The administration’s Certified Development Company (504) lending program traditionally provides long-term, fixed-rate financing for assets like real estate, heavy machinery or other improvements. But as of last Wednesday, it now permanently allows small business owners to refinance such debt, as long as it is used for expansion purposes.

“This is one more piece of the Recovery Act that is going to have a direct impact and put more money in the hands of small business owners just when they need it most,” said Karen Gordon Mills, head of the Small Business Administration, in a statement.

But the timing of such changes is a bit off, according to experts and analysts of 504 lending programs. They say that few businesses can currently afford to expand, to leave such good intentions unused.

According to Scott Shane, professor of entrepreneurial studies at Case Western Reserve University, few small business owners may also feel up to the task. In May 2009, just 5 percent of business owners felt that the following three months would be “a good time to expand.”

This is a drop of 11 percent from nearly two years ago, according to data Shane cumulated from the National Federation of Independent Business. And while positive feelings unexpectedly spiked last September, overall trends speak volumes about the confidence level of such business owners.

“Small business owners’ views of the expansion-potential of the economy may have turned the corner, but we have a long way to go to get back to the point where a lot of small business owners think it’s a good time to expand,” Shane wrote Monday for the New York Times.

As president of Mercantile Capital Corporation – a conventional, for-profit 504 lender – Christopher Hern suggests fully lifting any restriction on refinancing, to really stimulate small business lending. Bob Coleman, publisher of Small Business Administration newsletter Coleman Report, agrees.

“This is another program stymied by too much regulation and will not deliver the intended stimulus desired by Congress and the Administration,” he commented to the New York Times.

Small business owners – will you take advantage of the new 504 lending program anytime soon? Why or why not?

Sens. Mary Landrieu, D-La., and Olympia Snowe, R-Maine, representing the U.S. Senate Committee on Small Business and Entrepreneurship, wrote a letter addressed to U.S. Treasury Secretary Timothy Geithner. It results from a March 19 hearing, where entrepreneurs discussed how credit and loan options have diminished despite perfect payment histories.

“Without our help, small businesses won’t be able to fulfill their role as the engine of economic growth at a time when our economy needs them more than ever,” Sen. Landrieu said in a statement.

Sen. Snowe raised the idea of using Troubled Assets Relief Program (TARP) funds at the hearing, before contributing to the letter.

“It will provide banks an assurance that their loan will be paid, but, most critically, it will enable small businesses to obtain the capital they need to keep their doors open and employees on the job,” the senators wrote in the letter.

The government has already agreed though to use $15 million in TARP funds to stand behind Small Business Administration loans.

When a business gets into financial trouble, they can contact a merchant cash advance provider, or MCA. Getting these loans is easy and you do not need collateral to get them, as you do with banks.

Why Business Owners Resort to MCAs

The reason most business owners go to a MCA is that they cannot get a loan at a bank. A business can borrow up to $150,000 dollars and agree to pay it back – for a loan fee of 25% or more. These loans are paid back to the MCA provider, which takes small portions of the business’ credit card sales until the loan has been paid in full.

Repayment usually takes about six months.

A merchant cash advance loan should only be considered if there is absolutely no other option . That 25 percent or more that you have to pay back in fees could be better spent helping you increase your business’ profits.

The High Cost of Repayment

In the event that the loan does not help and the company goes out of business, the merchant cash advance provider has no recourse as long as the business owner clearly followed the terms of the contract.

If a merchant cash advance provider feels that their contract has been broken, then they can take whatever action they feel is necessary to get their money. Often that even includes taking the business owner to court.

This is yet another reason that taking out a merchant cash loan is not the best idea. As a small business owner, your goal is to stay out of court -not get dragged into one.

Modern MCAs – Making a Killing at Your Expense

A decade ago, there was only one merchant cash advance provider. It was called AdvanceMe. They only lent approximately $10 million dollars a year. Now there are MCAs all around the world, and they lend out over $700 million dollars a year, on average.

Choose Carefully

> Before making this decision, weigh all of your options:

> Is there any other place you can get the money?

> Do you have any family and friends that can help?

> What are you taking out this money for?

> Will this loan considerably increase your bottom line?

> Can you run your business without it until you can afford it?

> If the cash advance is for making a purchase, is it necessary that you get the money right now?

A Last Resort

If you have tried every other resource possible, and nothing has worked, then and only then should you consider going to a merchant cash advance provider. The most important thing to consider as you take this step is to make sure you can afford the regular payments.

Merchant cash advances can be a good thing to have, but only if you are in an especially tough spot. When you are having trouble paying the bills, or need to expand your business in a pinch, this can be the money that saves the day.

If you decide to go the MCA route, remember to read the contract carefully. A merchant cash advance is not an advance you get just because you need some extra cash.

Working much the same way that a more traditional business loan works, the big difference with a peer-to-peer loan is that it’s funded by private individuals, which can include friends and family, and managed by larger companies. These include Prosper, Virgin Money, Lending Club, Zopa and GlobeFunder amongst others. The business owner gets the loan they need, and it’s carried out like a normal business transaction, with all the relevant protection and repayment options.

While it’s not quite as prevalent as a traditional business loan yet, the amount of business owners and entrepreneurs now using the peer-to-peer option is growing considerably. For example, both Virgin Money and Lending Club provide a peer-to-peer business loan to as much as 20% of their overall borrowers. The same goes for Prosper, with the average peer-to-peer loan sitting at between $9,000 to $21,000.

The reason for the increase in the amount of business owners looking to the peer-to-peer business loan option is that the more traditional lenders are tightening their belts. Due to poor stock markets and higher defaulters, banks and financial institutes are turning down borrowers whose credit is good, since the risk factor is too great. Without the peer-to-peer option, this would result in many more businesses falling by the wayside, which would simply add to the low confidence in the business markets.

Another reason for the increase in peer-to-peer loans is that it allows people who may not have a business “head” to become involved in a business they’re interested in. Although not a partner as such, a lender of a peer-to-peer loan feels like they are contributing to that business’s success, and this leads to more opportunities for borrowers to find the money they need.

If you’re considering a peer-to-peer loan for your business, or even if you’re considering becoming a lender yourself at a later date, make sure that you carry out a few simple checks, to ensure that you don’t end up out-of-pocket later on. These checks include asking for references or credential checks from interested parties. You should also check the company out at the Better Business Bureau, which can advise of any complaints raised about the company in question. Even a simple search engine check will bring up any negative news about any peer-to-peer lender, and will potentially save your business thousands.

No longer are teenagers and twenty somethings brushed off for their business ideas because they’re simply “too young”. If a young entrepreneur has a solid business plan and a thoroughly-researched business idea, there’s a good chance inside investors will be interested – knowing that when it comes to starting a successful business, age doesn’t always matter. However, not every young entrepreneur is the next Bill Gates, nor is every business idea the next Microsoft. So, getting funding isn’t as easy as stating “I’m in my twenties and I have a hot new business idea, want to invest?” But, unlike in decades past, being a young entrepreneur looking for financing isn’t necessarily a roadblock either.

There’s no doubt that young entrepreneurs will encounter more hurdles when trying to raise capital. Often times what’s lacking is a long credit history or enough work experience to obtain formal financing from a bank or credit union. However, there are plenty of other alternatives, such as:

Family and friends – It’s no secret that many young entrepreneurs got a loan from mom and dad to start their first business. They may have had the idea of “doing it on their own”, but the reality is that it’s very tough for someone in their teens or twenties to get a traditional loan without being a homeowner. So, put together a solid business plan, wow your friends and family with your ideas and you might just find them jumping at the chance to back your new business.

Angel investors – An angel investor is an individual who invests their money in a start-up company. This could be a friend of a friend, the owner of your local grocery store, the family lawyer, etc. If you’re interested in finding an angel investor, then create a list of wealthy individuals that either know you personally or know a close friend or family member of yours personally. Make sure your business plan is detailed and concise, and work on your one minute “elevator pitch” to convince them each to give you a twenty-minute meeting.

Venture capitalist – Working with a venture capitalist company can be great in that they not only provide financing, but they use their experience to help you get your idea off the ground and take it to the next level. Venture capitalists are interested in big, million-dollar ideas though, so if you’re looking to open a local pizza shop, a venture capitalist firm is probably not the best place to look for financing.

Credit cards – The good thing about credit cards is that virtually anyone can get one (or two or three). The bad thing is that they can spiral you down into a pitfall of debt very quickly, possibly compromising your future ability to obtain traditional financing. For young entrepreneurs, using credit cards to finance a new business is very dangerous. With no money coming in for months, your debt will continue to rise at a rate that’s hard to keep up with. While plenty of successful businesses got their start on credit cards, many more businesses failed, leaving the founders in serious debt; so make sure to use credit cards carefully.

So, don’t think that being young is a disadvantage when trying to raise capital. Use your youth to your advantage and get potential investors excited about your business idea. Show them that you have done the research and that you have the energy, motivation and enthusiasm to get your idea off the ground and their money back in their pockets with some nice profits!

First, choose carefully a business where you do not have to invest a lot of capital to get it started. Obviously a franchised business will be out of the question. Be realistic about the type of business you choose, and the amount of resources that are available to you. You may be starting out small, but think big! A suggestion is to start out part-time until you have raised enough capital to go full-scale. Another idea is to ask your spouse to support you while you are in the start-up phase of the business.

You may not have a lot of capital, but your time and effort are worth a lot of money. Realistically, the lack of capital will require you to put in more time and effort in order to get the business going and keep it going strong.

Being creative when it comes to getting things done is also required when you do not have a lot of capital. For instance, if you do not have the money to rent an office space or to properly set up your home office, start off on the dining room table.

Additionally, the many materials needed to market your business can get expensive. You will need to get creative, and this effort you put in at the ground level of your business will actually make it and you stronger.

Instead of using banner ads for marketing, use discussion boards or article submissions to spread the word of your business. These are usually free or very low cost. Every cost-cutting measure you take will help you to gain capital; plus you do not have money to waste.

Being a small business owner, you will be responsible for completing all the tasks that need to get done. You are the accountant, the sales person, the marketing guru, and the CEO of your newly started business. With a lack of capital, you need to be prepared to do all these tasks yourself, even when you do not want to do them.

In order to raise more capital quicker, you may want to enlist investors or borrow money. You will need more money in order to grow your business; but be very careful about borrowing. Do not borrow more than you need, but be realistic about how much will be needed-if all of your cash flow is going to pay debts, then it will be hard to grow your business. Be prepared to obtain loans in the future, should the need arise.

Starting a business with low up-front investment cost in terms of dollars is very possible, particularly with the advent of the internet and internet commerce. Learn your business, invest your time and talent in your enterprise and soon you will be astounded by the growth in sales and profits.

Few people have the money on hand to purchase a whole new office building or company headquarters. You are likely going to need a commercial real estate loan.

For many, more time is put into finding the right piece of property or office space for their business instead of going into finding the right commercial real estate loan. This is a major mistake. Not being careful when shopping for a commercial real estate loan can end up costing you a lot more in the long run.

Making things worse are finance companies that understand the excitement of entrepreneurs who are trying to grow their businesses. They will show them loan deals that look great, hoping they will jump in and sign without reading what they are really getting into.

In many cases, they will offer a great low interest rate; but it’s on a short-term loan that will be hard to keep up with.

Let’s take a look at how you can avoid ending up on the short end of the stick.

How to Find the Best Loan Yourself

You need to do a little comparison-shopping. Talk to the lenders you are considering to see what they have to offer. Once you gather the loan options from various lenders, size them up against one another to figure out the best deal.

Remember, the bank you have used before is not always going to be the best. While sometimes you will find a great deal with a lender you have known for years, other times there are specialty lenders that are more focused in the commercial real estate loan market and can offer better rates.

There are some provisions you should keep an eye out for when comparing commercial real estate loans. Look to see if there are “call” or “recall” provisions worked into the loan. This means that at any point in time the lender can see that your financial situation is not what they want it to be and can call the loan in.

If this happens, you could be faced with losing your property – or having to refinance it at whatever rates you can get from another lender.

Let Someone Else Do It

Not all business people have the time to do comparison shopping and hunting for the best rates. After all, if you are working on running a business, you may think your time is better spent doing just that. This is when you may want to call a commercial mortgage broker.

Most mortgage brokers have a number of lenders they work with. They will crunch all the numbers for you then show you a side-by-side comparison of a variety of lending options.

The detail to keep in mind about a mortgage broker is that they are not doing this because they’re nice – they want a cut. They will often ask for 1-4 percent of the loan amount as their commission. With this in mind, make sure you do your own research into the options offered so you don’t end up with a deal that’s better for the broker than for your business.

Legal Issues

Whether you do it all yourself or bring in a mortgage lender, you also will need to bring at least one other person into the equation as you secure commercial real estate loans – a lawyer. You should always have a commercial real estate attorney look over the loan documents and make sure you are getting a deal that is favorable.

They may even be able to do a little negotiating on your behalf to make the loan terms work more in your favor.

If your business is growing, a commercial real estate loan will likely be a part of your future. The important thing to remember is to enter into them carefully so the loans you take will be a positive part of your business growth, not a mistake you spend years regretting and paying for.

Even though running a business can be a road to riches, that road is not an easy one. Entrepreneurs need to be aware of the challenges in order to prepare for them and thrive in today’s competitive marketplace. Having a ready supply of business capital is one of the best ways to prepare for cash flow difficulties in a new business, but finding the right business lender can be a big challenge.

It can be quite tempting for business owners to simply take the first loan they are offered, but it is important for those business owners to carefully evaluate both the loan offer and the lender in order to ensure success. It is important to check out the lender and make sure that the company is trustworthy. A good business lender will be willing to work as your partner in the business, and finding such a lender can give you a real leg up in the business world. It is important to ask any prospective lenders for a list of references, and to carefully check out those references.

It is also important to seek out a business lender who offers a wide range of loan types, financing options and loan packages. Even though only a simple loan may be needed at the moment it will be helpful to know that more complex loan packages will be available down the road.

In addition to a wide variety of loan options, it is also a good idea to seek out a lender who is familiar with the particular challenges of your industry. Each segment of the business world presents its own unique challenges, and a business lender who understands those challenges can be invaluable.

Another useful measure of your company’s debt is to look at the overall cost of borrowing. Comparing the blended cost of borrowing over time tells you whether it is becoming more or less expensive for the company to acquire capital.

You may have financing from several different sources:

* Bank loans
* Lines of credit
* Credit cards
* Capital leases
* Suppliers
* The government

It’s important to understand the total cost of your debt from all sources. You can do this by calculating a blended interest rate from all of your current debt.

Let’s look at an example:

A company has several different sources of financing:

* A bank loan with a current balance of $14,912 and an interest rate of 8.5%
* A capital lease for computer equipment. Balance $5,387. Interest rate 11.4%
* Payroll arrears owed to the government in the amount of $6,754. Interest rate per the statements is 10%
* A corporate credit card with a balance of $12,769. Interest rate 18.5%

In order to calculate the blended cost of debt, we simply divide each interest rate by the proportion of its related debt to the total debt. In the above example, it would look like this:

Type | Amount | % of Total | Interest Rate | Blended
Bank loan | 14,912 | 37.5 | 8.5 | 3.2
Capital lease | 5,387 | 13.5 | 11.4 | 1.5
Payroll arrears | 6,754 | 17.0 | 10.0 | 1.7
Credit card | 12,769 | 32.0 | 18.5 | 5.9
Total | 39,822 | 100.0 | 12.3

The weighted average cost of debt is 12.3% in this example. So, what does this tell us? Not much, by itself. It’s only when we look at the weighted average cost of debt over time that we are able to see if our interest rates are going up or down. If our blended rate is going up, for example, it could mean that we are beginning to have solvency issues. It means that our newer debt is at a higher rate than our existing debt. Lenders may be more hesitant to lend to us and we may be seeking financing from more unconventional (and more expensive) sources.

The Danger of Leverage

Many "Make Millions with Your Small Business" books will talk about leverage and "good" debt versus "bad" debt. They argue that it takes money to make money and that virtually all companies borrow. "Good" debt (they say) allows you to leverage your funds to earn more income. For example, if you can attract $50,000 worth of new business by buying a $30,000 machine on credit, you would be farther ahead to do so.

What these "gurus" don’t tell you is this simple fact:

DEBT = RISK

Not exactly rocket science, I grant you, but critical information to keep in mind, nonetheless. In our above example, what happens if you don’t get the increase in business you were expecting? The debt is still there. You can’t tell the bank "Sorry, I can’t pay you back until I get this new business in the door." When your business is indebted to a bank, mortgage company or other lender, there is the risk of default and of the debt being called and company assets seized. Think of it this way: it’s only companies that have debt that declare bankruptcy. If you didn’t have any debt and you wanted to wind up your company, you would simply close the doors.

Another danger that many small business owners don’t think about is that many lenders require the personal guarantees of company owners and may even require you to put up your home as security. Now, not only are your business assets at risk but everything you own personally as well. Clearly, this increases the risk of entering into credit agreements.

I’m certainly not recommending that you never borrow money. However, you need to understand the following every time you engage in credit:

* What is the purpose of this borrowing?
* Am I getting the best interest rate possible?
* What does the revised stream of cash flows look like with the new debt?
* Do I have a plan to retire this debt?
* Do I have to pledge any personal assets to get this credit?

Once you have satisfied yourself that you have done the required background work to understand your business strategy, then you can enter into the agreement with confidence.

For this reason, several laws and organizations have been set up in order to ensure that minority groups, including women, have access to the wages and funds they deserve.

In fact, the government has stepped in and specifically developed a plan to assist minorities and women in setting up their own business. The program is developed and run by a federally created body known as the Minority Business Development Agency .

It is this agency which runs the different centers across the country from which entrepreneurs of different minority backgrounds, as well as women, may turn in order to start and grow a business.

There are several services which the MBDA and its various centers provide, but the most frequently used is their loan program. It’s important to note that these are not grants but loans; as with any loan, they must be paid back to the lending agency within a certain time period. These loans can be used to start up or to expand a business that is owned primarily by a woman or a person of a visible minority.

The loans themselves vary in size, and will usually be determined by the credit history of the person applying; again, no different than any other type of loan. First, though, you will have to put together a loan application package for the Small Business Association. There are a few specific criteria:

* You must have already been turned down for a regular loan by a bank or lending company.

* A guaranty is required.

* The business must operate in the United States.

The loan may be approved for up to $250,000, and terms range from five to twenty five years.

Once you have been approved by the SBA , the next step is to once again return to the lending companies (remember, you will have had to have been turned down by these people once already). With your approval from the agency in hand, you will have little trouble getting approved this time, particularly from banks with a commitment to the minority business development, such as Wells Fargo.

Any lending company who you approach needs to be approved of by the SBA, which is a great way of getting your short list together. Most will have their own set of further criteria, so make sure you look at that before going in.

A minority business loan makes it a little bit easier to expand or start up a business if you are a member of certain groups. It is well worth taking advantage of, as it is a resource that other businesses do not have access to.