Securing financing for a small businesses can be a huge challenge, especially for new entrepreneurs. There are several opportunities available to assist entrepreneurs in the area including: microloans, SBA lending and pitch competitions. Additionally, here are some recommendations for staying motivated and being prepared to request funds.
Small business owners generally utilize a mix of sources to fund their ventures and growth. These can include: personal savings, contributions from family and friends, personal credit and traditional bank financing. Despite the fact that lending opportunities exist, it is not always easy to secure funds when needed. According to the National Small Business Association’s 2016 year-end report
, as of January 2017, 31% of small businesses are unable to access adequate financing.
“With so many options out there, from banks to investors and even non-traditional online lenders, combined with economic concerns, borrowers can easily feel overwhelmed,” says Huntington Bank Business Banking Relationship Manager Daaron Fleeger.
Fleeger also says, “We find that, for many new business owners, the role of a bank in lending can be confusing. A true start-up will often lack history and credit-worthiness to support conventional lending.”
Based in Kalamazoo, Remi Harrington launched Tegany Vegany Soulbelly Foods LLC, a minority, woman-owned business, in 2013. “My business is a multi-faceted social enterprise and developing it has been a long time in the making,” says Harrington. She continues, “My objectives are to create a hugely successful triple-bottom line neighborhood-based business model. I want our business to be fiscally, environmentally and socially responsible.”
One of the biggest challenges Harrington has faced is being able to access resources. “My business is running but I need an infusion investment to sustain,” she says. To help secure the necessary funds, Harrington has taken several steps, including utilizing her network to get connected with community resources.
Harrington began working with the Michigan Women’s Foundation
(MWF) in early June 2017. “At this point, I am in the process of applying for a microloan. I am grateful for the opportunity to apply and qualify for funding through the MWF because I am not necessarily an attractive candidate for funding through traditional banking sources,” she says. Potential challenges applicants can face are the lack of income and a shaky credit history. Harrington advises, “I would recommend having any source of income and disputing every horrible thing on your credit report to the credit bureau.”
Many entrepreneurs can also struggle with not having access to collateral to help support a loan request. “It’s important too to realize the need to have skin in the game. This may seem obvious, but collateral is hugely important in working with a bank lender. With the ongoing strong post-recession rebound in home values, many entrepreneurs have greater access to their own personal equity wealth to leverage as small business loan collateral. This is common for those taking the plunge for the first time to start a small business,” says Fleeger.
Microloans are designed specifically for small businesses and some non-profit organizations. As the name implies, the amount of funds loaned tends to be smaller than one would see through a traditional financial institution. According to the U.S. Small Business Administration
(SBA), their Microloan Program “provides funds to specifically designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance.” Grand Rapids Opportunities for Women
(GROW), is also a microloan resource for all business owners.
For the wider startup and small business community, the SBA also provides government-backed lending opportunities through specific lenders, including Huntington Bank.
greatly enhances Huntington’s ability to provide lending solutions to small business owners because of the reduced risk provided by government backing," says Fleeger of Huntington. "It also provides meaningful opportunities to reduce debt burden through extended terms not possible within conventional financing, and often enables smaller loan amounts which is helpful for borrowers just getting started with credit."
Huntington is a longtime leading SBA lender in Michigan and throughout Huntington’s service markets, and also number two nationwide in number of loans. "We make more SBA 7(a) loans in Michigan than all other lenders in the State combined,” adds Fleeger.
Microloans and SBA financing are not the only alternative opportunities for small businesses seeking financing. Michigan Women’s Foundation Women’s Entrepreneurial Initiative Manager and Volunteer Network Coordinator, Kris Ridings, is also supportive of the large number of pitch competitions being offered throughout the State.
“There really isn’t a substantial-sized community here in Michigan that doesn’t have some type of pitch competition available to entrepreneurs. And more and more of them seem to be combining financial incentives with start-up support services. It’s not just about the money. It also comes with resources—whether it’s legal, marketing, [or] accounting. And I don’t see that trend slowing down,” says Riding.
A new resource is on the horizon as well. Start Garden
is planning to launch a grant fund to assist small businesses with accessing capital. Their goal is to launch the fund in early 2018. According to Director Darel Ross, the fund will be open to the community and assist with securing funds through a fast, streamlined process, hopefully removing many barriers of entry that exist with traditional bank lending.
For entrepreneurs seeking funding, here are some tips to help you prepare.
Fleeger suggests, “building a solid business plan and establishing early performance metrics, as they’re often attractive for a lending partnership…[also] collateral is hugely important in working with a bank lender.”
To help offset the lack of collateral, Ridings recommends, “when you’re putting together your use of funds, consider what you’re going to being using the loan for. Have some tangible items that could be used as collateral. Use your own funds for some of the intangible start-up costs and then request hard inventory items [with] the loan [that can] act as your collateral.”
Ridings adds, “I can’t stress enough how important it is to have a good understanding of your numbers. I consistently see people who under plan for their costs and over plan for their sales. Always be realistic."
From someone currently working through this process, Harrington encourages fellow entrepreneurs to keep going, despite the challenges and roadblocks. “You might go into debt and you'll pay your bills by who yells at you the loudest, but keep going. Sometimes what you produce isn't the best version of your vision. Keep going. You'll get ignored. Keep going,” she says.
“Making It In Grand Rapids” is a series about local entrepreneurs and the issues that matter in building a sustainable startup-friendly community. Read more in the series here. Support for this series is provided by Start Garden. You can reach the editor of this series, Allison Spooner, on Twitter or e-mail her at [email protected] for story tips and feedback.
About Leandra Williams: Leandra Williams, Owner of Stingray Advisory Group LLC and Co-Owner of Gold Leaf Designs LLC, has over 12 years of experience in leadership, sales & marketing and graphic design. Contact Leandra Williams by email at [email protected].
Photography by Adam Bird, Bird + Bird Studio.