The Search Is On

For many aspiring entrepreneurs, family assistance is the most sensible option. Lee urges loan recipients to draft a business plan, even if a parent or sibling is writing the check. "Put together something that everybody understands, including financial statements, projections and payment details. Make sure you document the loan terms." Additionally, a life insurance policy to cover the debt will make a family member more comfortable with repayment prospects.

Another popular funding source is customer financing. One of Scenna's clients received a loan from a store owner interested in selling her product. "If you've got one major customer selling [your] product or service, [investing in the business can] only help them," he says. Draft a proposal in advance, and be prepared to answer questions from customers you approach.

Meanwhile, some entrepreneurs choose to stretch operating funds by delaying payments to suppliers. "I'm not saying to stretch payments out to 180 days," Scenna advises, "but try to get vendors to work with you."

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The ability to respond creatively to a credit crisis is crucial for cash-strapped entrepreneurs. "That's the secret to small businesses--to structure loans to meet your needs," says Lee. Indeed, communities are rich in financial resources, including microloan funds and other programs targeting homebased entrepreneurs. Major colleges also offer support. Dorothy Gerstenfeld, 51, started baking Irish soda bread in 1991. She sold the bread to local stores, eventually supplying a food chain from her basement bakery. But it wasn't easy for the Havertown, Pennsylvania, resident. "When I first went in for financing," she says, "they asked me what my business plan was. I said I was going to bake a loaf of bread, sell it for $1, and I was going to do it a lot. They said, 'You're going to have to be more detailed.'"

Graduate students at the University of Pennsylvania's Wharton School helped Gerstenfeld draft a business plan. But even aid from a premier business school couldn't break down barriers to credit, prompting Gerstenfeld to turn to local programs geared to businesses like hers. She learned of an economic development initiative through a friend's husband who served on the group's board. From that organization, she got a $25,000 loan. Financing from two other local groups enabled her to restructure debt by paying off credit card balances she had racked up renovating her bakery, The Irish Bread Shoppe, now located outside her home. Gerstenfeld credits those local loans with helping her break bad financial habits, including her dependence on credit cards.

While not in her case, microloans often serve a dual purpose: A homebased entrepreneur secures startup funding, and that loan, in turn, serves as a springboard to conventional financing. "If things go well, they're going to need a better loan," says Frederickson of Arizona Business Bank. "What happens is, [a bank] often pays off the microlender, and [the business] moves into a bigger loan."

Even a home equity loan used for business funding can make a statement regarding creditworthiness, Scenna says. "It's a small step, but a bank can see the business is making payments."

But don't settle for products geared to nonbusinesses. "People make the mistake of not opening a business checking account," Scenna says. "Go in and establish you're a business."

Plan for Success

Whether you're looking for outside funding or relying on your own money, you need a business plan to guide you on your path to success. Read How to Build a Business Plan to get started.

Crystal Detamore-Rodman is a Charlottesville, Virginia, writer who covers the small-business finance market.

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