From the July 1996 issue of Entrepreneur

An estimated 10 million Americans could soon fall into a financial abyss because of a condition many people don't even consider to be a problem: indebtedness. According to Terrell Hayes, a researcher at Vanderbilt University in Nashville, Tennessee, at least that many people have a potential problem with debt.

"Debt is not viewed as a legitimate problem. The phenomenon is comparable to where alcoholism was 50 years ago," says Hayes.

In a study he researched from 1993 to 1995, Hayes conducted in-depth interviews of 46 Debtors Anonymous members. The results? Hayes found women are more likely to label themselves as having a problem, while men typically have to be forced into acknowledgment.

The ultimate cost of all this debt? For individuals, Hayes found, it's personal problems, divorce and, in some cases, spousal abuse. As for the United States, he believes eventually our economy may reach the saturation point for writing off bad debts.

Good Answers

Before getting a bank loan, you'll have to face plenty of tough questions from your banker. Here, George Falconero, a partner in Oaks, Pennsylvania, CPA firm Maillie, Falconiero & Co. LLP, offers the best answers to the three toughest questions you'll be asked:

vWhy do you want to borrow money instead of using your personal resources? Answer: "My personal funds will be a reserve in the event my business experiences hiccups. I want to be in a position to devote my resources to the business without worrying about arranging financing for ups and downs."

vWhat is the basis of your financial projections? If you are relying on competitors' information, have a market study you don't want to get out to the competition, or are using your own best estimates, this may be a problem, says Falconero. "Handling this question is a matter of presentation. If you don't want to reveal your source or are relying on a best estimate [as are most small businesses], highlight your experience in the industry and your business knowledge."

vWhy don't you finance the project in parts? Be honest. Say it's probably not worth your efforts to do the project on a piecemeal basis and that you really want to work with a lender willing to support the project 100 percent.

Small States SCOR Big

When you think of stock offerings, you think of Wall Street. But for small businesses going public, the action is not on the streets of Manhattan but in the small towns of Iowa, North Carolina, Mississippi and Washington. These four states are home to about 55 percent of the companies that have successfully gone public using the Small Corporate Offering Registration (SCOR) system.

SCOR allows entrepreneurs to sell stock to raise as much as $1 million without filing an application with the Securities and Exchange Commission. Although SCOR is available in 46 states (Alabama, Delaware, Florida, Hawaii and Nebraska are excluded), some 34 percent of SCOR offering approvals have occurred in Iowa, North Carolina, South Carolina and Washington, according to SCOR Report, a small-business financing newsletter.

Why do these states boast the preponderance of SCOR activity? Tom Stewart-Gordon, publisher and editor of SCOR Report, believes it's because they have small, close-knit populations where investors tend to know about a business and the people who work there and can monitor its progress.

"When you're dealing with companies like IBM, you have thousands of analysts to watch them closely," explains Stewart-Gordon. "But with small corporate offerings, there's nobody to do it but the investor."

Proximity isn't the only ingredient in SCOR success. Stewart-Gordon says these states also nurture SCOR offerings. "In Iowa, for example, they conduct a pre-filing hearing where every issue is ironed out before the issuer sends in the filing check-which is only a few hundred dollars."

The final key, says Stewart-Gordon: These state governments are very pro small business.