Entrepreneurship, Second Edition

Chapter 9. FINANCING ENTREPRENEURIAL VENTURES WORLDWIDE

Grameen Bank Managing Director and Nobel Peace Prize Laureate Muhammad Yunus speaks during the lecture 'A world without poverty' on February 1, 2010 in Milan, Italy. (Source: Vittorio Zunino Celotto/Getty Images, Inc.)

A new business searching for capital has no track record to present to potential investors and lenders. All it has is a plan—sometimes written, sometimes not—that projects its future performance. This means that it is very difficult to raise debt financing from conventional banks because they require as many as three years of actual—not projected—financial statements and assets that adequately cover the loan. And even established entrepreneurs are now finding that their longtime deposit relationships aren't proving as useful, as many lenders restrict loan and credit terms to keep more cash on hand, says David S. Waddell, the CEO of investment strategy firm Waddell & Associates in Memphis, Tennessee. (According to the Federal Reserve's most recent Senior Loan Officer Opinion Survey in April 2009, 75% of domestic banks said they tightened credit for small firms—up from 70% in the Fed's January 2009 survey.) In addition, credit card companies like American Express and Advanta are either tightening their terms or cutting small businesses off entirely.^[] Hence, almost every new business raises its initial money ...