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By Karen E. Klein

Get Real, Entrepreneurs: There's No "Free" Money for Businesses
No one's going to hand you a fistful of dollars, but here's how to find a loan

Q: I'm a single mother of four, and after 20 years in business (I clean houses, but have no employees), I'd like to expand. I need help with finances, and am trying to find a grant. Where can I apply?

—M.G.S., Glenwood, Iowa

A: The "free" money myth is just that — a myth. Unless you are starting a nonprofit entity or have a rich, doting uncle, you'll have to find investors or lenders and repay them — with interest. The good news is that you may qualify for a low-interest loan or be able to arrange alternative forms of financing. You may qualify for a micro-loan. Micro-loan programs generally offer $25,000 or less to small, undercapitalized businesses. Repayment terms range from three months to three years. Call your city's economic development department for information. "A number of local governments are forming micro-loan centers, where the banking interests in the community put money into a trust fund...aimed at helping very small businesses grow," says Ron Wohl, director of state and local government relations for the American Association of Home-Based Businesses.

Alternatively, ask your bank about the U.S. Small Business Administration's 7(a) Loan Guaranty Program, designed for small businesses that lack collateral to get a conventional bank loan. The SBA guarantees most of the loan, which cuts the risk for the bank. "We guaranteed 43,600 loans through conventional lenders in fiscal year 1999, and all were made based on cash-flow analysis," says SBA spokesman Mike Stamler ( or 800 U-ASK-SBA).

Service businesses that are short on assets can sometimes smooth out their cash flow by factoring their accounts receivable. Factors purchase a company's outstanding invoices and typically charge between 4% and 9% to collect the receivables. Factors are invaluable to some businesses, but impractical for those operating on a slim margin because the fees can eat up profits. Other possibilities: Take out a home-equity loan or use credit cards to purchase new equipment and inventory. But be cautious if you do. If you can't make your home-equity loan payments, you could lose your house. Credit-card rates may jump sharply over time, or the companies may impose onerous terms on unpaid monthly balances.

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