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Unconventional Financing Ideas

Spinning His Wheels

For every success like D'Aquanni's, another entrepreneur is losing critical momentum because of scarce capital. Case in point: John Acosta, whose business is stalled despite early success with his product, a garage door opener that clips onto motorcycles. The roofing contractor has invested nearly $30,000 in the business since 1998, and needs more than $100,000 to fine-tune the product. Thus far, he has sold more than $50,000 of the $40 garage door opener, primarily through magazine ads, his Web site and motorcycle events. He is now focused on finding an investor despite having been told that his $100,000 funding request is too small.

Advice from the financial community has ranged from selling the company to giving control to a distributor. Neither is an option, says Acosta, 37, whose business, Jolly Technologies, is in Yorba Linda, California: "I don't want to relinquish power. I want to make this company work." Potential investors have expressed concern that he is too involved in every aspect of the business, from product development to maintaining his Web site. "They want everyone in the company to have resumes they can look at," he says. "And people like to see location."

Location does matter. Whether you have an actual business location generally factors into any funding decision. As a result, homebased firms already have a strike against them: Banks find them difficult to lend to because of their lack of assets. "[Banks] don't laugh themselves off the chair like they used to, because there are now enough successful homebased businesses that they see these are credible operations," says Oakland, Maryland, homebased-business advocate and speaker Beverley Williams. "But they are still locked into the traditional [mind-set] that it takes so much paperwork and administrative cost to process a loan that you need to have it big enough to make it worth the effort." Consequently, homebased entrepreneurs like Acosta rely on personal savings accounts or credit card debt for financing.

When business loans aren't obtainable, homebased firms often rely on home equity loans for financing. Williams' business partner recently closed two retirement accounts to fund his entrepreneurial venture. "[You need a] willingness to give up things, even to sell some assets, to obtain funding," says Tom McCabe, director of the Nebraska Business Development Center in Omaha. He preaches persistence. While the deck may seem stacked against them, entrepreneurs may ultimately find a lender willing to champion their small-business cause, he says. If that leads nowhere, creative options, such as bartering, personal loans, strategic alliances and even customer and vendor financing, may be the answer.

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