Capital Gains

With help from an SBA Small Business Development Center, Ezell detailed every possible expense, down to the gas used to mow the lawn outside his office. When the tally was done, the Iraq War veteran found his expenses were low enough to make him a good candidate for an SBA Community Express loan-a type of fast-track loan for up to $25,000 available to women, minorities and members of the military through banks and nonprofit or private finance companies.

The loan process is easy. According to Robert Tannenhauser, president and CEO of Business Loan Express, an SBA preferred lender in New York City, Community Express loans typically win approval within three days. Because the loans are unsecured, credit-scored loans, says Tannenhauser, "there's not a lot of paperwork or hassle."

Community Express loans are a companion to the SBA Express lending program, which is open to all qualified candidates. The money comes with a crash course in small-business money management. Every applicant must work with an SBA-approved technical assistance center, often a Small Business Development Center, before and after the loan is approved.

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But you don't have to be an SBA borrower to get help from a development center. In fact, many of these centers primarily help lead clients to promising funding sources. Kelly Mizeur, finance director at the Women's Business Development Center in Chicago, says she keeps up with her community's angel investors, nonprofit and government lenders, and small-business-friendly banks to match her clients with the right financing and steer them away from blind alleys. "The top five banks say they are great small-business lenders, but that doesn't mean that's the case," Mizeur says. Midlevel and community banks that don't compete for Fortune 500 customers are a better choice, particularly those that dedicate talented employees to small-business lending.

Excepting SBA's fast-track loans, government loans and grants have limited use for most startups, but may still be worth investigating. The federal government's Small Business Innovation Research Program and Small Business Technology Transfer Program target high-tech innovators. State and local financing available through economic development agencies usually focuses on export-oriented manufacturers who will generate jobs and bring more income to the community. But there are exceptions: If you're lucky enough to do business in North Dakota, for example, the state-owned Bank of North Dakota lends money through its Beginning Entrepreneur Loan Program with few restrictions.

Whatever the source of funds, they probably won't feel like enough as the bills pile up. "Whatever you think your overhead will be," says Ezell, "add 20 percent to 30 percent to cover yourself." But only make room for what's absolutely necessary. "Through all this, entrepreneurs must know the art of bootstrapping," says Bruce Gjovig, director and entrepreneur coach at the University of North Dakota's Center for Innovation in Grand Forks. "Stretch your money as far as it will go."

Friendly Funding
Nothing is as good for the ego as the financial support of family members and friends for your fledgling business. But that feel-good vibe can wither if the business fails and investors feel cheated. How can you avoid the fallout of a business gone bad? Briar L. McNutt, an attorney specializing in business counseling and corporate finance at the Boston office of Eckert Seamans Cherin & Mellott LLC, recommends treating these funders the same as you would professional investors. Make sure everyone involved understands the financial risk by following McNutt's suggestions:

• Create a mini-business plan listing your business's assets, liabilities, competition and risks.
• Clearly disclose that investors may receive no return on their investment or lose the full amount of the investment, that there is no market for the securities they receive in exchange for their investment and that shares in the business cannot be sold.
• Choose investors with a general understanding of business-they're more likely to understand the risk involved.
• Have each investor sign an agreement acknowledging the disclosures described above.
• Keep signed documents in a safe place. Give copies to investors. A little paperwork can go a long way toward controlling the damage from business failure and keeping everyone on speaking terms.

How They Did It
If you need more inspiration to help nail financing for your startup, consider the following examples from Jan Norman's What No One Ever Tells You About Financing Your Own Business:

• Diane Fallon started her Irvine, California, book-publishing firm, Dickens Press, by running an ad for an investor in Publishers Weekly, an industry trade magazine.
• Amy Frey started import-export business ATC International Inc. in Silver Spring, Maryland, with the settlement money from a traffic accident.
• Alice Cunningham sold a triplex she owned in Berkeley, California, to finance Olympic Hot Tub Co., a hot-tub retailer in Seattle.
• Danny Archibald sold his Rolex watch, power tools, guitar and artwork on eBay to raise startup capital for Archibald's Inc., a Kennewick, Washington, seller of expensive pre-owned cars.
• John Powers won a national business-plan contest sponsored by DiversityInc magazine, Ford Motor Co. and SCORE. He applied the $50,000 award to starting The ReCONNstruction Center, a reseller of used and surplus construction materials in New Britain, Connecticut.

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