NFIB

Offbeat Funding Techniques
03/ 28/ 2002

3 Tactics to Try

by Jayne A. Pearl

Strapped for cash to help your business launch or grow? Here are some unusual and creative ways small business owners have liquified their companies:

1. Keep your day job. Frank Hall, a Florida barber, wanted to launch a retail pager and cell phone store in Lexington, Ky. For startup capital, he scraped together $6,500 from personal savings and took out a $20,000 home equity loan. But to survive until the business turned a profit, he plunked a couple of barber chairs in the back of the store and kept trimming hair while his wife managed the store up front. Now the Halls own a second store that Hall's brother manages, a day care center, with a second day care center planned. Hall still has the barbershop, just in case all else fails.

2. Invest your pension. Six employees who left their jobs to start Print Management Partners in Des Plaines, Ill., transferred about half of their combined 401(k) pension plans from their former company, worth almost $500,000, into an employee stock ownership plan (ESOP) for their new firm. They then directed the ESOP to buy shares of the new company -- thereby funding it. By going through the ESOP, the co-founders avoided having to pay tax or early withdrawal penalties.

3. Get marginal help. Find an investor to take out a margin loan on securities he or she owns. The business owner pays the margin interest, and if the investor gets a margin call, the entrepreneur has to cough up the borrowed funds immediately. "They can put in a limit order to limit the downside of their loss to say $25,000 or $50,000," says David Evanson, author of Where to Go When the Bank Says No (Bloomberg, $24). "It might be all the business owner has, but if he uses it that way, he gains access to investors."

---

This article originally appeared in the May/June 2001 issue of MyBusiness Magazine, NFIB's member magazine.

Small Business Sound Off
Does this story hit home?  Share your story with us