BY ROHIT ARORA

CEO, BIZ2CREDIT

SPECIAL TO NEWJERSEYNEWSROOM.COM

Recently, Dallas Mavericks owner and entrepreneur Mark Cuban told Bloomberg Television's Trish Regan that if you start a business by taking out a small business loan, you are a "moron."

"The one certainty is paying back the loan. The bank does not care about your business. 99% of small business you can start with next to no capital," the billionaire asserts. "Small businesses don't fail from a lack of capital, they fail for a lack of brains, a lack of effort."

Cuban's theory is only partially true. Yes, many would-be entrepreneurs are not savvy enough to run a business or may not be willing to put in enough sweat equity. But without seed money borrowed from lenders, startups simply cannot get off the ground.

Mark Cuban advocates raising money by selling shares of stock to investors (either individuals or institutional investors). This is known as equity financing. These shareholders receive partial ownership of the company depending on how much they invest.

The danger is that if a shareholder obtains majority ownership, he or she can take a controlling interest in the company. At some point, the entrepreneur might be hindered in what he wants to do or he could even be removed from his own company. In actuality, only about one percent of startup companies are funded by venture capitalists (VCs).

The far more common way of raising capital is through debt financing, meaning that the entrepreneur takes out loans to start the business. While capital is not as free flowing as it was in the mid 2000s, big banks are returning to the small business credit market after a severe "credit crunch." In fact, according my company's Biz2Credit Small Business Lending Index, banks are approving small business loan applications this year at the highest rates since the Great Recession of 2009-2011.

Competition has become more intense among lenders engaged in small business finance, and it has resulted in attractive interest rates for small business loans across the board. Even the so-called "alternative lenders" (cash advance companies and accounts receivable financers), which previously charged rates at near loan shark levels, have lowered borrowing rates significantly. Microlenders are willing to give small startup loans to entrepreneurs who have less than stellar credit histories. Small banks and credit unions - which can be found all across New Jersey - are good sources of capital because they know the local economy and can make informed decisions. Conversely, big banks rely on their size, brand awareness, and ability to lend at lower interest rates.

Debt financing enables small business owners to operate their companies the way they intend. Banks do not want to be involved in running small companies; they leave that in the hands of the business owners. If and when the business becomes successful, the owner reaps the benefits and then simply pays back the loan each month. A further benefit is that the interest paid on the loan is tax-deductible.

Debt financing has indeed helped launch countless small businesses. Yes, there are some disadvantages. If you borrow too much money, the interest payments may be too steep. If you borrow an insufficient amount, you risk having to go back to the bank and ask for more money. It is difficult to secure a second round of financing if this is the case; the lender may begin to wonder if you are unable to plan properly or if simply misused your first round of funding.

While Mark Cuban believes that companies "fail from lack of brains and a lack of effort, but not for a lack of capital," I disagree. I speak every week with entrepreneurs who are dedicated and hard working, but often cannot get off the ground because they need help securing capital. Fortunately, applying for loans can now be done online and companies, such as Biz2Credit, can match borrowers with banks and other types of lenders. Capital is vital to pursuing the American Dream. A billionaire like Mark Cuban should know this.

Rohit Arora is co-founder and CEO of Biz2Credit, an online credit marketplace that connects small- and medium-sized businesses with a network of 1,200+ lenders, service providers, and complementary business tools. Having arranged $850 million in funding in New Jersey and across the United States, Biz2Credit is a leading resource for loans, lines of credit, working capital and more. Follow Rohit on Twitter @Biz2Credit and on Facebook: http://www.facebook.com/businessloan.