A scene of Breaking Bad illustrates how an entrepreneur can become entangled with the world of crime. Lawyer Saul Goodman tells emerging meth dealer Jesse Pinkman about some financial hocus-pocus needed to launder illegal profits.

Pinkman learns how an ordinary business, a beauty salon, can become as a critical tool for organized crime. The shop’s reason for existence is not to offer nail manicures but to serve as a shell company, providing legal cover for profits garnered through criminal activity.

U.S. law enforcement agencies tend to focus their scrutiny on organizations that launder money in the $800 billion to $2 trillion range each year while overlooking small to medium-sized operations. Referred to as micro-money laundering, the smaller deals and the associated criminal profits are generated locally and the financial transactions involved are conducted one-on-one. 

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So how does money laundering work? Pretty simply, actually. The first step is called placement: A criminal puts illegal gains into circulation by using shops and small businesses. Startups can become a target for criminals interested in "cleaning" their dollars.

The next step is layering. This refers to how illegal money is separated from its source (such as drugs or prostitution). Basically, this involves shuffling money around to throw off anyone nosing around for it.

The third step entails integration, giving the funds legitimacy through its re-entry into the economy through normal business transactions. By the time the funds enter the integration stage, it is difficult to distinguish between legal profits and illegal wealth. 

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How does a deal work? Say you're the neighborhood bully. You beat up other kids and take their lunch money. One day your mother notices that you often have extra cash and asks about it. Now, you can’t spend all your stolen loot without Mom finding out its source. 

So, you open a lemonade stand. You sell lemonade on weekends and beat up kids the other days. You put all the money in the same shoebox so when Mom sees it, she thinks your lemonade sales are brisk.

Now, replace the Internal Revenue Service for your mom, selling drugs (or another illegal activity) for beating up kids and owning a gym, laundromat, pizza parlor or another small business for the lemonade stand, and this is the basic framework for how money laundering works. It makes dirty money look legitimate.

That’s how it works from the money launderer’s point of view.

But what's the perspective from the vantage point of the small business owner or entrepreneur and what's the problem?

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The small business owner's predicament. Say you have a lemonade stand. It’s doing well and you want to expand. You found a spot on a street several blocks over. You just need some cash to pay for capital improvements so you start asking friends for loans. No one has any spare cash, so you’re out of luck. One day you’re approached by the neighborhood bully who informs you he has $100 to loan. Just pay him $20 a week for six weeks. With a handshake, you get the money.

A few weeks later, business is slow and you can’t make your payment. The lender and bully  makes it clear that you better come up with the money -- or else. Or there's another possibility: Your parents have learned of the arrangement and start to investigate. While they’re doing their bit, you’re too busy defending yourself to run the lemonade stand, and your business loses money and you’re forced to close.

Make the same substitutions (the IRS and law enforcement officials for the parents and the bully for the criminal), and you can see the potential outcome. While a business owner might be able to successfully claim ignorance about the source of a loan, the cost of defense may run more than he or she can afford to lose.

What should an entrepreneur do? Here are some approaches and solutions to keep in mind:

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Deal with legitimate lenders. Financial institutions can provide needed capital in many instances. Many also provide workshops for entrepreneurs that are provided free or at low cost to people interested in starting their own businesses.

Get a loan from family or friends. If banks and credit unions say no, look to family and friends for help. Even when dealing with someone you know, be sure to get the details of the loan -- and repayment terms -- in writing. 

Find niche financial sources. Depending on your circumstances, you may qualify for low-interest loans that might not be heavily advertised. Check out sources that cater to people in particular occupations, those with military backgrounds or specific affinity or ethnic groups to help with financing.

Tap government-funded institutions or resources. The U.S. Small Business Administration estimates that 90 percent of new small businesses fail within the first two years. One of the most common causes of failure is inadequate funding. Lack of sufficient funding immediately restricts the reach of a new  business and threatens its potential for growth and stability. The SBA suggests entrepreneurs delay their launch of a business until they have enough capital to cover its costs for at least one year.

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