An almost heart-warming effort is being mustered by CIT bondholders to keep the troubled lender from getting put under the TARP or stumbling into a much-anticipated bankruptcy. Some $3 billion in survival cash is seen in the pipeline -- money that could strengthen CIT's finances and allow it more time for a debt restructuring. An announcement is expected before the markets open this morning.

What kind of terms might bondholders extract from CIT? Before TARP was modified to target executive pay for those who sought its shelter, banks such as Citigroup and then-independent investment house Merrill Lynch paid what were seen as shockingly high terms on mandatory convertible debt. They were the kind of rates Citi customers paid on credit cards; nothing like traditional bank funding rates.

So, a CIT deal could, and perhaps should, come with a variety of stringent terms. If these are effectively passed on to desperate small and medium-sized businesses that CIT serves, the cost of this rescue could be blamed for stifling the recovery.

It’s not every day that a privately-owned company’s internal financial laundry is scattered across the Web for all to see.

But that’s the unfortunate scenario microblogging startup Twitter found itself in on Wednesday after technology news site TechCrunch published a slew of the company’s confidential business documents.

The files, sent to the site by a hacker who managed to gain access to some of the company’s servers, included everything from plans to launch a Twitter reality television show to notes from its executive meetings to a detailed financial outlook from February.

Reuters tech columnist Eric Auchard provides a bit-by-bit breakdown of the financial forecast here. The outlook reveals that Twitter projected to grow to 1 billion users and rake in a $1.1 billion net profit on $1.54 billion in revenues by the end of 2013.

While Twitter co-founder Biz Stone seemed to take the news in stride, saying the financial projections are now out of date, you can bet the startup’s competitors are poring over the documents with some pleasure.

TechCrunch only published a handful of the 130 files it was sent, but the whole episode should serve as a wake-up call to startups and small businesses everywhere that there’s no such thing as too much security.

Will your business be taking any new security precautions in light of the Twitter case? Please leave your stories in the comments section.

(Photo: A padlock is seen at a closed shop in the Westminster Mall in Westminster, Colorado in this February 26, 2009 file photo. REUTERS/Rick Wilkin)

Let the lending begin. Prosper, a popular Web portal that facilitates peer-to-peer loans, announced on Tuesday that it has been given the go-ahead by federal regulators to resume its lending platform in several U.S. states after wrapping up a detailed registration process with the Securities and Exchange Commission (SEC).

The SEC’s approval ends a nine-month enforced hiatus for the company and should come as welcome news to small businesses and entrepreneurs, many of whom are still struggling to find loans amid tight credit markets.

Prosper is now cleared to let lenders in 14 states and borrowers in all but a few use their online auction platform to buy loans and request to borrow money. The approval allows lenders in California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin and Wyoming to use Prosper, and more states will gain access soon, the company said in a press release.

Launched in 2006, Prosper was the first online lending and borrowing platform of its kind in the United States and signaled an innovative new way for small business owners to raise funds. But last fall, the startup came under pressure from U.S. regulators concerned about the lack of oversight in the industry and was told to halt all operations until registering with the SEC.

Under the new regulatory parameters, Prosper has introduced a credit grading system for its loan listings, changed some of its bidding requirements, added transparency measures and amended its auction platform to help lenders “appropriately price for risk while investing online”.

For more details, see the full release.

(An earlier version of this post contained incorrect information about Lending Club, an online financial community that facilitates peer-to-peer loans. The company completed its SEC registration in October, 2008.)

As any small business owner knows, getting a new company off the ground requires a lot of work. And for those entrepreneurs not enamored with the idea of running their company as a one-person show, hiring employees is among the first steps along the way to actually making it happen.

Unfortunately, many of the same startups burdened with so much work also suffer from a limited supply of funds in their early days, meaning they can find it tough to afford the number of employees they need.

But with the ranks of unemployed in the United States hovering at its highest rate in more than two decades, some small firms have found a rather unusual solution to this dilemma  - people willing to work for free. Employment agencies such as Jobnob.com and PeopleConnect have done their part in connecting unemployed individuals willing to work without payment to small firms in need of a helping hand.

But hiring individuals to work for free, even for a few hours a week, could land your firm in legal hot water.

According to FindLaw, an online provider of legal information, the Fair Labor Standards Act states that minimum wage must be paid to employees at all businesses that have $500,000 or more in annual sales. While that seems to rule out some smaller companies, here are a few further guidelines from FindLaw on the finer points of the law to consider:

• Even if your firm’s sales fall short of the above threshold, your employees may still be covered if they work in commerce between states, which has been interpreted by courts to include sending or receiving mail from out of state, making interstate phone calls, or handling goods that have moved interstate
• Even those businesses that are small and local enough so as to fall outside of the sales parameters may be subject to their home state’s minimum wage law
• Some cities and counties also impose minimum wage requirements on businesses within their borders

Other common violations of the law related to employee wages cited by FindLaw include: paying the lower “training wage” or “youth minimum wage” to workers who should be paid more, not paying overtime, making employees work “off-the-clock” and not paying them for it, deducting too much for tips and deducting for wages paid in goods (such as meals or food).

So, while it might be tempting to jump at the opportunity to have people work for free or clock extra hours without compensation, it would be wise to do a bit of legal homework first.

Visit FindLaw’s wages and benefits page for more information.

(Photo: A job seeker looks at job postings and other information at Work Place, which provides comprehensive employment and career services in Boston, Massachusetts June 5, 2009. REUTERS/Brian Snyder)

What would happen if your laptop was lost, stolen or accidentally dropped in a pool? Would you be able to easily retrieve all the megabytes of precious content housed in its memory banks?

These are the questions that drove Seattle software developer Kory Gill to leave an almost 20-year career at Microsoft and start his own online data-storage company. For years, Gill has sought a Web-based storage solution that would safeguard his priceless family photos, home movies and other important digital data, but never found a single solution that addressed all his specific needs.

“If these are irreplaceable files, you need to have the same type of insurance for your data as you would of any other asset, like your home or car,” said Gill, who often shared his frustrations with friend and fellow Microsoft programmer Marius Nita.

So last June they founded Newline Software, with the goal of giving their customers a more flexible, cost-efficient and “green” alternative to what is currently offered by the major players like Microsoft, Google and Amazon.

THE PITCH

Gill hopes to pioneer the term “eco-digital preservation,” which he said refers to a way of storing data that is both environmentally friendly in that it uses less power, and more economical for customers. Newline Exact is the trademarked software Gill and Nita plan to debut in the upcoming weeks on their website 0xDA.com - the coder term for a hard return, or “new line” on your computer keyboard.

According to Nielsen Online’s 2008 statistics, 220 million Americans were online, which represented about 72 percent of the overall population. With the Obama administration pledging $7.2 billion toward expanding broadband access throughout the U.S., Gill said he anticipates there will be a growing need for data backup. Gill has based his business model on being able to average 100 customers a day and has built in the potential for scaling to a million.

In order to provide for that kind of infrastructure, the Newline secured an initial Series A funding round from friends and family, which Gill described as “comfortably” over the minimum amount of $250,000, but under the $1 million maximum.

“So now that we have the business funded, I think one of the next hurdles we’ll have is just how do we reach our target markets? How do we get customers to know about our product and how do we basically market it and get people to try it, to sign up, to use it and to pay for it?”

TAKING IT TO THE EXPERTS

Steve Duplessie, an experienced entrepreneur and leading expert on the cloud computing and storage industry, is all for the underdog, but said they need to have a superior technology that gives them an edge in the fight.

“Unless they (Newline) have an application advantage … it’s going to be very difficult to compete in a commodity offering,” said Duplessie, the founder and senior analyst at Enterprise Strategy Group. Duplessie added that the manufacturers of computing infrastructures, such as disk drives or microprocessors, will always have an advantage over those companies that merely package services on top of it.

Joslyn Faust, an analyst at Gartner who specializes in marketing strategies for small and medium-sized businesses, said startups like Newline need to target which potential customers are most likely to buy their product or service in the least amount of time.

“If you are spending money and effort trying to market to everybody then by default a lot of the people in your pipeline are going to be people who will never buy from you, because they have no need,” said Faust, who added this is a challenge that affects most information technology startups..

Joshua Baer knows first hand the challenges of starting a cloud-based company, having successfully launched two web-based email startups in Skylist and OtherInbox, and said the key is to form a distribution partnership with a significant player so that your product gets noticed.

“The whole value of the partnership is that they have the door already open and you’re just walking through it,” said Baer, who conceded he is skeptical of Newline’s ability to get 100 signups a day, something OtherInbox only achieved after partnering with Yahoo. “One way or another they’re going to have a customer-acquisition cost and it’s probably going to be on the order of $10-50 per person. So if they want 100 customers a day that means they’re going to be spending $1,000-5,000 a day to make that happen.”

What do you think of Newline? Will it be able to find the customers it needs to compete with its larger rivals? Leave your response in the comments below.

So how's the market for sports and concert tickets holding up, given the economic turmoil that has dominated the public imagination since last year? Better than you'd think, according to Mike Janes, the founder and CEO of FanSnap, a live-event ticket search engine that launched in March.

"People's appetite for the shared experience of a game or show hasn't changed. Their bank accounts may have changed, but not the desire," Janes said.

The difficult economy has had the effect of bringing many ticket prices down, he said, meaning there are plenty of bargains out there. While there will always be insatiable demand for big-name performers or games (Springsteen; Yankees vs. Red Sox) keeping those ticket prices high, Janes said tix for your average major league baseball game can be had for below face value in some cases, as folks looking to resell tickets flood the market with supply. It's a bit too early to see about NFL games, he said.

FanSnap, whose main investor is VC and private equity firm General Catalyst Partners, runs in a similar way Kayak does flight searches. Since there is so much variability in ticket prices (unlike in airline tickets) FanSnap's search engine turns up seats within mere feet of each other -- displayed on a nifty interactive map -- but with very different asking prices.  (Janes said the site aims to "make it really hard to overpay for tickets.")

FanSnap has deals in place with dozens of vendors and re-sellers, including big names like StubHub and RazorGator, and is working to bring others into the fold.

The Web is full of user-generated video, but for Sanjay Raman’s tastes most of it is too bland and poorly produced to actually watch.

That’s why Raman launched Howcast (http://www.howcast.com) – a high-quality, how-to video-sharing website - last year with former Google colleagues Jason Liebman and Dan Blackman.

While at Google the three Howcast co-founders noticed how popular do-it-yourself content was, but how little of it was in video format.

“How-to content is something that is really popular in terms of user search queries,” said Raman, who left his job as product manager for Google Apps to launch their startup nearly 18 months ago. “As video was really exploding online we saw the opportunity to marry those two concepts together.”

Unlike other DIY sites that predominate search engines, such as About, eHow, Expert Village, Videojug and 5min, Howcast utilizes a more entertaining and humorous approach. Some of its most-popular videos are less practical and more tongue-in-cheek in nature, such as “How to find out a girl’s name after you’ve slept with her” and “How to grow grass in someone’s keyboard.”

“We try to take the format of a how-to and make it more exciting and engaging than it would normally be,” said Raman.

In order to boost its video content, Howcast pays filmmakers, mostly students, between $50-100 to produce videos for them.

Despite the economic downturn, Howcast has raised $10 million in funding, with $8 million coming from New York venture capital firm Tudor Investment.

THE PITCH

Howcast’s revenue model is solely ad driven, so continuing to drive people to its videos is Raman’s top priority and biggest challenge.

Most of its revenues are currently coming in through its distribution deals, where Howcast gets a cut of the revenues generated by playbacks of its videos on partner sites like YouTube.

In order to generate more revenue, it needs to keep producing more videos. Raman said it usually takes a day or two to churn out a new video, like last week’s “How to come back from a political scandal” in response to South Carolina Governor Mark Sanford’s announcement he had an extramarital affair.

“Coming from Google where you automatically have millions of eyeballs on your product to where you start something from scratch has been extremely challenging,” said Raman, whose ultimate goal is to have Howcast become synonymous with everything how-to related. (check out Raman’s entrepreneur journal, exclusively on Reuters.com)

TAKING IT TO THE EXPERTS

Paul Kedrosky, who writes the popular business blog Infectious Greed and a former partner in the California-based venture capital firm Ventures West, said sites like Howcast traditionally don’t bring in gangbuster traffic numbers and feels it will have a tough time realizing any kind of sustainable large-scale ad revenue.

“Unless you can get it to Google-class numbers, then an advertising model, predicated on video content, is really tough,” said Kedrosky, adding Tudor’s investment of $8 million was likely based on an evaluation that Howcast would potentially hold an exit value of $400-500 million. “It’s possible, but it’s fairly heroic.”

Zachary Shullman, managing partner of Cayuga Venture Fund in Ithaca, NY, thinks Howcast should charge users a nominal annual subscription fee to watch its videos.

“Say they want 10 million users? If they charged everyone $1 they would cover their operating costs,” said Shullman, who has concerns about an ad-based revenue model at a time when advertising dollars are drying up. “People are buying very stupid iPhone applications for $1, so why not charge $1 or $2 to subscribe for a year to a how-to video site?”

Zubin Mowlavi, the founder of new media marketing company Lucid Fusion, is very impressed by Howcast and the viral nature of the video content. Mowlavi also said Howcast’s digital platform is superior to most of the how-to video sites he has come across.

“It’s a very casual, friendly style that they have to their videos and if you like it, you’ll continue watching them,” said Mowlavi, whose company has produced cutting-edge marketing campaigns for the likes of Sage, Kenwood, Redbull, Sirius and Sony Pictures Classics. “There are other video sites out there, but they don’t have the same sense of consistency.”

What do you think of Howcast? Will it be able to generate the Web traffic to become profitable? Leave your response in the comments below.

It’s considerably less than the multi-billion bailout the commercial banking sector received as part of President Obama’s Recovery Act legislation, but battered community banking institutions will gladly take it.

On Monday, Treasury Secretary Tim Geithner pledged $90 million to help 59 Community Development Financial Institutions (CDFIs) in 26 states and Puerto Rico. CDFIs help companies, including many small businesses, in economically distressed urban, rural, and Native communities.

Geithner’s announcement comes on the heels of Federal Reserve Chairman Ben Bernanke’s speech that called for help for CDFIs at the Global Financial Literacy Summit in Washington, DC two weeks prior. Bernanke said, “while community development is a small part of our overall capital and credit markets, the Federal Reserve recognizes that these financial flows are critically important for many low- and moderate-income communities.”

In making his own announcement on CDFIs, Geithner said the increased funding “will help generate capital for small businesses, mortgage loans for homebuyers, and funding for affordable housing projects and other facilities in communities across the country.”

According to a forthcoming CDFI Data Project (”Providing Capital, Building Communities, Creating Impact - Fiscal Year 2007″) there are more than 1,000 CDFIs in the U.S., with a collective $25 billion in assets.

The government’s budget for the CDFI Fund this year is $107 million, a figure President Obama plans to more than double to $243.6 million for 2010.

Mark Pinsky, president and CEO of the Opportunity Finance Network (OFN) - a nationwide network of CDFIs - said while the government funds are appreciated, it represents a minuscule portion of the overall capital.

“We were around for 20 years before there was a federal program that even thought of us,” said Pinsky, in reference to the CDFI Fund that was established in 1994. Still nearly 70 percent of the funds doled out by Geithner will go to Pinsky’s OFN members (A complete list of OFN award recipients can be viewed here).

Despite the credit crunches currently facing community lenders, Pinsky expects the CDFI industry to grow at a “healthy clip” over the next few years. He also expects more small businesses to leverage CDFIs, as commercial banks cut back their lending.

“Businesses that have been bankrolled for an extended period of time, say 15-20 years, and rely on seasonal lines of credit for inventory, go to the bank and suddenly discover that their line of credit isn’t good anymore,” said Pinsky, who added that more laid-off workers are starting new businesses and coming to CDFIs for help. “We finance businesses that are outside the margins of where conventional finance will go.”

The popularly-held belief that Starbucks kills mom-and-pop shops is a fallacy, says Temple University history professor Bryant Simon.

“In fact, Starbucks created the market for the small coffee shop,” says Bryant, whose new book “Everything but the Coffee: Learning about America from Starbucks” is due to be released in October.

Simon argues that 20 years ago you couldn’t find a “good” cup of coffee anywhere, until Starbucks came along and “created a desire and a taste for specialty coffee” that eventually gave birth to the corner specialty coffee shop.

In his column for TheBigMoney.com (Frappuccinos Work for Mom and Pop), Jonathan Weber argues that the closing of a Starbucks store in Missoula, Montana is no cause for celebration by small coffee houses. “It’s dangerous to assume that what’s bad for the chains is good for the mom-and-pops,” writes Weber, who maintains the loss of jobs from the Starbucks closure will hurt local businesses. “In this economy, a store closure is nothing to cheer about.”

A Slate article from 2007, titled “Don’t Fear Starbucks,” details the saga of a small Los Angeles-based coffee chain that discovered the intrusion of Starbucks was actually the best thing for its business.

Yet the perception of Starbucks driving out small businesses endures, as evidenced by a 2006 lawsuit against them by another Seattle-based coffee shop that claimed Starbucks “illegally maintains its monopoly by barring other coffeehouses from prime downtown high-rises in Seattle and Bellevue through exclusive leases with property owners.”

Belvi Coffee owner Penny Stafford, who launched the suit, claimed Starbucks ran her and other local shops out of business by “buying coffee sellers and flooding neighborhoods with new Starbucks stores that even cannibalized the sales of existing Starbucks shops.”

Bryant Simon

Simon says that while Starbucks was very predatory in the late ’80s and early ’90s, in what he refers to as its “early period,” that this aggression was primarily directed at small chains that operated a handful of stores in big metropolitan areas like Boston, Chicago and San Francisco. “It didn’t care about the mom and pops.”

According to Simon, Starbucks would use its power to get the best location and sign really long leases that would essentially restrict landlords from also renting to competitors.

“While it doesn’t kill the small coffee shop, it leaves them on a side street in a smaller town a little off the main drag where you get the densest amount of traffic.”

Simon believes a lot of the anti-Starbucks sentiment that exists today comes more from a fear of homogenization than from anything Starbucks is doing.

“There’s a long history of anti-chainstore feeling in this country and I think it’s the general perception that Starbucks is everywhere and so it must come at the cost of something else,” he says, pointing to movements in small communities like Benicia, California, which are trying to enact bylaws to make it tougher for Starbucks franchises to operate. “They made the association between seeing it everywhere and not seeing what they thought they wanted (more mom and pops) and blaming Starbucks for that.”

The irony now is that Starbucks is actually closing stores, while the smaller chains and mom and pops are fairing pretty well.

“Starbucks can no longer offer what they initially promised and it’s the small coffee shops that are doing a better job,” says Simon, about appealing to coffee connoisseurs - the same customers that helped them grow so rapidly in the beginning.

Simon points to the Chicago’s Intelligentsia as an example of a smaller chain that is “out-coffeeing” Starbucks by servicing that high-end specialty coffee niche. Last year Starbucks announced it was closing 600 stores in the U.S. and has since made a number of changes to reclaim some of the market lost to independents.

Simon sees this as an attempt by Starbucks to “reclaim that initial authenticity,” as he asserts the chain has been forsaken by its high-end coffee drinkers and is not a destination for people “who are really interested in cool.”

Do you think Starbucks is a small-business killer? Post your comments below:

Tesla Motors Inc. CEO Elon Musk

High-powered electric-car startup Tesla Motors has hit a speed bump with the filing of a lawsuit by former CEO and founder Martin Eberhard.

The libel suit, filed on May 26 in San Mateo County, Calif. Superior Court, alleges current CEO Elon Musk falsely portrayed himself as the founder of the company and orchestrated Eberhard’s ouster as original CEO in 2007. In the lengthy 22-page document, Eberhard accuses Musk and Tesla of, among other things, libel, slander, breach of contract, negligence and failure to pay wages. The suit doesn’t even refer to Musk as a co-founder, but simply as one of “various investors,” who joined the Tesla board in April 2004.

Eberhard’s suit claims that from the moment he came on board, Musk “began a campaign to appropriate control of Tesla Motors and Eberhard’s legacy as the company’s founder and visionary.” The suit further alleges that Musk “began a pattern and practice of defaming and disparaging Eberhard in various widely distributed media outlets,” a few of which included The New York Times, Newsweek, USA Today and NPR.

Musk has responded to the accusations in a lengthy blog posting on Tesla’s corporate website. According to Musk, the posting is an attempt to “correct several misconceptions propagated by Eberhard that are now being reported as truth.”

Tesla founder Martin Eberhard

While claiming he was “pushed out of the company he founded,” Eberhard agreed to leave because he felt it was “in the best interest of Tesla” and that he hoped his “vision for the company would be realized and his spirit would continue even in his absence.” Something Eberhard now feels never happened.

In a further bizarre twist, Eberhard accuses Tesla of giving his own personal Roadster - the second model off the production line and one valued “as high as several million dollars because of its historical value” - to one of Musk’s friends. His suit claims when Eberhard eventually received his own Roadster, it had been “smashed into the back of a truck.”

The lawsuit throws a stick in Tesla’s spokes, as the company had recently announced a $50-million deal with Germany’s Daimler, who in return get a 10 percent stake. In March, Tesla unveiled its new, more affordable Model S sedan, which had attracted positive reviews and widespread media play.

In a Wired article (Tesla’s Founder Sues Tesla’s CEO), Tesla called Eberhard’s suit “twisted and wrong” and a “fictionalized account of Tesla’s early years” and intends to file a countersuit.

“As the media have already chronicled extensively, the board of directors unanimously fired Martin, largely over the fact that the cost of the car was more than twice what Martin portrayed it to be at the time,” Tesla said in a statement. “Incidentally, Tesla will also be filing counterclaims and in the process present an accurate account of the company’s history.”

The feud between Eberhard and Musk acts as an important cautionary tale on the perils of bringing in high-powered investors and how naive founders can find themselves shut out from their own companies.

WHAT IS THE DEFINITION OF A FOUNDER?

In her article in Earth2Tech, entitled “Tesla Lawsuit: The Incredible Importance of Being a Founder,” Katie Fehrenbacher ruminates on the nature of what being a “founder” means and says Eberhard’s accusation “begs the questions: What is the definition of a founder, and why is the title so important to entrepreneurs?”

While Fehrenbacher doesn’t provide any definitive answers, she says there are deep financial and social implications to being a founder. Founders, like Eberhard, typically take most of the risks associated with their business and want the recognition for that, both spiritually and financially, when the enterprise becomes successfull.  Fehrenbach adds that in Eberhard’s case the “sense that he has contributed to progress seems to shape his identity.”

Peter Thiel, left, with Elon Musk.

Musk’s own hasty departure as CEO of PayPal in 2000 was the subject of some speculation at the time and was broached in Eric Jackson’s book “The PayPal Wars”, although Musk has since claimed all is well with PayPal co-founders Peter Thiel and Max Levchin. Musk’s assertion appears accurate, as the three serial entrepreneurs have invested in each others’ ventures over the years.

In 2007 Musk told Gawker’s Valleywag, in a lengthy article titled “An alternate history according to Elon Musk,” that the three remain on good terms and “there is no significant rivalry or animosity that I’m aware of today between myself and Peter Thiel or Max Levchin. After PayPal was sold to eBay, the three of us co-invested in and serve on the board of Room 9.”

In the same article, Musk constructs a meticulous case for why he should be considered as a co-founder of PayPal, along with Thiel and Levchin. This seems a bit odd, as it was several years later and after the sale to eBay had made Musk incredibly wealthy (eBay bought PayPal for $1.5 billion in 2002).

This would seem to support Fehrenbacher’s assertion that, “In the United States, creating a business is prized above keeping a business going, thriving within an existing company, or fixing a failing business.”

However the Tesla saga plays out, it will no doubt impact the business and will make for a fascinating entrepreneurial case study on the potential pitfalls of multiple founders.

What is your take on the Tesla founders’ feud? Which side do you support? And what do you think is the definition of a founder? Leave your comments below.