Tips for Financing Your Business
by Ken Mitchell-Phillips, Sr.
July 1, 2009
In most cases the easiest way to finance your business is through personal savings, family members, and credit cards. In fact, prior to 2000, only 7% of the 500 fastest growing privately held firms used bank loans, only 5% used private investors, and only 3% used venture capital funds to finance their business. (Fraser, 1997) If you don’t have family, friends, or personal savings to help you, don’t get discouraged, I’ve provided 10 ways for you to use your persistence and creativity to finance your business:
- Seek a microloan. Small businesses with reasonably good credit have a fair shot at getting a small line—usually up to $35,000 through the “Microloan Program”. The Microloan Program provides small loans to start-ups, newly established, or growing small businesses. Under the program, the SBA makes funds available to non-profit community based lenders which in turn makes loans to eligible borrowers in amounts up to a maximum of $35,000. Applications are submitted to the non-profit organization and all credit decisions are made on a local level. This program is great for those businesses that have been rejected by a traditional bank.
- Use your assets. Because banks have tightened up lending and pulled back on lines of credit, asset-based lending has become more popular. At some banks, you can secure a line of credit against eligible receivables where the lender fronts sometimes up to 85 percent of the total, then forwards the remaining 15 percent after your customer pays you in full. Although you may pay 1.5 points to 3 points over prime for the advance, it is a great way to obtain funds without a great credit history. In Oregon, banks like U.S. Bank, Keybank, and Albina Bank offer these types of programs to small businesses.
- Internet Sources. If you are looking for a small amount of working capital, there are peer-to-peer networks which marry lenders and borrowers online. Sites such as prosper.com, lendingclub.com and loanio.com allow entrepreneurs to search for lenders and borrow up to $25,000, with three-year terms and widely ranging rates.
- Try the big banks. If you have good credit and a profitable business, research local banks to find a business-friendly lender that hasn't been caught in the mortgage maelstrom. Albina Community Bank and Bank of the Cascade are two local banks that offer more flexibility when it comes to lending money.
- Sweet-talk your vendors. Often overlooked as a source of credit, vendors are uniquely motivated to keep their customers' business going and will often work out a payment structure to help clients survive a rocky period. If you can show a vendor your profitability, they may take a chance on you.
- Angel Investor Networks. There are many Angel groups that specialize in helping small growth and emerging businesses. In Oregon, the Oregon Entrepreneurs Fund provides several Angel investor programs that help business around Oregon and SW Washington. The money and expertise they bring to emerging businesses is absolutely life-saving.
- Venture Capital Financing. From small boutique venture capital firms, to huge international conglomerates, there is hardly an industry in existence that the venture capital world has not influenced. In 2008, Oregon received $174.0 million in venture capital investment which provided funding for 29 companies in Oregon. Between 2004 and 2008, total Oregon venture capital investment increased by 5.59% per year.
- Small Business IPO. A full fledged public offering may sound odd, but the small business IPO may be right on target for many small companies.
- Business Grants. In some circumstances, unique businesses qualify for business grants from a myriad of sources, both government and private.
- Investors for Small Business. Jog your memory with all the different types and styles of investment. There should be one or two or three that strike your fancy.
If you need help in your search for financing your small business, be sure to contact Mitchell-Phillips Law, P.C. at 503-471-1330 or info@mitchellphillipslaw.com.
