The Business Fashion Tips Podcast 

Episode 4

Hello I’m DeBora Rachelle and welcome to the fourth episode of Business Fashion Tips. In the first episode you learned what it takes to have a good idea that will succeed in business. In the second episode you learned how to make a business plan. Basically I’m taking you through everything you need to do to start your business. So, now it’s time to find out how you can obtain capital. Let’s face it, it’s a whole lot easier to make money when you have money. People are always asking me about loans. Where can I go to get a loan? What they need to bring with them? Can they go somewhere other than a bank? So I thought I would take a little time first of all to explain what types of loans are available for small businesses. I won’t touch all of them but I will hit a few. I have a book coming out in the near future that will go into more detail regarding loans. But, here’s a little bit to get you started.

There are many different types of loans. The most typical is a term-loan. A term loan gives you a lump sum of cash upfront and you pay it back with interest over a predetermined time period. This is the type of loan that I first applied for when I was opening my business. The bank told me what a wonderful business plan I had. They said it was actually one of the best business plans they had ever seen. Yet they turn me down. I can’t say I blamed them. I was 24 years old and I only had a used car to my name and a college degree. On the other hand my parents read my business plan and decided to loan me the money and I was able to repay them back the entire amount of loan with interest within the first six months. So this was my first loan, a term loan… from my parents. You gotta love your family.

Later, when my business was growing by leaps and bounds I needed money to fund my expansion so I went back to the bank and then immediately wrote me a five year line of credit, using my inventory and accounts receivable as collateral.  A line of credit is a loan that you can take out and pay back as you need it. It’s very flexible. The bank gave me this loan for 5 years. So I was able to put money in and take it out as I needed it. Unfortunately, after the five years were up the bank almost didn’t renew the loan because they claimed that they never made any money on the interest as I had paid it back too fast. So, after much being schnaggling they finally agreed to give me another chance and I promised not to pay it back as  fast. Although, I still think I will paid it back as fast as I could. I don’t want to have a loan hanging over my head.

The reason why I used a line credit is because I really needed to over-stock my store with inventory for the anticipated bridal and prom season which started in January. So when girls started coming in to shop for their prom dresses, I did not run out of dresses before the season ended in May.

I can see where the bank didn’t make any money on the interest on my loan because I only needed it for less than 30 days in January. Then my store is in full swing by February, so I always had my loan paid back within 30 days. To save money I also made sure I paid all my invoices on-time as most had 8/10 EOM terms. Now, 8/10 EOM means that I can get an 8% discount if I pay within 10 days or no discount if I paid the invoice at the end of the month. I wanted that 8% because my loan at the bank was only 6% at that time. So, I was actually making money by paying my invoices off early. Or saving money if I was not using the loan at that time.

Another type of loan a person can apply for after they have been in business for a while is invoice factoring. Invoice factoring is great if you need cash fast as you can use your customers unpaid invoices as collateral. The person providing the loan takes these invoices and collects them as their own. So you have no control over your invoices any longer. That’s the bad part.

Being in the prom and bridal business, my customers often put 50% down on their dresses a year in advance. And they did not pay the other 50% until their dresses arrived 6 months to a year later. So, although I never used invoice factoring, I did take a look at invoice financing when my line of credit was in question with the bank. Invoice financing is another means of providing cash fast. So, unlike invoice factoring, invoice financing uses your customers invoices as collateral, but you still have to collect the payments from your customers. Therefore, you have a little more control over working with your customers on their invoices.

When I went to expand one of my stores to 6,000 square feet, I applied for a SBA loan. SBA stands for Small Business Administration Loan. The great thing about an SBA loan is  they typically offer the lowest interest rates on the market for small businesses. And at the time I only needed a 10% down. The SBA helps small businesses obtain credit by giving the government’s guarantee on the loans made by the commercial lenders. The lenders, (the one that makes the loan) and SBA will repay up to 85% of any loss in case of a default. I remember being so happy the day I paid off my SBA loan. The nice thing is, the SBA called and thanked me for my business saying that I never missed one payment and they will be happy to loan me money anytime in the future due to my immaculate record. So, that made me feel pretty good as I had such a hard time getting my first loan. It was kind of odd to think that now after all these years they wanted to loan me money.

There are a lot of different ways to get financing. I have a friend who ended up starting a fortune 500 company and he financed it all with his credit cards. Credit cards, I personally would not touch with a ten foot pole as their interest rates are the highest rates around. And if you get behind there’s no real way to try to catch up. However if you know you can pay your loan back within 30 days I suggest credit cards because they typically don’t charge interest if you only borrow the money for 30 days. So, just make sure you can pay your credit cards back within 30 days if you are going to try this method. If not, it could really bury you right away. If you have personal collateral like a house or something more substantial you can typically obtain a personal loan right away. Then again, just remember you are putting your personal credit on a line, not your business.

So these are the most typical types of loans a business uses. And in the book I’m writing I also go into more detail on other sources where you can find loans such as your hosting service for your website or there’s a number of crowdfunding sites that are out there on the internet now that can help you secure funding without interest. And the great thing is they pre-sell your product. One thing you probably don’t know about these crowdfunding websites is typically, in order to succeed you need to hire somebody that really knows what they’re doing and they charge big bucks to do that.

For instance, is a company called Launchboom that specializes in just bringing products to market using crowdfunding sites. They have this whole process down to a science and they actually put this method in the three phases. The first is the test phase. They charge roughly around $20,000 just to do a test on your product. So by running a test phase they actually save you money in the long run if your product would have failed because they find out before they actually take it to the crowdfunding site if it will be successful and whether or not there is a desire or need for your product. Knowing what I know about crowdfunding I wouldn’t even attempt to do this without a professional such as Launchboom or another crowdfunding company that they list on their crowdfunding sites. You can usually find them on the Kickstarter or Indiegogo sites as referrals. Unless of course you have a super big following or know how to reach a lot of people. And if you do have a big following then I suggest to read a lot of books about how to launch on a crowdfunding site before you do it because there are tricks to it. Like which day or time or month is the best time to start your launch and other items that may incent your customers to buy. That’s right, there’s like a systematic method to this whole madness of crowdfunding.

A lot of people think you just put your product on the website and it will sell. These people are very misled. You have to do marketing, you have to get it out there. It’s not as easy as most people think. 

During phase 2 they actually launch your product and then during phase 3, they scale your product using e-commerce. And during each phase Launchboom charges you thousands of dollars more. Is it worth it? The problem is you probably won’t find out until your campaigns done and completed. But like I said, companies like that, know what they’re doing and they specialize in crowdfunding. For more information you can go right to the crowdfunding websites such as Kickstarter, Indiegogo or Fundable.

Another way to get a loan is to find an angel investor. If you’ve ever watched shark tank, these are angel investors that take a percentage of your company away from you in order to give you more funds to grow. And that’s the downfall, you will be giving up part of your company or shares in your company or equity in something. Or they just may ask for a higher rate of return than they can make on or other investments. The benefit is, a lot of times angel investors come with knowledge or skills and tools that help you grow faster or even use their facilities to make your business run more smoothly. To find an angel investor simply put an ‘angel business groups’ into your google search and up should pop some groups that actually are angel investors. Angel investors are typically wealthy people, friends, or family members who are willing to invest their own money in a startup. Look at fashion designer Vera Wang, her father was her angel investor and according to money magazine he invested 4 million in helping her startup. There are also venture capitalists. Venture capitalists typically work for firms or banks or universities. So, the funding typically comes from an institution. Another way angel investors differ from venture capitalists is, with angel investors that typically just giving you money. Sometimes with venture capitalists they provide professionals to help work your business. They also may just provide you with free marketing and other important elements so you’re able to expand your operations or customer base. And sometimes it is just in the form of money.

Typically if you want a big investment you want to go with the venture capitalist because they will provide millions whereas angel investors usually provide anywhere from $10,000 to $750, 000. One thing that I did for money was I did not give up my day job. I worked from 6:00 in the morning till 3:00 in the afternoon then I would rush up to my new store that I had opened and work there until 11 or 12 o’clock at night. Everyday, seven days a week. On weekends I only had to work in my store. But if you counted my hours back then, I was putting in over 120 hours a week and I’m not exaggerating. But I was investing in myself and when I was working, I was doing what I loved. And that made it just like a vacation, it never felt like I was working and I enjoyed what i did and I would do it all over again. And that’s one thing I always say the best investment is to invest in yourself because you know where you can take your product. And you know you will be giving up. So the best investment you can make is in yourself.

Sometimes your best investor might be right in front of you. For instance, some of your vendors that supply parts for your project or your product may want to invest in your company because they know that it will benefit their own business. If you make sales, their parts will sell. Ralph Lauren even persuaded his own employer to invest in him. While working for a tie manufacturer called Rivet, Ralph Lauren got his inspiration to design wide ties. Rivets was not really interested in wide ties because it wasn’t really a thing back then. And shortly thereafter, he went to work for another company, another tie manufacturer, called Bo Brummel. Then he persuaded Bo Brummel to let him design and manufacture a wide tie which you would market under his own tie line, which he named polo. They agreed to let him work out of a single drawer in their showroom which was in an empire state building. From that line he was able to make a huge sale with Neiman Marcus who bought over a hundred dozens of his ties. He departed Bo Brummel, took the pollo named with him and renamed it as polo by Ralph Lauren and started his own business with a loan he was able to secure and the rest is history. As you can probably see, going direct to the bank is the easiest but there are other sources out there you just have to keep searching. I mentioned in my last podcast how important it was to bring a business plan with financials with you to a bank when you go to apply for a loan. It is just as important to bring a business plan with you to any investor. What I didn’t mention were other items that you should bring with you.

What I didn’t mention were other items you should bring with you like your ID or a list of your assets you can use as collateral. Assets don’t necessarily have to be physical or tangible like a car or a house, it can be something like your 401K. For a business loan, you should also bring you resume. If you won any awards from the field you are going into, make sure to present that to the bank. In your business plan make sure how to state how you will be spending the money they are going to loan you. They are going to want to know that it’s not going to waste. And know what your credit score is. If it’s not good, you need to come up with a really good reason why it’s not.

So there you have it; I just gave you a few means of how to come up with financing for your business. If you are just not able to secure financing or get a loan, keep moving forward until you can figure it out. And remember if you keep getting turned down, don’t dwell on it. That’s a total waste of time.

You can never change the past, but you can always perfect the future. Only you can get where you want to be. No one else can do that for you. So keep moving forward.

I hope you enjoyed this podcast. I’ve taken you though the 10 steps needed to start a business and this is probably one of the most crucial steps.

If you’d like to message me, you can do so below.

d