How do we get this done?

Confronted by what seems to be a brick wall when seeking conventional financing, the question is how do we get past this roadblock. American business has a reputation of finding a way, even when the task seems impossible. That's one of the things I love about this country.

Many who have been downsized, or sent packing on early retirement and many others are looking to finally follow their dreams and create opportunity for themselves and others. These are the people that through there ideas change the world, and make it a better place. Theirs are the ideas that will not see the light of day that could change life for the better, because the funds aren't available. Unless they are willing to think differently.

Not everyone wanting to purchase a building or business has the solid gold credentials required these days by the conventional lending sources. This doesn't mean they are not a good risk. Until regulators change the strict regulations imposed on the banks things are not apt to change. Here are some ideas from Mike Handelsman published in BizBuySell that are worth looking at.

Retirement Funds

"As with borrowing money from friends or family to buy a business, some might consider using money from a retirement nest-egg as risky. That said, it can often be an effective way to invest in your entrepreneurial endeavors and has had successful outcomes for more and more of today’s business buyers. As laid out by the government’s ERISA law, you can invest your existing IRA or 401(k) funds to the purchase of a business without taking an early distribution and incurring penalties. It is even possible to combine money from your retirement fund with loans and other funding methods for greater flexibility. Many entrepreneurs choose to invest in a business they control because they believe the growth opportunity is greater and want to diversify a portion of their retirement holdings outside of the stock market. If you find this is a viable option, sites such as GuidantFinancial.com can provide you with more information on this small business investing method.

Seller Financing

Today, more and more business-for-sale transactions are resting on a seller’s willingness to finance at least part of a sale. In a deal that includes seller financing, the seller takes part of the purchase price in cash and the remainder in the form of a promissory note that the buyer will pay back with interest over a period of three-to-five years. This has become essential in a time when buyers are having difficulty accessing funds through traditional methods, therefore naturally gravitating toward seller-financed businesses to help offset some of the cost up front. Sellers who continue to say no to seller financing are finding it difficult to close a deal, and as more of them have realized this, there has in turn been an increase in seller-financed businesses on the market. To make it easier for buyers to locate these businesses, BizBuySell.com recently introduced the ability to filter search results based on a seller’s willingness to offer financing.

If you’re in the market for a small business it’s important to be aware of these alternate funding options, but also know that in some cases it is still possible to borrow from a bank. Government stimulus and bank policy have been trying to promote ongoing small business lending, although many banks are still more conservative than they used to be about to whom and when they’ll loan money. If you’ve inquired and are unable to secure a bank loan, taking advantage of one or more of these financing methods could still allow you to achieve the goal of being your own boss. Today’s business-for-sale marketplace is full of exciting opportunities that would allow you to take your destiny into your own hands, and with various options available there’s no reason to let a shortage of traditional capital sources get in the way of your dreams."

There are also private money lenders that are filling the gap created by the banks.

Values are plentiful if you are willing to take the necessary risk, use unconventional sources of funding, and act. Remember, lack of an action plan is still a plan.

New Help

It has been my contention for some time, that much of the disaster predicted by the pundits could and should be avoided by changes in regulations. In many cases this could avoid needless foreclosures where properties that are still performing can stay out of the banks "distressed" list.

It looks as though there may be a move toward this kind of thinking. In an article by Gary Carson gcarson@soldillc.com Gary says:

"First, residential real estate was given the OK to modify loans from U.S. regulators and now its commercial real estate’s turn. Coordinating the effort, the Federal Deposit Insurance Corp., Federal Reserve and Office of Thrift Supervision released the new guidelines for banks, which emphasize that modifying loans in a prudent fashion is often in the best interest of both the bank and the creditworthy commercial borrower."

A performing loan is better than a foreclosure for all involved, even if the ratios are not what the regulators want to see.

The economic climate will improve and the more people that make it to that day, the better. Regulations should not perpetuate disaster, they should help avoid or at least forestall it.