Five alternative ways to finance your business

Black Enterprise, March, 1998 by Karen Gutloff

The executive loaned Johnson $700,000. Johnson raised an additional $300,000 by taking a second mortgage on his home and cashing in profit-sharing stocks from his employer. He used the money as collateral to get a $3 million loan and opened four grocery stores in 1992. The 34-year-old now owns seven outlets. The chain has 466 employees and grossed $46 million in sales last year.

"I would not have been able to do it without this investor," says Johnson. "Richmond is a close-knit town and blacks typically don't get loans."

Angel networks are popping up across the country, creating databases that connect investors with businesses that need seed money or expansion capital. Some networks make matches based on industry or geographic region. The networks charge access fees that vary according to the service they provide.

The Capital Network, a nonprofit economic development organization affiliated with the University of Texas in Austin, is the largest matching service in the country for investors and entrepreneurs. "Well over $150 million worth of investments were made during the last three years as a result of our services," says Bob Mathot, director of client services. "Our investors are typically looking for fast-growth, emerging companies."

Businesses can sign up for a match by submitting an application, questionnaire, full business plan and executive summary to the Capital Network. The group will connect entrepreneurs with interested investors for $450 and charges $950 to investors who want to become members of the network. For more information, contact Bob Mathot at 512-305-0831, or www.thecapitalnetwork.com.

The Small Business Administration Office of Advocacy sponsors a computerized network called the Angel Capital Electronic Network (ACE-Net). ACE-Net allows angel investors to view the securities' offering of small, growing companies. Businesses listed with ACE-Net are typically seeking between $250,000 and $5 million in equity financing.

Companies interested in having their securities offering information listed in the ACE-Net database must complete an application and pay a yearly $450 fee. For information, contact the SBA Office of Advocacy at 409 Third St. SW, Washington, DC 20416, or call 202-205-6532. Contact ACE-Net at https://acenet.sr.unh.edu.

3 SUPPLIER FINANCING

Grocery chain owner Johnny Johnson used the money from his investor angel as collateral to obtain a $3 million loan. That loan came from his main supplier, Rich Food Holdings. The Richmond, Virginia, company is the fourth largest grocery wholesaler in the country.

"They loaned me $3 million to buy my buildings, equipment and groceries," Johnson says. "In exchange, I agreed to purchase 60% of my inventory from them." Suppliers have a vested interest in helping you meet your capital needs. Their flexibility with loans and credit lines translates into successful and loyal customers.

Supplier financing arrangements vary according to your needs. For instance, a supplier can help mitigate up-front cash shortages by agreeing to ship merchandise on consignment. This way you only pay for goods when you make a sale. Many furniture and clothing stores take advantage of consignment selling.