Fun With Funding

Creative financing, not to be confused with creative accounting, is neither illegal nor immoral. But it is more adventurous. In essence, it's thinking outside the box. It can be an imaginative approach to a proven strategy or a combination of tactics often beyond the confines of traditional financing.

George Dawson, a San Antonio, Texas, small-business consultant and author of Borrowing to Build Your Business (Dearborn Publishing), advises looking for candidates with three characteristics: 1) they want a better return on their investments than they can get elsewhere, 2) they want compensation in addition to the return, and 3) they're extremely familiar with your business. Ideal prospects are suppliers in your industry (wholesalers, distributors, manufacturers, etc.), customers, and other businesses that sell complementary or noncompeting products to similar customer bases.

According to Dawson, there's an advantage to finding such investors and working with them. "They know your business, can accurately evaluate their risk and will share in your success."

Frank Scavone, the 35-year-old CEO of Oakland, California-based Precept Corp., a firm that analyzes, underwrites and auctions commercial mortgage loans online, agrees: "It's important to reach out to people who understand your business and who see the need for solving the problems you address. Finding capital is expensive and time-consuming. A new business is fragile; you're always in a race to get profitable before you run out of resources. You save precious time by aligning yourself with people you don't have to educate."