Gaming Biz Myth #1

Hello Hubpage community!

A few months ago I decided to explore starting up my very own game-centric retail store. I've been working with the Small Business Development Center, a leasing company and several financial institutions to get this thing off of the ground. I've been moving forward slowly and am in the last stages before I can open my doors; financing.

I would like to share with you a few of the hurdles that I've had to jump over so that if you, good readers, are someday following a similar dream you are better prepared than I.

Myth #1 - The SBA (Small Business Administration) gives money to start ups.

The SBA doesn't provide loans at all. The SBA guarantees the money borrowed from another institution eliminating risk. This is supposed to make it easier for businesses to gain financing from traditional banks; however, the SBA has just as strict guidelines as banks do. Right now, the SBA won't consider a guarantee unless the business in question is able to provide roughly 25% of the value of the money needed in the form of cash. So if you need $100,000 to start your business, you would need $25,000 in cash before they would guarantee the remaining $75,000. Basically, there is no such thing as 100% financing.

I was basically told, unless I have an angel willing to give me cash, nothing will be approved. Some banks even told me that I would need 130% collateral! That means that if I'm asking for $100,000 to start my business, I would need to prove that I have $130,000 worth of collateral. This collateral could be inventory, a car, a house, a soul; basically anything that the bank can sell if you have to go out of business.

This poses the questions that if you are guaranteed by the SBA (right now they are offering 90% coverage), why would they need proof of so much collateral? 90% coverage means that if you borrow $100,000, the SBA will pay the bank 90% of the outstanding balance at the time of the business failing ($90,000). I understand that banks are taking less risk and that the SBA don't want to just throw money away, but wow, 25% cash and 130% collateral? Why would I even be talking to a bank if I had that much capital?

But here's the real question: Where's the stimulus package when you need it? The government is so willing to bail out failing, corrupt banks who have proven that through poor management they deserve to fail. When a small business owner with a proven record of running a profitable business needs help getting through a tough time, or is looking to grow that business, they are being told that there is no money available or that they don't meet very strict guidelines regarding cash/collateral that many small businesses are hard pressed to meet.

I know that it's not all the government's fault and that poorly run small businesses should fail. The government couldn't control the fact that these criminally corrupted fat cats would leverage other financing to pay back the government, still not make money available, and then give themselves million dollar bonuses. They should have, however, thrown their asses in jail… but I digress.

I plan on writing about some other hurdles in the coming weeks including margin, leasing, labor, etc.

If you are looking to open your own store, or to start your own business in general, I would be more than happy to answer any question you may have. Also, if you have any advice for me I'd love to hear it!