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Financing: The Options

Valencia Roner, Founder, VXR Enterprises

Two years ago, I launched VXR Enterprises, a marketing and public relations firm based in Culver City, California. I went about getting money for the start-up the old-fashioned way, using the $5,000 in my savings account. At the time, I was confident about a contract I had in the works with a major insurance company; therefore I was willing to take a calculated risk and do what I had to do. However, as deals are known to do from time to time, the deal never materialized, at least not at that time. I kept pressing forward.

With my company set up and several small contracts in hand, I turned to the U.S. Small Business Administration, or SBA, for the next step on my financial journey. I secured a $50,000 SBA loan for the business. It was a process that took about six months, the money coming through in the middle of 2000.

With that loan, I focused next on winning a bigger contract. It turned out to be a $250,000 marketing-and-public relations contract for the City of Los Angeles Workforce Investment Board. Securing a deal as important as that one gave me the confidence to turn up the heat on my financing options. Recently, I decided to go for a much larger loan, totaling $150,000, from Wells Fargo Bank. And just about that time, word about VXR was getting out: a venture capitalist contacted me, requesting exploratory talks, and someone else expressed interest in investing in the company.

Financing Is Fundamental

Entrepreneurs out there -- are you getting the picture? Financing is fundamental, both to getting your company off the ground when you are just starting out and keeping it growing when you are up and running, giving in to the merchant's mantra, "Go Big or Go Home."

From the experience I've had with VXR, I have two messages to pass along about securing that most critical asset. First, it snowballs -- so your job is to keep the ball rolling. And second, it's all a matter of reputation and relationships - so keep those balls rolling and juggling in the air all at the same time. What follows is a look at how to play the financing game -- when yours is a start-up and when it's a company about to take off.

The Art at the Start

You get no respect when you're little. While banks and other financiers are in the business of lending and providing myriad forms of financing, they tend to shy away from start-ups, considering such enterprises risky. In the case of firms that provide services rather than products, such as VXR, they are even more unlikely to take a chance.

Changing a probable "no" into a likely "yes," therefore, is a matter of approaching lenders as if you were established. In the case of VXR, it surely helped having actual contracts and letters of intent in hand when approaching the SBA. It said to the lender that VXR was a business, not just an entity hoping to be a business.

Acting established is also a matter of doing your homework. Prior to approaching any lender, make sure you have a written plan, even if you are the type of business owner who prefers to work from intuition rather than the printed page. Lenders don't have ready access to the thoughts in your mind; what they need to see is your plan on paper.

Then, secure a copy of your credit history from a reporting agency, so that you are able to see yourself as lenders do. Other important information to have at your fingertips includes your personal financial history. If that is clean -- as indicated by, say, your federal tax returns and bank statements for about three years -- lenders will be more apt to be receptive.

Armed with this necessary information, you can then begin approaching lenders. It is at this point that securing financing becomes a job of building relationships. You might start looking for money for your business, for example, from the bank officer with whom you do your personal banking. If money isn't immediately forthcoming, a referral might be -- all of which begins to get that financing ball rolling.

Growing Up

Two years into VXR and guess what? No longer do I have a start-up to finance. Rather I have an expanding business that also needs funding, but of a different sort and a different amount. The job of financing the growth of a company can be even more daunting than funding its launch. At issue are questions about whether to expand physical space, hire employees and take on new clients.

As with securing start-up funding, going after money for growth requires that you have your financial house in order. At least one set of business finances audited by a certified public accountant is a necessity; also important is an updated credit report.

At this point, however, the twin factors of reputation and relationships come more heavily into play. At VXR, when establishing my business, I also took pains to establish my reputation by serving on boards, such as NAWBO (National Association of Women Business Owners) and the Greater Los Angeles African-American Chamber of Commerce. The contacts I made from having reached out propelled me to seek the larger Wells Fargo loan and also led to the query from the VC and interested investor.

As your company expands, you will likely move up the financing ladder to the place where loans from banks and groups such as the SBA metamorphose into funding from angels and venture capitalists. At that stage, making good choices becomes the focus. Venture money looks tempting, but don't think of it as the Holy Grail. With VXR established and interest rates so low, for example, I've opted to continue borrowing rather than take equity financing. A loan at 7 percent, especially when most of our clients pay within 10 to 15 days, looks a lot better than turning over control to a funding agent who becomes part owner.

Financing your business -- the options are yours. What's important is how you go about securing the money you need. Understand that it's all about what I call the art of the hustle -- building a reputation and nurturing relationships. Understand, too, that options snowball once the good word is out about your company. Finally, understand that good companies make good financing choices.

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