Financing vital to starting, maintaining and expanding business: financing for business encompasses everything from term loans and lines of credit to business credit cards and equipment leases.

In life, money may not be everything. But, in business, access to financing can mean the difference between failure and success.

Undercapitalization is the reason 80 percent to 90 percent of companies fail, experts say. And this makes financing one of the biggest challenges most companies face. That's certainly true for Anchorage-based Trailboss Enterprises Inc. Maintaining enough working capital to finance large projects is one of the company's biggest burdens, says President and CEO Joseph Tolliver.

Trailboss Enterprises is a technical services, transportation and construction company that provides a variety of contract solutions to government organizations around the world. Its services include transient aircraft maintenance, aircraft support equipment maintenance, air terminal operations, air freight operations, asphalt paving, vehicle maintenance, drayage, logistics transportation and facility maintenance.

Having access to lines of credit valued between $500,000 and $1 million enables the company to maintain a staff of more than 140 employees and offices in Alaska, the Lower 48, the United Kingdom and Germany. "We couldn't run our company without the support of financial institutions (Alaska USA Federal Credit Union)," Tolliver says. "The line of credit helps cover payroll, insurance and other operating costs."

Outside financing also gives Trailboss up-front capital to successfully land and satisfy new contracts. To conduct business, the company must deal with business development, marketing, recruiting, payroll and equipment and a variety of other costs. "It takes cash to stand up a contract," explains Tolliver, the U.S. Small Business Administration's 2000 Minority Small-Business Person of the Year for Alaska.

BUSINESS FINANCING OPTIONS

Almost every business enterprise needs access to financing to remain competitive in today's marketplace, says Charlie Weimer, senior vice president First National Bank Alaska, the state's largest bank based upon asset and deposit size. And this is especially true for small businesses.

Financing is such an important issue that earlier this year First National again published the Alaska Small Business Resource Guide. The free publication, which is available at any of the bank's 29 branches, provides a range of information to help businesses succeed. "The guide profiles numerous success stories of businessmen and women throughout the state of Alaska," he explains. "But more importantly, it offers an outline for a business plan, a checklist for going into business, a glossary of business terms and definitions, as well as contact information for additional resources throughout Alaska and on the Internet. "It's a very valuable tool for the small-business owner or anyone wanting to expand."

Business financing options run the gamut. They encompass everything from term loans and lines of credit to business credit cards and equipment leases. Loans are one of the most popular alternatives for companies large and small. "I make loans that are for the small-business person buying equipment for $5,000 to loans of more than $1 million for businesses that have expanded," Weimer says. "Whether you're in the initial stage of starting a business, purchasing equipment to expand an existing business or buying real property to house your business, First National Bank Alaska has a loan program that should fit your needs."

Fitting solutions to financial needs is also the focus at Northrim Bank, the third-largest bank in Alaska. That's because different businesses have different requirements when it comes to credit needs, says Bob Shake, senior vice president/ executive loan manager. The best type of financing will depend on how the money will be used. "I think there's a lot of misconception in the marketplace about identifying X amount of capital," he adds. "You must determine how much money you need and how long you're going to need it."

Those are the kind of factors that Lisa Howe considered when securing financing for her small business, Georges Courier Service LLC. Besides a standard business credit card, Howe uses lines of credit from several banks to meet any unforeseen financial needs of the Anchorage company. The business currently has eight employees and eight vehicles--three of which are under financing.

Howe has a distinct approach to using credit. She pays expenses immediately whenever possible and keeps revolving accounts only for the most necessary expenditures: vehicle maintenance, fuel, communications, etc. "Without the financing it would be problematic to pop up with a new vehicle when one dies," Howe says. "Very few of us have $20,000 on hand to plop down on immediate-need expenditures."

Although she prefers to restrict her use of credit, Howe fully appreciates having funds available whenever she needs them. "With a line of credit, and a few well-placed credit accounts, a business can survive almost any temporary hardship, she says. "Without this backup, it only takes a minor financial difficulty to throw a company into an irreversible tailspin."

For Tolliver, lines of credit are particularly handy to have during early spring and late summer because of the budget cycle of the federal, state and local governments. "Most of our contracts are stood up between June and the first of October," he says. "If we're fortunate enough to win two or three contracts, that cash has to be available up front. Or it can put a severe strain on my working capital."

NEWER FINANCING SOLUTIONS

Some of the newest financing options on the market afford businesses broader flexibility with their finances. For example, First National recently began offering an equipment-leasing program designed to make equipment purchases easier and more convenient to manage. Under the program, 100 percent financing is available for almost any type of commercial equipment-and not just big-ticket items. This allows borrowers to reserve their cash or line of credit for other needs that may arise.

The program also offers the benefit of flexible payment options. "We can preapprove you for this financing before you shop for the equipment, which quite possibly may help you negotiate a better price with the equipment vendor," Weimer says.

The bank also recently launched the state's first Fannie Mae MFlex multifamily loan product. "MFlex enables our bank to offer financing for multifamily property containing at least five units," Weimer explains. "And when refinancing property, owners can withdraw equity from their projects."

In addition, Northrim Bank has enhanced its existing business manager product offering. Under the program, the bank funds accounts receivables for business enterprises, giving customers immediate access to capital. This product can be especially useful for seasonal businesses and those that tend to have high turnover in their accounts receivables. "Contractors are exempt, but for people in the service industry, it's been a great tool," Shake says. "In a moment's notice, you could have access to liquidity ... and you don't have to go the bank."

Likewise, Wells Fargo is constantly tweaking its financial products and services, according to Regional Business Banking Manager Joe Everhart. With its Business Direct line of credit, the borrower applies for the line by completing a short, one-page application. Once approved, the line has no set maturity, so it's always available for ongoing use.

Wells Fargo is also packaging products into solutions that are designed to save customers time and money, Everhart says. These packages give businesses easier access to popular options, such as checking and savings accounts, lines of credit, merchant services and online banking. "They can help businesses streamline their money management, and they can save hundreds of dollars a year," he says.

SECURING FINANCING

To successfully obtain financing, businesses must convince lenders that they are creditworthy. As such borrowers must provide adequate financial documentation to show their propensity and capability of repayment.

Wells Fargo typically asks borrowers to provide balance sheets, income statements, cash projections and three years worth of tax returns. A detailed business plan and/or site visit may also be required for start-up businesses. "Sometimes we go out and see their business," Everhart says. "We always want to go meet our customers and see what they're doing."

Everhart adds that borrowers' personal credit is also a major consideration. He says: "Their personal credit is a good indication of how they will handle their business financing."

This important factor is the primary reason why Howe has been successful at securing financing for her courier business. "I began building my credit the day I turned 18 and have kept my credit spotless since that time," explains Howe, 43. "As a result, when I have a vehicle that dies or gets totaled, I can walk into any car dealership in this city and drive away with a new car in 45 minutes based on nothing but my signature."

Unfortunately, not all business owners are as conscientious about their credit as Howe. But building good business (and personal) credit takes time. Therefore, the process should begin well before the need for capital develops, experts advise.

Establishing business credit basically requires having credit scores that are not personally connected to the owner. In other words, the borrower must qualify for financing with a business tax identification number instead of a social security number. Then, on-time or early payment histories must be established and reported to business credit reporting agencies like Dun & Bradstreet and Equifax. Ideally, a business should strive for a credit score of 75 or higher. A score of 80 is similar to a personal credit score of about 700, which is excellent.

In addition to having good credit, potential borrowers must have equity, says Shake of Northrim Bank. If they don't have any cash available, they might consider borrowing on the equity in their house to help fund their business project. "They need to understand that banks aren't going to finance anything 100 percent. It's very important that the individuals have some of their own resources into the venture."

Borrowers also need to have a backup plan for repaying loans and other financing, Shake says. "I look for primary and secondary sources of repayment," he explains. "All too often when lending, there's a tendency not to identify true sources of repayment outside the cash flow of the business, such as taking additional collateral on loans."

In actuality, Weimer says, efforts to obtain financing should begin long before the borrower approaches the lender. Business owners should establish a good relationship with a commercial banker before a financial need develops. They should also talk to more than one financial institution when choosing products and services, Weimer says. "You want to go out and look at your options because one size doesn't fit all," he adds.