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Unformatted text preview: aned, depending on how much is in inventory and in accounts receivable. 22.4 HURDLE: THE BOOK ON BUSINESS PLANNING The Small Business Administration (SBA)
The SBA makes loans to small businesses and even to start-up businesses. SBA loans are almost
always applied for and administered by local banks. You normally deal with a local bank throughout
For start-up loans, the SBA will normally require that at least one third of the required capital be
supplied by the new business owner. Furthermore, the rest of the amount must be guaranteed by
reasonable business or personal assets.
The SBA works with “certiﬁed lenders,” which are banks. It takes a certiﬁed lender as little as one
week to get approval from the SBA. If your own bank isn’t a certiﬁed lender, you should ask your
banker to recommend a local bank that is. You can always contact the SBA directly using the contact
information posted on its website, at www.sba.gov. Other Lenders
Aside from standard bank loans, an established small business can also turn to accounts receivable
spets to borrow against its accounts receivable.
The most common accounts receivable ﬁnancing is used to support cash ﬂow when working capital is
hung up in accounts receivable. For example, if your business sells to distributors that take 60 days to
pay, and the outstanding invoices waiting for payment (but not late) come to $100,000, your company
can probably borrow more than $50,000. Interest rates and fees may be relatively high, but this is
still often a good source of small business ﬁnancing. In most cases, the lender doesn’t take the risk of
payment — if your customer doesn’t pay you, you have to pay the money back anyhow. These lenders
will often review your debtors, and choose to ﬁnance some or all of the invoices outstanding.
Another related business practice is called factoring. So-called factors actually purchase obligations, so
if a customer owes you $100,000 you can sell the related paperwork to the factor for some percentage
of the total amount. In this case, the factor t...
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- Winter '09