alternative funding sources that don’t break the bank.  These include asset-based lenders, merchant cash advance providers, and factors. PRN Funding is an exampled of a factoring firm.

According to the Commercial Finance Association, asset-based lending increased 8% in 2008; increases are also expected in the coming years. 

There are other unique lenders sprouting up who are trying to take advantage of the credit-depressed market.  Jim Mayer, an entrepreneur from Chicago, is bringing back a firm he started in the 1980s called DiversiCorp.  His company specializes in collateral control-reassuring creditors by safeguarding their inventory after it is shipped but before it is paid for.  The inventory acts as the collateral while outside lenders extended the credit. 

To read the entire Business Week article, click here: Entrepreneurs Turn to Alternative Finance

Credit Cards for Small Businesses

John Tozzi of BusinessWeek.com recently wrote an article about startup companies using small business credit cards to finance their business.  A study by the Kauffman Foundation indicated that new businesses that use small business cards are more likely to fail.  Specifically, the chance a new business will fail goes up by 2.2% for every $1,000 of credit card debt. 

As banks give out fewer loans, credit cards have become popular as an alternative source or financing.  However, if a small business is consistently carrying a balance on its credit card, there’s a good chance that the business it is on the decline.  Interest rates on small business credit cards have skyrocketed due to higher delinquency rates among these companies. 

Tozzi refers to a report conducted by Robert Scott, a researcher who took the data from the Kauffman Firm Surveys from 2004-2006.  Scott admits in his report that, “With the recent contraction of credit markets, many new businesses will face difficulties in accessing traditional forms of credit…”  Tozzi points out that one of the most readily available sources of financing to small businesses is also the main contributing factor causing them to fail.  Unfortunately, credit card reform laws put in place by President Obama earlier this summer do not give small businesses the same advantages that consumers will now enjoy.  However, Congress has been working on amendments to the credit card reform bill to give small businesses some of these advantages.

Luckily, small businesses have another financing option available to them: factoring.  Instead of waiting weeks or months to be paid by their customers, companies can sell their receivables to a factoring firm and receive cash immediately.

To read the entire BusinessWeek.com article, click here: Credit Card Debt Hurts Startups

Alternative Funding Options for Small Business Owners

Diana Ransom, a small business reporter for the Wall Street Journal, has some tips for financing your small business.  Business owners are discovering that their typical sources are restricting loans’ credit terms as well as the number of loans they give out.  An April survey done by the Federal Reserve shows 75% of domestic banks are tightening credit for small businesses, up from 70% in January.  Credit card companies are also increasing their rates and limiting their terms for small business cards, if they still offer small business cards to begin with.  While traditional lines of credit dry up, below are five alternative sources of funding for small businesses:

Government-backed loans: The Small Business Administration (SBA) started to guarantee up to 90% of some loans.  According to Brian Hamilton, CEO of Sageworks in North Carolina, preferred SBA lenders might be more apt to give your business an SBA-backed loan.  Ever since President Obama signed the American Recovery and Reinvestment Act (ARRA) in February, the weekly loan dollar volume has increased more than 40%. 

Community banks and credit unions: As the lending situation improves, community banks are looking to issue more loans.  Also, as larger lenders tighten their terms, credit unions will have the option of taking on more small business loans.

Peer-to-Peer networks: Websites such as Prosper, Virgin Money and Lending Club allow borrowers to find individual private contributors online to fund their businesses.

Microlenders: Recently, the higher rates generally given by microlenders have come down.  One microlender, Accion, reduced its rates from between 11% and 18% to between 8% and 15%.  In addition, the SBA offers microloans at rates between 8% and 13%. 

Accounts Receivable Factoring: Although CIT, one of the nation’s largest factoring firms, is going under, there are plenty of other smaller and comparable factoring firms that will advance you up to 90% of the receivable.  PRN Funding, LLC is one of those factoring firms.

Click here to read the entire Wall Street Journal article: Five Alternative Sources of Funding

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