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 businesses if they cannot get it from traditional local or
institutional banks.
Where to Find Funding
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 and 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.
After learning about the business, its
past financial performance and where the owner wants to go with the new
funding, the matching up process for the business against several new
opportunities on the lending market can get started.
Non-Profit Lender
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 but 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.
Online Environment Lenders
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.
A way 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 to
avoid tax penalties for early withdrawal.
Guidant iFinance is an example of this type of lending.
Credit Cards
One not so new way more people are
looking at is 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.
Membership Store Lenders
One final way is membership stores
like Sam’s Club or Costco’s 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 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 and not assume
they do.
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