November 2010

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Volume 2, Number 11

News & Views from the sustaiNable southwest

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Recycling Economics • A Community of Partners • The Carbon Ranch • Slow Money

Green Fire Times • november 201012 www.GreenFireTimes.com

Green business is where most look for the greatest growth in

America to come. Given the current economy, it is needed as soon as possi-ble. Many home-based businesses and start ups, environmental or not, often lack a major green element—money. Ensuring a green entrepreneur has a successful idea, the financing to launch, and then the cash flow to continue his or her enterprise is a vital necessity.

EnsurE thE BusinEss idEa will workHaving a good idea and a strong plan are initial steps. Many support institu-tions in Santa Fe and northern New Mexico help small businesses of all kinds. The U.S. Small Business De-velopment Center, SCORE, Santa Fe Community College and WESST are just a few offering training, mentors and other services. “We help all local busi-nesses, regardless if they are a Chamber member or not,” says Val Alonzo of the Santa Fe Chamber of Commerce.

An extensive list of resources is avail-able at the city’s Department of Eco-nomic Development website (http://santafebiz.org/). City staff is available. “We’re here to assist business and workers towards success,” the website prominently states.

Finding a supportive community is a good step toward building a green business. Business networks to tap

include the Santa Fe Alliance, which hosts regular events; “Green Drinks,” green business trainings, and oth-ers listed at http://santafealliance.com/. You can also sign up for their newsletter. The Santa Fe Incubator is another outlet. Founder and CEO Marie Longserre says, “We have a green cluster, and are working to brand identity around that group.” Open Coffee Club is held monthly at the Santa Fe Complex.

considEring capital optionsSecuring capital is challenging for start-ups in general and green busi-nesses in particular.

Managing expectations is an impor-tant first consideration. Although NM has a healthy venture capital commu-nity, these equity risk investors are rare options unless the business can grow very fast (like five or ten times).

Grants are usually reserved for non-profit charities. There are exceptions, particularly for businesses in rural ar-eas, minority/women/veteran owned, or offering specialty niche technolo-gies. “Our local office has to send Washington back millions of dollars in funding that goes unclaimed each year,” says Terry Brunner of the NM USDA. “We are always looking for appropriate matches for projects.” It is worth seeking help from that govern-ment agency or others who have done it successfully, as grants can be chal-lenging to navigate.

traditional financing optionsLocal banks are still a viable option. They often offer good pricing. NM is home to many local banks that did much better than their peers national-ly. “There is a gap in perception. People are hearing banks aren’t lending, period,” says Alan Austin of New Mexico Bank & Trust. “I hear people say that, and I tell them that isn’t correct.”

To make a loan, bankers need specific ways to assure they will get paid back. “People who care about the environ-ment don’t always trust or feel they share the same values as financial professionals,” says triple bottom line business consultant Nicole Cowing

of Social Enterprise Associates. “It is important for entrepreneurs to un-derstand how bankers make decisions. They sell their products just like any other business person.” How would you convince a banker you will man-age a loan?

Advance planning is something bank-ers value. “It is a poor strategy to have the first time a banker hears from you, when you need a loan,” says John

Woosley, SBA New Mexico District Director. He encourages setting up your personal accounts at institutions able to handle your future needs, so when you are seeking a loan, you aren’t forming brand new relationships.

The SBA offers loan guarantees. “If the borrower doesn’t have enough collateral or can’t secure a loan, they can explore the option of a SBA

fInancIng green BusInessesDrew Tulchin

drew Tulchin speaking at a santa Fe alli-ance workshop at the santa Fe Complex

What Do BaNks Look For?

Banks seek to minimize risk of loan repayment. They look for the “5 C’s of Credit”:

Capacity to repay is the most important factor. A bank will not lend to a business if they are worried the business will not be able to repay the loan. Credit Score is a major indicator. Business profitability – typically indicated by cash flow or profit/loss – is important, and shown by good financial statements.

Capital includes what the entrepreneur has personally invested in the busi-ness. Personal investment increases motivation for the business’ success, and should be clear from financial statements as well as in conversations.

Collateral or guarantees include equipment, buildings, inventory, or other physical items that could be sold. Cars, for example, must be owned free and clear. They may only be valued at 50% of blue book, due to the process of selling them. The US SBA offers guarantees and has increased its levels due to the economic crisis.

Conditions are the reasons for the loan, such as opening a new store, purchasing new equipment, or launching a marketing campaign. Con-ditions in the business plan should show how the money spent will lead to increase business profitability.

Character speaks to how trustworthy the business and managers are. Experience, education and industry connections / relationships all com-municate elements of character. They should be included in biographi-cal summaries.

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Green Fire Times • november 201014 www.GreenFireTimes.com

guarantee,” ex-plains Woosley. These are available through banks and NM micro-lenders

(detailed below).

permaculture credit union and other credit unions are another option, pooling financial resources of the community. PCU members believe in the ethics of Permaculture (the care of the earth, care of people, and reinvestment of surplus for the betterment of both). They understand environmental approaches, such as offering lower interest rates on loans for fuel-efficient cars. They will still have official finan-cial underwriting.

altErnativE financing sourcEsThere are more financing sources suited for green ideas, which accept varying levels of risk. Caveat emptor for all of these – buyer be-ware. Read the fine print.

Investors include family and friends. They can use services which help formalize a loan or equity agreement in a professional way so all parties have the same expectations. One ex-ample is Virgin Money (www.virginmoneyus.com).

credit cards allow small business owners to use personal credit to finance. America has the highest per capita consumer debt in the world. Credit card companies are becoming stricter as defaults and late pays are increasing. Deals still exist with low introductory rates, transfer offers, and inexpensive cards. Mismanagement of credit cards leads to high interest rates, cau-tions Finance New Mexico, another helpful local resource (www.financenewmexico.org).

local microlenders include ACCION, WESST, and the NM Loan Fund. They make small business loans to those not yet “bank-able.” Each offers slightly different services and loan conditions. Again, it is still a loan that must be repaid.

peer-to-peer and social loan networks are like eBay for lending. Www.prosper.com and www.lendingclub.com, among others, connect people directly to borrow and lend money on-line, with lenders taking parts of loans.

accounts receivable financing is also called factoring. A business sells its invoices or con-tracts at a discount based on the risk and time to collect payment, receiving immediate cash for those accounts receivable. Factoring in-creases working capital and cash flow, but at a cost. This is a regularly offered service but can be expensive, so figure out the percentages.

Barter or trading goods and services for non-cash is another potential option. It is a much older version of ‘sales.’ It works better when you want what the other can offer. If a ready trade is not clear, ask. A solution might pres-ent itself that wasn’t obvious on the surface.

approaching a financial institutionMany green entrepreneurs have experience in the nuts and bolts of business operations and know that language well. They are often less familiar with banker-speak like “value propo-sition,” “net income” and “profitability.”

Securing financing requires an understand-ing of bankers and financiers. Entrepreneurs should consider not only banking buzzwords but also what bankers value. What bankers see when looking at a green start-up is different than what an entrepreneur communicates.

A financial professional needs to document how he/she will get their money back. Loan package materials should make it easy to un-derstand how the business can repay a loan, what collateral is available and other assur-ances. (See the sidebar “What do banks look for?”)

Consider your strategy to seek a loan: • Know your credit score—personal and busi-

ness• Use an accounting system and monitor cash

flow • Know your banker by first name • Build a long-term relationship—start small

and build over time

Credit score is important. For many small businesses, the lender regards it as an exten-sion of the individuals involved. Owners or guarantors need to know their finances. Their credit challenges will reflect on the business. Establishing credit is part of what a bank sees as “Character.”

Securing financing can be a significant hurdle for a small business or entrepreneur to over-come, but it is a crucial step in the process of translating green ideas into meaningful businesses. t

Drew Tulchin is Managing Partner of Social Enterprise Associates. The company helps small businesses and non-profits set up and run successful operations, raise capital, and much more. Based in Santa Fe, the firm is New Mexico’s only registered B Corporation. More information can be found online at www.socialenterprise.net.

financing grEEn BusinEssEs continued from page 12

Businesses are entering the green marketplace at break-neck speed to keep pace with customer and societal de-

mands to reduce their environmental impacts. Companies need to comply not just with the laws of government and the marketplace, but also the laws of nature. But greening one’s business is no small feat. While clear opportunities abound in this new economy, business leaders pursuing a green strategy are finding few roadmaps and established rules, and plenty of hidden twists and turns.

In Strategies for the New Green Economy, (McGraw-Hill, 2008, 290 pgs.), Joel Makower offers insights and inspira-tion gleaned from his 20 years of experience helping For-tune 500 companies and start-ups alike formulate strategies that align environmental and business goals. Providing a comprehensive and realistic look at both the opportunities and challenges, Makower shows how leadership companies have profitably integrated green thinking into their opera-tions in ways that create value for their shareholders, em-ployees, customers, and communities. This sometimes takes re-imagining not only products and processes, but also the companies themselves.

strategies systematically tackles the central issues of greening a business:• What does it take to be seen as an environmental leader?• What are the standards, implicit or explicit, that you must

meet to be green?• How do you communicate what your business is doing

right—and what it’s doing wrong?• How can you overcome consumer, media, and activist dis-

trust?• How can your company be heard amid the green noise in

the marketplace?• What are the new opportunities emerging for companies in

the green economy?

Also discussed are the dangers of “greenwashing,” a term levied on companies viewed as disingenuous in creating a green image.

Makower is author of more than 20 books, including Beyond the Bottom Line: Putting Social Responsibility to Work for your Business and the World, one of the first business books on cor-porate social responsibility, published in 1994 and still used in business schools. His new book will strengthen a company’s ability to develop a winning sustainability strategy.

StrategieS for the green economy

transforming challEngEs into opportunitiEs