by Hal Landen
Let’s consider all the possible ways to finance a start-up video production business. There are loans, bootstrapping, friends and family, grants, Kickstarter, and saving the money yourself.
Banks are in the business of loaning money, but they are fussy about their loans. Better to enlist the help of the Small Business Administration. The SBA doesn’t make the actual loan. They guarantee the loan through a local bank. The SBA says that most lenders don’t want to make loans under $50,000. For smaller amounts of money, check out the relatively new SBA Small Loan Advantage Program. They are available through SBA approved lenders. Ask your bank.
Your credit report is a very important factor in your loan-worthiness so start by carefully reading your credit report. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.
The three nationwide credit reporting companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report.
To order, visit annualcreditreport.com , call 1-877-322-8228, or mail using this form. Do not contact the three nationwide credit reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228 or the mail form above.
Beware that only one website is authorized to fill orders for the free annual credit report you are entitled to under law — annualcreditreport.com. For more information on this issue see the Federal Trade Commission (FTC) http://www.consumer.ftc.gov/articles/0155-free-credit-reports.
Unlike your credit report, which you can get at no cost to you, you usually have to pay for your credit score. But your credit report influences your credit score. It’s more important to check your credit report because you may find mistakes that you can correct. Those mistakes could adversely affect your credit score.
The Small Business Investment Company (SBIC) program has provided nearly $30 billion in financing (both loans and equity investments) to 90,000 small businesses since 1958. Contact them at (202) 628-5055 or visit www.SBIA.org. You must have a full-time video business. They will not consider part-time or casual businesses or as they say “those not engaged in a regular and continuous business operation.”
Rather than going through a conventional bank or the company that holds your mortgage, look into local credit unions. They are typically much cheaper than a bank because they are non-profits. Just look credit unions in your area and go talk to them. See what their requirements are and especially what their interest rate is. This can be a cheap source of money for your business, but never forget that you are betting your house that you can pay this back.
We all love the stories of feature films that were financed through the producer’s credit cards and went on to make a splash at the box office. For every story like this, there are probably scores of bankruptcies and other financial horrors.
Friends and Family
Borrowing from friends or family can have even more downsides than borrowing from an institution. For some friends or family members, they may think lending you money gives them license to meddle. Worse, if the business fails, the friendship or love can become very complicated. These kinds of loans often have emotional strings that you would not find in a more conventional loan.
Think carefully about who you would ask. Be business-like and make a formal sales presentation. Offer the kind of interest (or better) that they would get from a bank. Years ago I offered a college professor of mine a better return than she was getting in the stock market if she would loan me money to buy land. She held the land as collateral and we agreed I would pay back the loan over a long period. Another time I started a publishing company by approaching several of my video clients and making them a similar offer. Both instances did risk the friendships of those involved, but I did pay back every penny and maintained the relationships.
Regardless of what you’re heard, federal and state governments do not provide grants for starting a business. Some non-government small business grants do exist, but they are few and far between. You’re much better off working with the SBA and letting them help you find the right program.
While it’s not impossible to start a video production business with Kickstarter, this favors start-ups that generate a product people would want. And to do this, you need a kick-ass promotional video. So the question is if you can produce this video for yourself, why couldn’t you do the same for other businesses. And if you can do that, why would you need additional money? It’s more likely that you could raise Kickstarter money to produce a specific documentary, rather than launch a video production service.
Spend some time studying the video-related projects on Kickstarter and see if there’s a unique angle that could help launch or grow your video production business.
On the Other Hand
Mark Cuban is an American businessman and investor. He owns or is invested in over 70 businesses including the NBA’s Dallas Mavericks, Landmark Theatres, Magnolia Pictures, and he’s chairman of the HDTV cable network AXS TV. These businesses are of a much different scale than a local video production company, but his successes make him a man worth listening to.
Here’s what he said on Bloomberg Television’s “Street Smart” on Jun 14, 2013. (full interview at https://www.youtube.com/watch?v=KYneLGRTgy8)
“If you start a business and you take out a loan, you’re a moron because there are so many uncertainties involved with starting a business, yet the one certainty you will have is paying back your loan.” He says 99% of small businesses you can start with next to no capital. It’s more about effort. Small businesses don’t fail for lack of capital. They fail for lack of brains, for lack of effort. Most people just aren’t willing to put in the time to work smart.
Mark Cuban makes some good points. There’s a lot to be said for bootstrapping without borrowing. For one thing it forces you to get by with a smaller investment. People have started video production companies with just business cards and a phone. How is that possible? They rent, borrow, or subcontract the shooting and sometimes even the editing. The client will be paying for all of it anyway so it doesn’t always require an up-front cash investment to make money. I knew a man who did wedding videos that way. He did not own a camera or edit system. He hired people to shoot and edit and paid them when he got paid.
There was a time when a broadcast-quality video camera cost $50,000. So very few individuals owned them. What we’d do is rent the camera, sometimes with an engineer. And this was only when we had a paying job to shoot.
There are many video rental houses. Today you can even rent video gear including drones through the mail. Let’s say you rent all the gear necessary for your production. Now it’s editing time. How do you edit HD footage when you can’t afford a powerful computer? The answer is proxy video editing. Use carbon copies of HD video files and shrink them down to SD files and edit those files. Then it’s very simple to replace the SD files with the HD files and render from there. This can be done on an older computer with an inexpensive editing program like Sony Vegas Movie Studio. Here’s a video that shows exactly how to do it. It’s surprisingly simple.
This really works and enables you to edit HD video on a small budget. There are a number of other ways to do proxy editing. Don’t think you have to be on a PC.
OK, but what about marketing and other essential business expenses? There are so many ways to market a video business on a shoestring, I could write a book about it. Hey, I have! In fact it’s an entire course and it’s guaranteed. See Professional Video Producer.
Two virtues of bootstrapping: Your company will be much more disciplined. When you don’t have much money, you are more careful about how you spend it.
Raising money takes a good bit of time and effort. This distracts you from your main business –– producing great videos that delight your clients.
The only way I’ve found to save money is to pay myself first. When I sit down to pay bills, the first check is to my savings account. If I wait and pay the savings last, it never seems to happen. Start an online bank account. Name it “My New Production Company” and start funding it. This makes it a lot more fun than just “saving.” Find a great picture that represents to you, owning your own video business. Put that on your wall so you see it every day. Imagine it. Believe it. If you are sincere, it will become a reality.
Here are some more tips to help you finance your business from scratch:
1. Keep Your Overhead Very Low
2. Keep Working Your Day Job
3. Reinvest Profits Back Into the Business
Plan Your Work. Work Your Plan
Yes, we’re talking about a business plan. If you don’t need it for a bank, you certainly need it for yourself. Here’s a business plan specifically for a video production business. It will keep you on track.
If you’d like to talk about starting or growing a video production business, I will be glad to talk with you. No cost or obligation. Call 401 253 2800 between 9 – 5 EST M- F.
A financing option not listed is a loan from a 401(k) plan. Granted there are some restrictions, but in certain situations, that strategy may “work” for others.
With the good graces of my spouse, I started a one-person video business with money “borrowed” from my spouse’s 401(k) plan. Unless the rules have changed, the advantages I saw were that the 401(k) loan:
– did not require a credit card, credit check, or loan application,
– did not require a payment schedule with high interest, (whether from a bank or the SBA),
– did not require me to “beg” from friends and family,
– did not effectively increase my debt or my monthly expenses,
– repayments went right back into the 401(k), with both principal and interest credited to my spouse’s account,
– allowed up to 5 years for “re-payment”,
– incurred a lower “interest rate”, even though the interest being paid was credited to the source account, i.e. my spouse’s account was the recipient of both the principal and interest,
– there were no immediate income tax implications, nor were there deductions for interest paid,
– pre-loan contributions could be adjusted to provide a level income after the loan had been issued, i.e. pay-period contributions could be reduced/increased in order to better balance net pay so a dependable income stream from my spouse’s pay could be maintained, and
– if the business didn’t generate enough income, I still had the equipment that could be sold to re-coup some of the effect of the unpaid loan.
Disadvantages were that:
– the balance of the 401(k) was initially lowered, but increased each pay-period with each repayment,
– if my spouse was terminated from work, the balance of the 401(k) account would be reduced by the amount of the unpaid loan balance, i.e. we would not be facing a blemish on our credit rating, nor would we be facing “collection” from unpaid creditors,
– if my spouse was terminated from work before the loan was repaid, our retirement savings would be lowered by the unpaid balance of the loan.
In the beginning I spent more time looking for work that doing work, but that ratio has seen a reversal in the past year or so.
While the 401(k) loan strategy may not be suitable for everyone, it’s worked decently well for us. I don’t know who Mr. Cuban is, (and it certainly seems neither I nor many, many others have the same resources he has, but), I certainly don’t consider myself “…a moron…” for having “financed” my business the way I did. I presume that, with his resources, he has access to financial expertise most of us don’t. Bully for him; and apparently, “woe to the rest of us”.
Thanks for your comment, Denis. That’s a good suggestion that I am sure will help others. I’ve borrowed for business and I agree that it works for many of us.
What if you do not have wedding videos produced, but have the appropriate skills and knowledge involved in a wedding wedding propuction, how do you market that?
This is a problem faced by many new businesses.
One solution that works is to start talking to friends, family and all potential customers brides to be and ask them if they would like a free wedding video that you will produce. Explain that you are making this offer so you have a video to show others and get work. You can find brides to be in wedding dress stores, by asking wedding photographers, and many other places.
You may think it is crazy to offer a free wedding video, but think of what it could do for you. Many wedding videographers have built big businesses starting this same way.
Another approach is to talk to established wedding videographers. Many of them may not want to help you, but some will. Ask if they know any brides to be who need a free or inexpensive wedding video.
You must talk to a lot of people about wedding videos. Do this every day. Believe in yourself. Try not just to get a job, but to actually help people. This attitude alone is why some businesses are more successful. .
These are just a few ways successful wedding videographers have started their businesses.