OK, I’m back with part 2 of the interview with Joseph Lizio, CEO of Business Money Today. If you missed the first half of the interview, I recommend you go back and read Part 1.
I left off with the following question:
DD: If someone was interested in starting a small business in the next six months to a year, and they were planning to apply for some form of funding, what should they start doing now to prepare?
JL: Prepare is the right word. Plan is another. One must plan and prepare just like a boxer getting ready for a fight – that boxer trains and plans for months in advance for one event. That is what a business owner should do.
Examples, fix your credit if it is not excellent. Reduce your overall debt, making your personal or business debt-to-income ratio as small as possible. And lastly, understand what (how much) you or your business will need at a very minimum. Break that amount out into specific needs, then seek out lenders who will meet each of those needs. When you find specific lenders for your needs – work to understand what their requirements are then assess how you meet those requirements. When you find weaknesses – work on them. Once those are set – then apply.
It all comes down to planning and preparing – just like developing and researching a business plan for the overall direction of your business. When seeking capital, the business owners should also formally prepare and plan.
DD: You offer debt consolidation services, too. I see quite a few people who have been out of work for a while or who are struggling with debt that want to (or feel they have to) start their own small business. What impact would going through debt consolidation first have on their chances for getting funding for their start-up? Would it help them or hurt them?
JL: It really depends on the type of debt consolidation. If your debt consolidation efforts results in re-negotiating your current debt with your current creditors – like interest rate reduction or principal reductions – then that will hurt – it will hurt your credit as these lenders will report this to the credit agencies.
But, if you are seeking ways to get a single loan to take out all your other debt, that can help in several ways. First, it can help your credit via a better debt-to-income ratio – your credit score should improve. Second, it can help your cash flow situation – many times consolidating into a single loan may mean lower overall payments – putting more money or cash flow in your pocket or making it available to service future debt obligations.
Or, if your debt consolidation is about better budgeting your current income and expenses and changing your spending behaviors – this will always help – not just now, but in the future.
There are companies in the debt consolidation industry that can help will all of these.
The thing to really keep in mind here is when you get your debt under control and your spending under control – to not just fall back into old habits. I have seen it time and time again – someone consolidates their credit card accounts into one loan – then just run right back out and run up those credit cards or new credit cards again – making their situation worse than it was before.
DD: Do the laws for debt consolidation vary by state?
JL: Not that I am aware of – but, I don’t profess to understand debt consolidation as much as I do business financing. I only include this information on our web site because finding ways to better manage debt can go a long way in helping entrepreneurs better manage their new or established business.
If you find a debt consolidation company or provider in your state – more than likely they are in compliance with all applicable laws – the same should be true for companies from other states that operate in your state. What one should be more concerned about is the reputation of the company or provider as there are many, many scammers out there.
DD: What criteria do you use to recommend a source or sources of funds for a new business? For example, when is it best for a new business to seek out investors or VC funding versus taking out a loan from a bank?
JL: The things to understand with VC or debt financing (and some VC will provide debt financing – usually convertible debt) is to 1) understand your business and its needs – if you only need a small amount of working capital – then bank financing is your path – If you need millions in capital – then VCs may be your path. And 2) understand where you fit within these industries – VCs are equity partners – debt is just leverage to grow what you already have.
VCs don’t want to fund local or regional companies – they don’t want to fund million dollar opportunities. They want global businesses with hundred million dollar or billion dollar opportunities. Thus, if your business is not in a huge market with lots and lots of potential then forget about VC funding. Also, VCs don’t fund businesses – they fund people and markets. They fund people who can execute an opportunity. You can have the best idea in the world – but, if you can’t execute it – it will only remain an idea. I have seen good people – those who could execute anything – take a bad idea and succeed – just because of their abilities. Thus, most VCs want to see some type of track record from the business management or the entrepreneurs – demonstrating that you or your management team can execute. Plus, they only look at huge markets – local and regional markets are small – national and global markets are big.
Bank financing, on the other hand, is essentially leveraging current business cash flow or current assets to acquire additional capital that can and will make your business better or more profitable. Thus, take a loan for $100,000 based on your current cash flow and leverage or use those funds to return $200,000. That is proper debt financing
DD: If the investor or VC route is best for a business, what consultation, if any, do you provide to help them succeed?
JL: Business Money Today does not provide any type of consulting – In fact, we only offer information and resources – all online. Our web site is designed to educate business owners on many of the financial avenues that are open to them given their needs and stage of business as well as information and resources so that they fully understand what they are getting into and how to protect themselves. Further, we offer resources that we have identified to not only be legitimate, but leaders in their industries.
Regarding venture capital, we offer information about how business owners should seek out private equity and alternative equity financing as well as a searchable database where users can search for venture capital firms, angel capital groups or Small Business Investment Companies (SBICS).
DD: Do you know of any upcoming legislation that will have a significant impact on the availability of funds and ease of approval for small businesses – good or bad?
JL: Yes, the Senate just recently passed a Financial Reform Bill that now must be reconciled in the House. When this bill is signed, access capital will slow down even further and those sources that remain viable options will get much more expensive. We have already seen this with the credit card reform Bill that passed in February – since the passage of that Bill, businesses have seen an increase in their cost of credit – up some 13% and access to credit cards (credit cards are essentially unsecured lines of credit) has not improved for any group – business or consumer.
This new Bill will entice banks and other lenders to pull back until they figure out the true impacts of this legislation. Plus, the Bill is expected to have language in it that further restricts how Angel Investors can invest in small businesses. While on the surface it may seem a good provision to protect these investors (those that are already accredited), it will 1) increase the time-frame for businesses to get funding as all investments must be registered and 2) make each deal more expensive to both the investor and business as they have to wade through more and more regulation.
Thank you, Joseph, for the excellent insight into what concerns so many people looking to start a new business or struggling to hit their goals – money.
If you need help with funding or have other questions for Joseph, here is his contact info:
Joseph Lizio, CEO
Business Money Today
And if your small business struggles go beyond finance, I’m here to help with my consulting and writing services.
All the Best,
The Solopreneur’s Guide