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Where to go when the bank says NO? 5 Ways to leverage alternative sources.

Posted By Andre Wilson Sr., Altima Business Solutions, LLC, Thursday, December 11, 2014

Bummer! The bank said NO! You were well-prepared, walked into your bank confident in your brilliant business idea for your start-up or business plan for your expansion and growth — and you are walking out empty-handed…

It happens everyday. In this economic climate it has become increasingly difficult to secure capital because all the traditional sources of funding have contracted to a point that they are almost non-existent. This doesn’t mean you can not obtain funding.

Here are 5 ways to leverage the many alternative sources available to you:

  • Merchant Funding: A cash advance, as a lump-sum, is obtained against future credit card receivables.
  • Revenue based financing: Unrestricted capital for growth is provided in exchange for a small percentage of future years’ revenues.
  • Factoring: Through a financial transaction, a business sells its account receivables (i.e. invoices) to a 3rd party (called a factor) at a discount.
  • Asset-based lending: Capital is secured by using “hard” assets such as land, equipment, buildings, inventory, purchase orders, contracts, receivables, etc., as collateral.
  • Equipment leasing: A firm can obtain the use of certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments.

What are the trade-offs? What does the future of your capital plan look like? Choosing the right funding method for your company is of the utmost importance for your success! 

Author: Andre F. Wilson Sr., Managing Partner, Altima Business Solutions LLC 

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Tags:  capital  growth  money 

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3 Tips To Avoid A Majority/Minority Stockholder Smackdown

Posted By Jason Trujillo, Woodbury Financial, Tuesday, December 2, 2014

3 Tips To Avoid A Majority/Minority Stockholder Smackdown by Steve Parrish.

Article originally appeared on December 1, 2014 on Forbes.com.

Click here to read original post.

“All animals are equal, but some animals are more equal than others.”

- Animal Farm, George Orwell

Most of us had to read Animal Farm in school. The basic idea is that animals rise up to take over a farm, and through various political maneuvers, they end up running the farm much as their former human rulers did.

Whether you consider the book a dystopian allegory … or just a good read… the point is that those in control get to define the meaning of “equal.”

This cynical view of things certainly doesn’t apply to most aspects of business management. But it is a reminder that those business owners who are in control get to determine what’s fair and not fair for the other owners.

Being a shareholder in a privately held business is usually a voluntary condition, and typically, the shareholders know each other. Accordingly, in most situations, the issue of control is not a problem for these owners. The majority shareholders and their management team run the business, and the minority shareholders are employees, family members or passive investors.

As long as the business is doing well, conflict is rare.

Still, in the business world, control has value, and lack of control has disadvantages. When a major issue bubbles up, it’s the controlling interest that determines the outcome. This is one reason why the IRS often imposes a valuation premium on a controlling block of stock and allows a valuation discount for minority stock ownership.

Majority vs. Minority

Occasionally the control issue erupts into a legal challenge. There is a long history of minority shareholders claiming that the majority owners are acting unfairly.

Shareholder disputes may involve corporate policy, dividend policy or stock valuation. And some of these cases end up in court. Consider two derivative shareholder cases:

  • One that’s 95 years old.
  • One that’s only a year old.

Dodge vs. Ford Motor Company

In Dodge v. Ford Motor Company, the Michigan Supreme Court held that Henry Ford owed a duty to the shareholders of the Ford Motor Company to operate his business to profit the shareholders, rather than the community as a whole or employees.

The essential dispute was that the Dodge brothers, who at the time owned 10 percent of Ford Motor, wanted a higher dividend payout while Henry Ford wanted to share the company’s significant surplus with a broader audience.

After winning the case, the Dodge brothers used their increased dividend payout as capital to build their own business.

You may be familiar with that Detroit-based business.

Baur vs. Baur Farms, Inc.

Fast forward to 2013 where in Baur vs. Baur Farms, Inc., the Iowa Supreme Court also held in favor of the minority shareholder.

In this decades-long dispute between cousins, the court declared that a minority shareholder who wants out needs to be offered a fair return on his investment. Essentially, the case established that the majority shareholders can’t simply use their voting control to impose an unfairly low buyout price on a minority shareholder.

Avoiding Disputes

These cases should not overly concern business owners.

Courts give businesses a wide berth in determining how and when to pay out dividends and how to determine the value of shares when a buyout is involved. Still, who wants a smackdown between shareholders?

No business benefits when the owners are in conflict.

These cases remind us that planning is the best way to avoid conflict. There are some common-sense planning steps to avoid, or at least mitigate, clashes between majority and minority shareholders.

1. Determine and update the value of the business.

Closely held businesses do not trade on a public exchange. Consequently, valuation is always in question. Yet these businesses need to determine their value in order to, among other things, obtain loans, create executive compensation plans and execute buy-sell agreements.

Updating the value of the business, even informally, can help shareholders mutually understand the wealth and challenges of the business they collectively own.

2. Make sure the buy-sell agreement reflects the actual value of the business.

Updating the value of the business alone is not sufficient to assure a conflict-free transfer of shares.

Too many buy-sell agreements state a sale price for shares, but fail to update that price to reflect current conditions. A best practice is to have the buy-sell agreement:

  • State the financial basis for the valuation.
  • State the actual value to be used in the buying and selling of shares.
  • Determine how often that stated value will be updated.
  • Provide a backup method in case the value has not been updated.

3. Communicate.

Control of a closely held business will evolve with changes in marital status, family additions and owner departures. Further, because of possible voting blocks, preferred share classes, management changes and myriad other corporate conditions, there is not always a clear delineation between majority and minority shareholders.

The best solution is ongoing communication.

The corporate formalities of shareholder communication and meetings need not be just bureaucratic necessities. They can be a way to head off trouble.

If everyone knows how the business is doing financially, differences can be managed quickly, and major disputes can be averted.

Company shareholders have an equal interest in seeing their business prosper, but they don’t necessarily share equally in that success. Some shareholders are “more equal” than others, to paraphrase Animal Farm. Much of this can be worked out as long as the affected parties know what’s going on. Through planning and communication, most problems can be kept from turning into a battle.

 


Tags:  Animal Farm  block of stock  business valuation  buy-sell agreement  capital  communication  dividend payout  Dodge  Forbes.com  Ford Motor Company  George Orwell  IRS  Principal Financial Group  shareholder  small business  small business owner  Steve Parrish  stockholder 

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Small Business Lending Slowly Recovering

Posted By Arizona Small Business Association, Wednesday, August 20, 2014


According to new data from the FDIC, at the end of the first quarter, small business lending was up 1% from last September, but still 18% less than the peak in 2008. Small-business lending is slowly recovering, but still lags behind most other types of business & consumer loans.

Tags:  ASBA news  Capital  Lending  Loans  Small Business Lending 

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Access to Capital Is A Great(er) Challenge For Women

Posted By Rhette Baughman, Arizona Small Business Association, Monday, August 11, 2014

On Monday, August 11, 2014, the National Women’s Business Council (NWBC) released new research on High Growth Women-owned Business' Access to Capital. The report, prepared by Alicia Robb and Susan Coleman of Marin Economic Consulting company, outlines the differences between men and women business owners, regarding the scale of business growth, amount and sources of financial capital, and the relationship between the two. The report findings on women’s financial capital are sobering: on average, women received only two percent of total funding from outside equity. Among the most successful firms, men started their businesses with six times as much capital as women did. Women’s access to capital remains one of the most significant barriers, and is too often the factor preventing the growth of women-owned small businesses. Within the report, the National Women’s Business Council has proposed solutions for women entrepreneurs, advocates, funders and policy makers to remedy the issue of women’s access to financial capital.

“Women need money to grow their businesses, and this report gives us more data showing that the capital they are able to secure is insufficient. The National Women’s Business Council continues to advocate for greater access to capital for women entrepreneurs,” said NWBC Council Member Rose Wang. “Our research on this issue enables us to make recommendations to support the entrepreneurship ecosystem, including government, funders and non-profits. We’ve discovered that on average, men start their businesses with nearly twice as much capital as women – $135,000 vs. $75,000. Among high growth firms, men start with six times as much capital as women. This must change. In order to narrow the entrepreneurship gender gap and truly broaden the pathway for women entrepreneurs, access to financial capital must continue to be a priority.”

"Accessing capital is a great burden for all, but this research again confirms that the burden is greater for women entrepreneurs – and even among those with significant high-growth potential. Too many women underestimate themselves and their business’ growth potential even though the data confirms that they are more likely, than their male counterparts, to see growth. This is something that must be remedied, and the good news is that it can be remedied," says Amanda Brown, the Executive Director of the National Women's Business Council. "This data demands action, and really a cultural shift, to better support and enable women business owners. We can narrow the gender gap with more programming geared at women-owned businesses who have high-growth potential, like accelerator and incubator programs, equity financing programs, and business mentorship and training programs; or more women participating in STEM prior to entrepreneurship. Think if there more women on the financing and investing side, as angel investors or members of a venture capital screening committee, or investors doing more to find, and then fund, women entrepreneurs with investment-ready firms. That would change some things, I’m sure of it.”

Access to financial capital remains at the forefront of the NWBC’s agenda. As the government’s only independent voice on economic issues impacting women entrepreneurs, the NWBC will be sharing these report findings with Congress, the U.S. Small Business Administration, and the White House, among others. The full report is available online: High Growth Women-owned Business' Access to Capital.

For media inquiries or additional information on the report, please contact NWBC Communications Director, Krystal Glass, at Krystal.Glass@nwbc.gov.

Tags:  capital  finance  lending  small biz  small business 

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PayPal Expands Small Business Lending

Posted By Rhette Baughman, Arizona Small Business Association, Wednesday, August 6, 2014

PayPal is significantly enhancing it's credit business...announcing last week that its Bill Me Later credit-line program will now be called PayPal Credit. In addition, the company said it will continue to expand Working Capital, its small-business lending program, which launched last September. To date more than 20,000 businesses have borrowed over $150 million with Working Capital.

Tags:  Arizona Business  ASBA  asbanews  capital  finance  lending  PayPal  small biz  Small Business (Industry) 

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Most Small Business Owners Don't Take Loans

Posted By Rhette Baughman, Arizona Small Business Association, Wednesday, August 6, 2014



When it comes to business loans, the majority of small business owners don't apply for one. A recent survey by Sageworks, a financial information company, found that 3 out of 4 owners in businesses less than 10 years old said they have never applied for a loan for their companies.

Tags:  Arizona Business  ASBA  asbanews  capital  finance  lending  small biz  Small Business (Industry) 

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