Thursday, December 4, 2014

Funding Sources

“Yes Virginia, there is Funding for your Business…”

Just as the headline refers to the 1890’s news story in The (New York) Sun, there is funding in the capital world for many business if they cannot get it from traditional local or institutional banks.

A business should always try to go local first in seeking funding either from community banks or the larger regional/institutional banks. But not every business can fit the criteria of local banks. When turned down, they must go elsewhere. But where is "elsewhere", is the question University of Missouri Extension Business Development counselors often get when these entrepreneurs come to our offices.

We begin by learning about the business, its past financial performance and where the owner wants to go with the new funding. Then we proceed with a matching up process for the business against several new opportunities on the lending market.

One set of new lenders is the nonprofit sector. While nonprofits have always been around, more and more are starting to lend money to qualified business owners or startups. The lendee must meet criteria set by the nonprofit. If met, the terms are usually more flexible than a traditional bank loan. In most cases, the lendee must show refusals letters from banks as proof of need.

Another set is the online environment. Companies like OnDeck, Lending Club, Street Shares, Source 1 Capital and many others are now competing for local loans as many banking communities continue to have tight lending requirements. Here the entrepreneur goes to the website, completes the profile and the people behind the scenes go to work on matching the request up to potential lenders. These lenders may be national banks outside of the local market area, financial investors, venture capital firms or other people or organizations willing to lend money to the entrepreneurial marketplace.

A second part of the online lending world are the peer to peer networks. Here the entrepreneur tells the business’s story, the need for capital and the planned uses for it. As people read the application, they decide on to invest or not in the opportunity. Examples of this type of lending are Kabbage, Kiva, Prosper, and Zopa.

Another way, that is gaining popularity amongst early retirees, is using their tax-deferred retirement savings to start a business. This method is complicated due to the tax liability and the many maneuvers needed to avoid tax penalties for early withdrawal. Guidant iFinance is an example of this type of lending.

One not so new way,  is using credit cards. The National Small Business Association reported that about 33 percent of small businesses has used credit card financing in the last 12 months to help meet capital needs. Overusing this method can lead to cash flow chokes later on in the life of the business so entrepreneurs really need to plan out their usage of this option.

One final way is through membership stores like Sam’s Club or Costco’s.  They are turning to lending to their membership businesses as a way to help grow market share and retain customers. It is important to know that only businesses can apply for these loans and not a consumer. These loans are traditionally under $25,000 and membership is required for application. Not all club stores participate in this program so the entrepreneur will need to ask their local store for details.

Your local Extension small business technology and development center in Jackson, MO is glad to help entrepreneurs sort out the business’s financial needs and match up sources of capital that will increase cash flow and create a healthier business. Just call 573-243-3581 and ask for Richard Proffer or email at

Funded in part through a cooperative agreement with the U.S. Small Business Administration. All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA. Programs are extended to the public on a non-discriminatory basis. Reasonable accommodations for persons with disabilities will be made if requested at least two week in advance. Contact Richard Proffer, University of MO Extension, 684 West Jackson Trail, Jackson, MO 653755 or at 573-243-3581.