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FUND RAISING

WHAT WE FOUND


In our research on behalf of small business funding options, we found that capital doesn’t come so easy to entrepreneurs these days. Getting a small business bank loan to open a new business or even for expansion is practically impossible ever since the financial crash of 2008.


When it comes to getting a loan for your small business, it may not come down to who you know, but where you go. We found that some of the nation's biggest banks have the worst performances when it comes to small-business lending. Meanwhile, banks that recorded the best small-business lending performances are the ones most entrepreneurs have probably never heard of.

In our opinion, big banks are not well equipped to lend to small businesses. They are simply too bureaucratic and complex to handle small-business loans well.

 Most lenders want to see a financial track record for your business that demonstrates an ability to repay the money they’re lending you. Without that kind of history, the lender has no way to know if your venture will be successful enough to make good on your obligation. Banks are certainly not interested in making equity investments in businesses They are playing it safe preferring to make money from numerous fees assessed to consumer checking and savings accounts.

In 2014, the total number of loans and money distributed via the Small Business Administration has dropped as much as 20 percent. Large banks approved only 9 percent of loans three years ago, but is making more due to current low interest rate.  But before the recession, the rate was around 36 percent. Also, nearly 98% of the business plans received by accredited investors and VC’s are rejected summarily. Without a doubt, the current business-funding environment is in need of disruption.

The defection of small business lending by traditional banks has spurred the growth of crowdfunding opportunities  through websites such as Kickstarte, Fundera, Indiegogo and many more.

Crowdfunding is a great alternative way to fund a venture, and it can be done without giving up equity or accumulating debt. Rewards-based crowdfunding platforms allow entrepreneurs to raise funds from the community in exchange for simply giving tangible products or other relative gifts.

Right now, the big dog in alternative business funding appears to be OnDeck www.ondeck.com. Started in 2007, they are now publically traded (NYSE: ONDK) and spending tons of money promoting their site. Loans range from 5K to 250K and are funded as soon as 24 hrs. The criteria is that a company must be in business for more than one year, with $100,000 in annual revenue and at least one owner with 500+ personal credit score. This requirement unfortunately eliminates 45% of all small businesses in the US. There are numerous copycats sprouting up as well with similar lending parameters.

A lesser known alternative making great progress helping small business get funding is  Las Vegas based Corporate Capital Inc www.corporatecapitalinc.com. CCI is a full service business solutions provider which helps  secure cash and credit for businesses looking to  launch or expand their business via their direct access to a 1B US based hedge/trust fund. Funding and their pioneering corporate credit building program is not contingent on personal credit scores and they have recently started lending to real estate investors as well.

Franchise businesses. Many franchisers started to recognize that they’d need to help prospective franchisees with financing rather than home equity loans—once the most common source of startup cash—which also dried up overnight and therefore have started in-house financing programs. Many franchise brokers can advise you which ones are active.

Nonprofit microlenders such as the Opportunity Fund which lends between $1 million and $2 million a month and does over 1,000 loans a year are also growing exponentially.  This particular organization has offices in San Francisco, San Jose, and Los Angeles. It is currently running a startup funding challenge that aims to provide loans of up to $50,000 at 7.5 percent interest.

SBA 504 loans are still a good way to help small-business owners buy, build and improve commercial real estate despite the declining rate of issuance.

The U.S. Small Business Administration’s 504 program offers below-market, fixed-interest rate financing that allows businesses to keep their working capital. The typical loan structure involves a commercial lender providing up to 50 percent, the SBA 40 percent and the business owner’s down payment as low as 10 percent.

Once you have grown past these options then traditional Bank lending may be available to you. They will look at your résumé, background, references, prior business success, and history of paying back loans or investors. Paying down your personal debt and getting your credit score as high as possible is also a good idea.