In some respects, starting a business is a double-edge sword.
It is difficult to launch a business without capital, and it is often difficult to get capital until a business starts to generate revenue. Far too often, banks are reluctant, if not unwilling, to provide entrepreneurs with growth capital because they don't have enough assets to secure a loan or line of credit, or long enough track records.
The inability to attract financing can be frustrating because entrepreneurs have an abundance of enthusiasm that they think could be transformed into success with just a small amount of money.
A good example is Jason Nykor, who launched a Toronto-based boutique wine, beer and spirits agency after deciding that he wanted to be his own boss.
He launched Grape Wines in January of 2009, and during the last six months of the year the business started to gain serious traction. The company's cash flow was good and the bills were being paid.
Armed with sales forecasts, Mr. Nykor approach his bank about securing a line of credit or a business credit card. The answer was a curt "no" because the bank had nothing to secure its loan against. A few months later, Mr. Nykor approached the bank again but was rejected, this time because he had too much debt (from borrowing money from family) and outstanding receivables from customers.
"Without the funding I am unable to keep inventory flowing. No inventory, no funding," he said. "Then, I had the thought to go to a more business-minded bank as I was just dealing with a local branch. Same thing. Too much debt, but I am funding my inventory and my customers are dragging me out 30, 60, 90 days.
"The banks have been totally unco-operative, and unwilling to help a startup. You are now considered a startup until you are 2 years old."
In the end, Mr. Nykor was forced to turn to family to finance the business – an option that he considers a necessary evil given that it's not always a good idea to mix money and family. He said he is now exploring the idea of finding a partner or private investors, as the business is evolving from a one-man operation into a larger entity.
"If you're unable to borrow from banks, family, friends, I think that business owners need to find new, creative ways to run their businesses," Mr. Nykor said. "For me, I have to rethink how much inventory I need to have. Maybe a one-man show is not realistic, or maybe a partner is needed.
"But what I have learned is that while friends and family want to see you succeed, banks seem to only be betting on sure things. While I'm being told no, the banks are posting record earnings in a recession. Go figure."
Special to the Globe and Mail
Mark Evans is a principal with ME Consulting, a content and social media strategic and tactical consultancy that creates and delivers 'stories' for companies looking to capture the attention of customers, bloggers, the media, business partners, employees and investors. Mark has worked with three start-ups – Blanketware, b5Media and PlanetEye – so he understands how they operate and what they need to do to be successful. He was a technology reporter for more than a decade with The Globe and Mail, Bloomberg News and the Financial Post. Mark is also one of the co-organizers of the mesh, meshUniversity and meshmarketing conferences .