Though financial times have been tough, a variety of business capital options are available to diverse businesses to help them expand or even get off the ground.
It takes money to make more money in the world of business. Getting that initial seed is increasingly difficult in the post-recession economy, and more so for minority- and women-owned businesses. According to the National Small Business Association, only 59 percent of small businesses obtain sufficient financing for their needs.
Whether it is to start a new business or expand on an existing enterprise, securing capital is a vital component to the success of any business. The current status of the American economy has closed or restricted many traditional outlets to capital. Banks are much more conservative with their lending, investors and venture capitalists are often hesitant to get involved. A recent study found that women business owners were more likely than men to use home equity and personal lines of credit to fund their businesses. Use of these finances are traditionally frowned upon, but have become obvious and easy-to-access options for many business owners or prospective entrepreneurs.
Fortunately, there are an increasing number of alternative means to secure funding for small and diverse businesses without resorting to personal lines of credit. Securing capital can be the ticket to taking your business to the next level in 2012. Here are a few ways to think outside the confines of traditional business lending and help your business grow to its potential.
Loans from the Small Business Administration (SBA) have been a popular choice for small businesses for decades. SBA-backed loans took a sharp hit in the recession, but the Small Business Jobs Act created more funds, higher loan limits, allocations for commercial real estate refinancing, and more opportunities for small businesses. Small businesses can improve their chances for approval with a wellwritten business plan, personal assets that can be used as collateral. The number of SBA loans is again on the rise, so it’s worth applying even if you have been denied previously or if your business needs have changed.
M/WBEs can often receive capital assistance from business and vocational organizations that they are members of, namely the Minority Business Development Agency (MBDA). The MBDA is opening 30 MBDA Development Centers across the country. These centers can assist you with securing capital through lenders, SBA loans and even grants. Last year, MBCs helped their clients gain access to more than $800 million in financial packages, including working capital, equity investments, and bonding.
Turn to your local Chamber of Commerce, as well as the United States Hispanic Chamber of Commerce, National Black Chamber of Commerce, or the U.S. Women’s Chamber of Commerce for additional programs and resources. Also look into your local or state economic development agency to see if there are programs or grants associated with your industry or ethnicity. Individual Development Accounts (IDAs) IDAs work like grants, but rely on special savings accounts which have their deposits matched. Participants are generally of modest financial means and must qualify before enrolling. Funds from IDAs must be used for asset-building purchases and often require participation in financial education classes and other training. A directory of participating programs is available through the Corporation for Enterprise Development (CFED).
Forgivable Loans and Grants
Many cities and even states have forgivable loan programs for small businesses, meaning that the borrowed money does not have to be repaid if certain goals and requirements are met. These loans work very much like grants and are usually offered by state and local agencies to promote job creation. The SBA, state and local agencies may offer or provide information about forgivable loans.
Microloans come from a variety of financing institutions, non-profits and entrepreneurs and can range from $500 to $35000. The maximum term is 6 years and requires some training and business planning. Loans up to $25,000 usually do not require collateral, but some states are ending or cracking down on programs due to popularity and defaults. Microloans have statistically become popular for female business owners who are starting a small operation.
Peer and Online Lending
When all else fails, turn to your peers on the internet. Crowd funding sites have become a popular way to ask for money to start or expand a project. Kickstarter.com, Peerbackers.com, and ProFounder.com, are three of the most well-known peer lending sites. A great way to get an idea going, especially if your business will offer a brand new and innovative product or service. Prosper and Lending Club directly connect investors with borrowers for loans up to $25,000. This tactic is unconventional and not a guarantee, but it can also be a great alternative for those who have run out of more traditional capital acquisition methods.
Of course, these are not the only capital resources available to diverse business owners, but they are less used among diverse business owners. And while you can’t rely on competitions as a guaranteed source of capital, initiative programs like the Make Mine a Million are worth a look. No matter which options you pursue, make sure that you have a thorough business plan and a feasibility study to
convince potential lenders or investors that your business will succeed. Capacity, capital, collateral, conditions and character are often identified as the “Five C’s” of credit analysis, and are key components that prospective lenders will explore.
- SBA Financing Search – Complete this checklist to quickly find financial resources for your specific needs.
- Microloan finder via the Association for Enterprise Opportunity
- Microloans through Accion
- Individual Development Account directory at CFED