“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 profferrd@missouri.edu.
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.
