New Biz? This is Where the Money Is

New Biz? This is Where the Money Is

By Becky Kalajian

Everyone agrees: Your widget/idea/service is sure to be the Next Big Thing. But when it comes to getting the cash you need, those same people won't put the money where their mouth is.

The search for funds can be overwhelming for a new business or even an established company hoping to grow. Banks, still wary from the 2008 recession, scrutinize startups, which the Harvard Business Review says have a proven 75 percent failure rate. Friends and family, often the first to be tapped, can be generous … up to a point.

Fortunately, where traditional bank loans and family fall short, resources like crowdfunding, angel investors, gap funding, and micro loans step in.

Following is a compendium of resources for those seeking funds to launch or grow their business.

Michigan Small Business and Technology Development Center (MI-SBTDC)

What it is: An offshoot of the Michigan Economic Development Corporation, the MI-SBTDC provides counseling, training, research and advocacy for new ventures, existing small businesses and innovative technology companies.

Appropriate for: New and growing companies.

Services: For little or no cost, the MISBTDC conducts a strategic needs assessment and market analysis. Its most popular service is writing business plans, getting owners "bank ready," said Mary Rogers, the MI-SBTDC regional director. It also provides ongoing strategy development, financial analysis and access to alternative sources of capital.

What sets them apart: The MI-SBTDC offers a customized search engine optimization marketing report. Each report offers an in-depth analysis of a client's website, providing demographics on the visitors, tips for improving the design and keywords to drive traffic to the site and increase sales.

Stats: The MI-SBTDC services the 10 counties surrounding Traverse City; additional offices are in Manistee and Cadillac. In 2013, it serviced more than 300 new or existing companies.

Contact: Mary Rogers, regional director: 231-922-3780 or apply online at misbtdc.org.

Northern Initiatives

What it is: Northern Initiatives, a Community Development Financial Institution (CDFI), delivers loans and business services to small business owners and entrepreneurs. A CDFI is a financial institution that provides credit and financial services to underserved markets and populations. Northern Initiatives is one of 200 CDFIs in the country.

Appropriate for: New, growing, and established companies.

Services: In addition to structuring a solid business plan, Northern Initiatives is a clearinghouse for all alternative lending resources available locally and federally. "If I can't figure it out, I can find people to help," said Chris Wendel, commercial lender for Northern Initiatives.

What sets them apart: Northern Initiatives' sweet spot is the $50,000-and-under micro loan that otherwise might not be bankable, said Wendel. After funding is approved, the staff works with the business owner to establish solid accounting and marketing systems, "ensuring success and stability," Wendel said.

Stats: Since it opened in 1994, Northern Initiatives has processed $40.2 million in loans and $7.9 million in micro loans.

Success story: Early on, the owners of Roaming Harvest (organic food truck), Rare Bird Brewery and Taproom, and The Redheads (organic hummus and salsa) used Northern Initiatives to help grow into larger markets.

Secret to success: According to Wendel, two things: Does the entrepreneur have a market, and does the business create enough in sales to pay the company's bills, owner, and loans? "If it doesn't do that, then they need to go back to the drawing board," Wendel said.

Contact: Chris Wendel, commercial lender for Northern Initiatives: 231-409-7889 or cwendel@northerninitiatives.org.

SCORE

What it is: SCORE is a mentor referral program that links experienced businesspeople with anyone needing business advice. The mentorship is confidential and free.

Appropriate for: New, growing, and established companies.

Services: SCORE, which is a national program, also offers regularly scheduled local workshops and many different types of business templates and worksheets, such as breakeven analyses, how to create a business plan, and an introduction to accounting.

What sets them apart: The mentorship program. "I'm in constant contact with my SCORE counselors; they are what I am most passionate about," said Sue Kellogg, a local entrepreneur who launched her food-grade silicone teether this year.

Stats: Currently there are 40 SCORE mentors in the Traverse City area. More than 1,000 people are served by SCORE each year, either through the mentorship program or through the workshops.

Success story: Morsels, a restaurant in downtown Traverse City. "The tailored, experienced, and professional advice, ideas, and positive reinforcement we received from SCORE have been integral to our success," said Misha Neidorfler, co-owner of Morsels.

Contact: Linda Ketterer, SCORE administrator: 888-796-4913 or upnorthscore.com.

Traverse City Chamber of Commerce

What it is: The Traverse City Chamber of Commerce is a leadership and advocacy entity that focuses on economic development, education and stewardship. For businesses seeking funding, the Chamber has $5 million in revolving funds available to qualified applicants.

Appropriate for: New, growing, and established companies.

Services: As it pertains to gap funding, the Chamber offers short-term loans through 5/3 bank, access to a $500,000 U.S. Department of Agriculture fund, and other partnerships.

What sets them apart: Their pre-loan counseling program. "We counsel applicants first, creating a cash flow projection, then review it. We work hard to make clients successful," said Laura Galbraith, vice president of administration, human resources for the Chamber.

Stats: In the past six months, the Chamber has had five deals close, with the average loan size amounting to about $50,000.

Success story: 45th Parallel Lighting, co-owned by high school-aged brothers Dakota and Garret Porter, was a client early on before the launch of its unique LED lighting kit for sporting equipment.

Contact: Laura Galbraith, vice president of administration, human resources for the Chamber: 231-947-5075; info@tcchamber.org; tcchamber.org.

MidMichigan Innovation Center

What it is: Midland's MidMichigan Innovation Center (MMIC) is a non-profit incubator whose focus is the launch and growth of small business. With significant support from The Dow Chemical Company, membership includes access to business analysis, capital funding, and a process called "commercial acceleration," designed to ensure success after launch.

Appropriate for: New, growing, and established companies.

Services: MMIC provides access to analysis and planning, networking and referrals, workshops and forums, and capital funding.

What sets them apart: MMIC hosts a Best Shot Competition, where entrepreneurs' four-minutes pitches are critiqued by a panel of judges. Winners receive prizes along with guidance in targeting customers, creating presentations, building websites, developing sales channels, and help with legal, accounting, and PR/marketing.

Stats: Membership packages are free, with additional benefits available on a sliding scale up to $995 per year. In 2012, MMIC serviced 50 members, raising more than $1 million through angel investing. It also accessed an additional $347,000 from the Michigan Economic Development Fund and $85,000 through the state's Business Accelerator Fund.

Success story: Traverse City's Dennis Bean-Larson, owner of ERG! Foods LLC, was a client. Now ERG! fruit and nut energy bars are sold in California, Colorado, Michigan, Wisconsin, and Ohio.

Contact: Heather Fortin, program director for northern Michigan: 231-995-7119; fortin@mmic.us; mmic.us.

Mott Community College's Fab Lab

What it is: First developed by MIT, fabrication laboratories are places for entrepreneurs to have their prototypes mapped from a sketch using computer-aided design (CAD), ultimately building a complete prototype. Cost is minimal and depends on the complexity of the project. There are five in Michigan: Mott Community College (MCC) in Flint is the closest to northern Michigan.

Appropriate for: An existing business, a student, a garage inventor, and engineers.

Services: Clients can either send CAD files, or come in personally with a raw sketch or clay model. MCC second year CAD students will either create the CAD file or build a complete prototype using the CAD file. "This allows entrepreneurs to go to numerous pitch nights and shows and say, 'Here it is,'" said Doug Prehoda, director of the MCC Fab Lab.

What sets them apart: Price. Cost varies, but most clients walk away from MCC with a working prototype for less than $500, Prehoda said.

Stats: The MCC Fab Lab opened in 2010 and has served about 50 entrepreneurs. Turnaround for most projects is about three weeks.

Success story: An entrepreneur from Brighton, Mich. used MCC's Fab Lab to develop his twisting hair clips, which are now selling at a rate of one million per month at Wal-Mart and Target, said Prehoda.

Contact: Doug Prehoda, director of the MCC Fab Lab: 810-232-4553 or www.mcc.edu/FABlab/index.shtml.

Start Garden

What it is: Launched in 2012 by Amway heir Rick DeVos, Grand Rapids' Start Garden is a $15 million fund that awards $5,000 to new businesses each week. Businesses that win the $5,000 then are able to move through a process that could eventually earn them up to $500,000 in Start Garden funding.

Appropriate for: New companies.

Services: Besides the weekly pitch opportunities, Start Garden offers mentoring and both live and web-hosted classes on lean startups, team building, and more.

What sets them apart: With the aim to become an entrepreneurial hub such as those found in Austin, Boston, and Silicon Valley, Start Garden will launch more than 100 new businesses a year. New $5,000 ideas are chosen each week: one selected internally, and a second through a public vote. After a 90-day hiatus, winners must give a status update with the potential to earn another $20,000 in funding.

Stats: Since its inception, more than $5 million has been disbursed in the following amounts: 130 businesses have been awarded $5,000; 39 teams have been awarded $20,000; and 18 "side door" deals ranging from $50,000-500,000 have been closed.

Secrets to winning: "The entrepreneur understands their market and is able to execute a good experiment. We ask that they test an underlying hypothesis of their business. If they take one assumption and run an experiment to prove or disprove their assumption, that is the first test. If the learning results in sales, that is ideal," said Kim Pasquino, portfolio relations for Start Garden. "No matter if it is $5,000 or $20,000, if the project addresses a large market, a problem is identified that they think they can solve, and we can see how it can scale, then those things combined with a really smart entrepreneur is what is most interesting to us."

Success stories: Traverse City businesses Mello & Co., Silikids Inc., and ERG! Foods LLC have all received $5,000 from Start Garden.

Contact: Startgarden.com

Northern Michigan Angels

What they are: Angel investors provide financial backing for small startups or entrepreneurs. The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.

Appropriate for: Launching companies.

Services: Northern Michigan Angels will bring many groups together to invest in local companies that show promise in creating a financial return as well as jobs in the region.

What sets them apart: Northern Michigan Angels are "patient and quiet investors," said Deanna Cannon, the group's executive director. "We realize eight out of 10 of these startups will fail, so it's part of why we try to pick those businesses that will scale up well."

Stats: Northern Michigan Angels is almost two years old and has invested about $1 million in 10 Michigan companies so far.

Secrets to getting funded: "Investors in Traverse City are not just interested in the financial return," Cannon said. "They are also watching for potential growth in the region as it pertains to jobs."

Success stories: Traverse City-based Silikids Inc., a company that uses food-grade silicone in its line of child-centric products, and Altus Brands LLC, manufacturer of outdoor recreation goods, were both awarded money through the Northern Michigan Angels.

Contact: Deanna Cannon, executive director: 231-932-1280; northernmichiganangels.com.

Northwest Food and Farm 20/20 Fund

What it is: This fund, new in 2013, offers farm businesses financing tools and products offered by regional lenders through a one-stop application process.

Appropriate for: Agricultural businesses in their first and second stages of launch; farms; value-added agricultural products made locally.

Services: "We connect and prepare our clients for bridge loans and gap financing," said Susan Cocciarelli, the program's administrator. "Our main concern is helping that person not go into debt."

What sets them apart: The Fund offers a matched savings program, which matches a client's savings dollar for dollar and then sets it aside at a financial institution as a loan loss reserve or down payment.

Stats: Although less than a year old, the fund has arranged for eight loans totaling $500,000 since May, Cocciarelli said.

Success story: One producer used a Fund loan to purchase equipment to wash vegetables, enabling the producer to deliver its produce to local schools. Although approved for state funding, the producer needed a bridge loan to finance the gap until that funding was received, Cocciarelli said.

Contact: Susan Cocciarelli: 231-929-5096; susancocciarelli@nwm.cog.mi.us; or nwm.org.

Michigan Economic Development Corporation

What it is: The Michigan Economic Development Corporation (MEDC) is a public-private partnership serving as the state’s marketing arm and lead agency for business, offering business assistance services and capital programs for business attraction and acceleration, economic gardening, entrepreneurship, strategic partnerships, talent enhancement and urban and community development. MEDC, founded in 1999, also developed and manages the state's popular Pure Michigan brand.

Appropriate for: New, growing, and mature companies.

Services: The two products the MEDC uses are called the Collateral Support Program and Loan Participation Fund, both of which link businesses with a willing bank. "The MEDC does not do equity investing," said Tino Breithaupt, regional director of retention and growth for the MEDC. "Rather, we work with all venture capitalists, angel groups to get early stage startups in front of these groups. We will do our very best to put people in touch with the right resources."

What sets them apart: The MEDC has a strong local connection to the Michigan Small Business and Technology Center in Traverse City, which helps businesses become loan-ready through counseling.

Stats: Since 2009, the MEDC has brokered several hundred deals through the Collateral Support Program and the Loan Participation Fund, ranging from $70,000-$5 million, Breithaupt said.

Secret to getting an MEDC-supported loan: "Have a solid business plan, know your market, and know your competition," Bretihaupt said. "Be organized and competent about what you're going to do. Plus, add 50 percent to the amount of money you think you need. People always need more because of hidden costs, delays, and timelines."

Success stories: Tellurex, which invented and launched the first commercial heated and cooled in-vehicle cup holders, revamped their business model when its biggest customer took a nosedive a few years ago, Breithaupt said. Their new product, the Tellurex tPOD1™ is a tea candle that heats a thermoelectric generator, providing four hours of continuous bright light for five cents.

Contact: Tino Breithaupt, manager of business retention and growth for the MEDC: 231-620-1565; michiganbusiness.org.

Small Business Administration Loans

What they are: The federal Small Business Administration (SBA) participates in a number of loan programs designed for business owners who may have trouble qualifying for a traditional bank loan.

Appropriate for: New, growing, and mature companies with reliable cash flow projections.

Services: For new businesses, SBA loans fall into three categories: 7(a), which loans to eligible borrowers for starting, acquiring and expanding a small business; its Certified Development Company 504 Loan Program, which provides growing businesses with long-term, fixed-rate financing for major fixed assets; and its Microloan Program, which offers very small loans to start-up, newly established or growing small business concerns.

What sets them apart: SBA loans are usually more substantial in size: $400,000-$500,000 on average for Grand Traverse and Leelanau counties, said Mitchell Blue, senior vice president of commercial lending and SBA product manager for Traverse City State Bank. "If you follow the rules, the SBA will allow lending for less of a down payment than is traditional," he said.

Stats: According to state records for the fiscal year 2012-2013, Traverse City State Bank processed 19 SBA loans this year totally $8.2 million, tying for second among lenders in Michigan. Of the 21 loans processed in Grand Traverse County, 16 were processed by Traverse City State Bank.

Secret to getting an SBA loan: "The key is to do your homework," Blue said. "You need supporting documentation. Generally, it's easy math and if you don't have your numbers in the ballpark in a certain aspect, then we will hammer you for proof of absolutely everything else."

Success stories: "Great Lakes Potato Chip Co. started from zero, and if you look around the state, they are everywhere now," Blue said. "They are continuing to grow and add employees. It's pretty exciting."

Contact: Mitchell Blue, senior vice president of commercial lending and SBA product manager for Traverse City State Bank: 231-995-8022; sba.gov.

Traverse City Chamber of Commerce Sub-Microloans

What they are: A joint venture with 5/3 Bank and the Traverse City Chamber of Commerce, these loans are six-to-18-month $7,500 notes.

Appropriate for: Businesses with little or no track record to attract traditional bank lending.

What sets them apart: The prequalification for these loans is very short. Turnaround is generally quicker than most loans, said George Bailey, president of 5/3 Bank, Northern Michigan.

Stats: Since its summer 2013 launch, the Chamber sub-microloan program has made four loans averaging $5,000 each. "There is another $20,000 in the pipeline that is not yet funded," Bailey said.

Secret to getting a sub-microloan: Applicants will be referred to the Michigan Small Business and Technology Development Center to formulate a business plan and receive business coaching.

Success stories: "Most of the loans so far have been for food sales and equipment," Bailey said. "We feel this product is a good way to help drive innovation and create a thriving business community."

Contact: Laura Galbraith, vice president of administration, human resources for the Traverse City Chamber of Commerce: 231-947-5075; info@tcchamber.org; tcchamber.org.

Huntington Bank's Pure Michigan Micro Lending Initiative

What it is: A partnership between the state of Michigan and Huntington Bank, the Pure Michigan Micro Lending Initiative is a $25 million lending commitment ($5 million of which is allocated to Detroit) to budding entrepreneurs and female/minority-owned small businesses.

Appropriate for: Small businesses owned by women and minorities; entrepreneurs.

What sets them apart: The program, which partners with local entities that vet potential micro loan candidates, is expected to attract other lenders soon, said Daniel Stoudt, Sr., senior vice president, Huntington National Bank.

Stats: Since its November launch, no local micro loans have been processed. Stoudt said he expects the micro loan product to be available in northern Michigan by April 2014.

Contact: Michiganbusiness.org; Huntington.com.

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