When we work with small businesses and startups here in Oklahoma City, we almost always get the question “Where can I find funding for my business idea?” Luckily, we’ve seen this many times before, and we can point our clients in the right direction if they need startup funds, or additional funding for their existing business. If you think obtaining funding is a dead end, you might be surprised. The bottom line is, if you are a new business, you are a potential job creator, and financial institutions are motivated to get you started. In this post, I’m going to go cover the 3 most common solutions we’ve helped our customers with when it comes to obtaining funding.
Small Business Lending Fund
Like I said, if you’re a new business, you are a potential job creator. And that’s exactly why the Small Business Lending Fund (SBLF) is [potentially] motivated to give you money. They want to stimulate bank lending to small businesses across the country. And they have potentially $30 billion worth of funds at their disposal. The intent of the SBLF was to provide low-cost funding to community banks so that they, in turn, could lend at an attractive rate to small businesses. So what kind of lending is covered under the SBLF? One important category is Commercial and Industrial Loans (C&I), which is any type of loan made to a business in order to provide working capital or to finance capital expenditures. For small businesses in particular, having adequate working capital can make or break a small company and being able to finance capital expenditures can mean the difference between stagnation and growth. In Oklahoma, there are 4 community banks with 18 locations that participate in the program. A list of those banks and their locations can be found at the Department of the Treasury’s website. I don’t want to mislead you by making you think that the SBLF is just handing out money. You have to have a solid plan, and have to be able to show that you have solid revenue model to qualify. But the SBLF is a great resource that we assist our customers with frequently.
Community Banks and Credit Unions
In addition to the SBLF program, small businesses in this country have traditionally been served well by community banks and credit unions. In fact, community banks are the primary source of lending for small businesses in America, as evidenced by the fact that community banks with less than $10 billion in assets hold 54.2 percent of outstanding loans to businesses for less than $1 million—as documented by the Independent Community Bankers of America (ICBA). In addition, credit unions have also been stepping up their lending to small businesses, particularly since the end of the recession. As noted in a recent NerdWallet article, there are 3 potential benefits to obtain your small business loan from a credit union. First, they are willing and able to lend money— since the recession, credit unions have seen 3 years of double-digit growth in member business loans. Second, their fees and rates are typically lower. Finally, similar to community banks, lending is streamlined compared to the large mega-banks because loan approval is local.
So where does one find these lending institutions? It’s as simple as letting your fingers do the tapping. To find a community bank, you can simply go to the ICBA site and plug in your zip code. To find a credit union you can go to the National Credit Union of America’s (NCUA) site and again simply plug in your zip code. You will find many locations right here in Oklahoma.
Now, let’s say that you are ready for the big leagues. Where can you find over $16 billion? Well, on the Internet, of course! $16 billion was the amount of money funded to businesses of all types—particularly start-ups and small firms—in 2014, through a technique called crowdfunding. What exactly is it? One of the best descriptions can be found on the industry site crowfunding.org which states, “crowdfunding is the financing of a project or venture by a group of individuals instead of professional parties (like, for instance, banks, venture capitalists or business angels)…entrepreneurs ‘tap the crowd’ by raising the money directly from individuals. The typical mode of communication is through the Internet.” Though crowdfunding can be used for virtually any kind of idea, the majority of the funds raised in 2014 were used for launching new businesses as mentioned in a recent article in Entrepreneur Magazine. However, with hundreds of crowdfunding sites, the challenge to find the right one can be seemingly insurmountable. There is help out there, though, if you do your research. Inc. Magazine did an article as did Quick Books, but the Internet is rife with support to help you find the crowdfunding site that fits your needs. Of course, it can take a while to raise the funding needed. On average, a campaign will last around 9 weeks and the average amount raised is around $7,000 as tracked by Fundable.
Recently a new wrinkle to crowdfunding has emerged call equity crowdfunding. So what is this relatively new model of crowdfunding? To quote one of the sites that is a platform for equity crowdfunding, Syndicate Room, equity crowdfunding “is the name given to the process whereby people (the ‘crowd’) invest in an unlisted company (a company that is not listed on a stock market) in exchange for shares in that company.” Since this can be considered to come under the purview of the Security and Exchange Commission (“offering a share of the financial returns or profits from business activities could trigger the application of the federal securities laws, and an offer or sale of securities must be registered with the SEC”), the government passed the Jump Start Our Business (JOBS) Act in 2012 in order to facilitate this model. The final, and crucial piece of the legislation—Title III—will go into effect on May 16th, 2016 and allow small investors to buy shares in startups in much the same way they buy shares in companies listed on the major exchanges.
I hope these three solutions at least get you pointed in the right direction. If you need any assistance presenting your business plan, proving the technical aspects of your revenue model, or if you need help developing your technical solution, reach out to us, we’ll be glad to help!