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The Entrepreneurial Mind

The best options for small business financing

Traditional equity and debt financing options have become much more difficult to secure. But there are some good nontraditional alternatives.

By Dr. Jeffrey R. CornwallGuest blogger / November 10, 2011

A money changer shows some one-hundred U.S. dollar bills at an exchange booth in Tokyo in this file photo. Traditional equity and debt financing options have become much more difficult to secure, but Cornwall argues that there are other options, like joining a community bank or applying for a micro-loan.

Issei Kato/Reuters/File

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The state of small business financing is a bit uncertain these days in terms of both supply and demand.

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To get the full picture, we need to frame this discussion by understanding how unimportant securing new financing is to small businesses in the current economic conditions.  The most recent survey from the NFIB survey released this week suggests just how much small business owners are retrenching right now.

The NFIB survey reports that only four percent of owners they surveyed reported financing as their most important business problem.  Ninety-one percent reported that all their credit needs were met or that they were not interested in borrowing.  Only nine percent reported that not all of their credit needs were satisfied.

But even if demand for credit is not strong right now, finding financing can be a challenge for those businesses seeking new funding.
The Hartford Small Business Success Survey, which surveyed 2,000 small business owners, found that 34 percent of respondents say that obtaining a loan or other capital is difficult.

Traditional equity and debt financing options have become much more difficult to secure.  Banks are very slow and cautious to lend and equity financing has become almost timid.

For those few small business owners seeking new funding, Joanna Krotz offers some non-traditional alternatives in her article at Business on Main:

  1. Tap community banks. If you are going to have any luck with bank loans, your best shot is with a community bank with a strong SBA lending track record.
  2. Leverage your social media network. Krotz suggests that you should look to Facebook to broaden your "friend network" for funding.  I would caution to approach any funding from family and friends with formal agreements supported with a complete and honest set of information about your business conditions. 
  3. Apply for a microloan.There are more micro-lenders popping up across the U.S.
  4. Join a credit union, which can offer up to a $50,000 business loan to its members.
  5. Hire a loan hunter. New ventures, such as MultiFunding which was founded by my friend Ami Kassar, are having good success sourcing loans for small businesses.  They charge a small fee only when a loan is secured. 
  6. Look for local lenders.  Local angel groups are becoming more active with smaller levels of funding for emerging businesses.

As I have said before, piling more debt onto small businesses is not the solution to our economic woes.  That being said, some small business owners do need funding and are good risks.  While finding new funds is definitely a much greater challenge, there are some new options on the financing landscape. 

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