Small Business Builder: Creative Financing

March 6 -- Artemis, a 24-year-old mechanic working for a large auto-service chain, wanted to start his own repair shop.

His only assets were his house and the quarter-acre it sat on, in which he had about $5,000 in equity. With $1,500 in the bank but no other savings, his personal debt was just under $3,000.

Initially, Artemis thought he'd need $40,000 for all his expenses: to build a garage on his lot, buy tools and equipment, consult an attorney and an accountant, obtain liability insurance and business permits, advertise his grand opening, purchase health insurance for himself and his family (his wife, Theodora, would be a part-time employee), cover supplies and other expenses (including utilities) and pay personal bills for a couple of months.

But his accountant, Randall, tacked $15,000 onto Artemis's estimate and advised him to prepare a detailed business plan, including income, expense and cash-flow projections for two years.

The figures Artemis eventually developed for the business plan indicated he'd need about $60,000 to open the shop and pay six months' worth of expenses. Less than half could be secured by his property and equipment.

Tighten Your Belt

Though Artemis had held his current job for more than five years, his youth and inexperience worked against him, even in his own family and circle of friends — none of whom had much spare cash anyway. Nevertheless, three months after writing his business plan, Artemis was in business. Here's how he raised the money:

$25,000 by taking out a second mortgage — refinancing his house at a lower interest rate and funding construction of the garage. Randall, the accountant, helped Artemis obtain the loan through his personal contacts and his knowledge of the industry.

$4,000 in credit (at 19 percent) from the company that sold him equipment and tools.

$2,000 in credit from a supplier at 13 percent.

$5,700 in low-interest loans from seven customers who had been dissatisfied with Artemis's employer and had been the first to encourage him to go solo. These customers, plus the equipment vendor and the supplier, agreed to forgo payment for six months.