Out on a limb: when the money tree looks dry, sometimes you just have to create your own branch

Entrepreneur, March, 2003 by Crystal Detamore-Rodman

WHEN LISSA D'AQUANNI CREATED a gourmet chocolate business in her Albany, New York, basement in 1998, she had not only a passion for candy-making, but also a knack for spurring citizen involvement. The former nonprofit executive had worked for women's advocacy groups, most recently promoting breast cancer awareness. If there was one thing she knew, it was how to rally community support.

Her ability to leverage local resources would be invaluable as she made her business a texture of her Albany neighborhood. And in no area were those skills as critical as in financing. Last year, when D'Aquanni wanted to move her business, The Chocolate Gecko, to an abandoned building three blocks away, she needed $25,000 in owner's equity for the $260,000 renovation project. So she mailed letters to area residents soliciting financial support for her revitalization plan. "Within a month," she recalls, "we had raised the $25,000." Volunteers also helped renovate the building, cutting project costs from an estimated $300,000.

Check out D'Aquanni's unorthodox and creative financing plan: An economic development group, the Albany Local Development Corp., loaned her $95,000 to buy the building. D'Aquanni obtained a $100,000 government-guaranteed loan from a local credit union to renovate the structure. Facade improvements were funded through a matching grant program to encourage commercial development in Albany. A local community development financial institution used a state program to fund energy-efficient upgrades, including new windows, light fixtures, furnaces and siding. Says D'Aquanni, "There were lots of different pieces of the puzzle to identify and figure out how to access."

Conventional financing wasn't an option. "I was looking at a business that did about $44,000 in sales doing a $260,000 project, and the traditional funders were apprehensive." explains D'Aquanni, 37. They urged her to rent a storefront rather than buy the rundown building. Undeterred, D'Aquanni met with a neighborhood group to develop her expansion plan. It wasn't the first time the community had helped out. In 1999, the cash-strapped chocolatier needed molds and a temperer for the Christmas rush. Recalling a strategy she had seen in a magazine, she sold discounted gift certificates to raise capital. D'Aquanni offered customers $25 in free chocolates for every $100 in gift certificates purchased. Within two weeks, she had $5,000 for the equipment purchase. "A lot of folks marled them as gifts to friends, family and co-workers," D'Aquanni says. 'And most of those people ordered chocolates. My customer base exploded."

Indeed, many entrepreneurs successfully launch a business only to encounter funding hardships as they attempt to grow. The ability to think outside the box, experts say, is critical for firms short on funding.

"There are pockets of money out there, whether it be municipalities, counties, chambers of commerce," says Bill Brigham, director of the Small Business Development Center in Albany. "Those are the loan programs that no one seems to have information about. A lot of these programs will not require the collateral and cash that is typical of traditional [loans]. They may be a little more lenient as far as credit history goes. That's one of the key roles we can play--what entrepreneur is going to think [he or she] can qualify for HUD money?"

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.