This post was updated January, 2012
Hitting the wall trying to get financing for your business? If your monetary needs are small, these 20 resources can help you access the money you need to start or run your small business. There are options even where poor credit and few assets are an issue.
Since the recession peaked in 2009, a growing number of entrepreneurs and small business owners have been stepping away from the traditional business banking model. The trend, spurred by necessity as banks all but closed off the flow of business-related financing, has helped to generate the interest and buzz surrounding “alternative” financing models namely: microfinancing, peer-to-peer lending, and most recently, crowdfunding.
What follows is a list of twenty possible avenues of microfinancing for entrepreneurs and business owners. Many of these resources will provide access to financing even to borrowers who own few assets, have poor or no credit history, or those who are involved in a “high risk” concept.
Please note that I created this list with US businesses in mind, but many of these resources point to organizations that operate in several other countries as well.
Microlending for Small Businesses in the US
There are several microlending programs available to small business owners and entrepreneurs in the US. With microlending, funding is typically provided via community-based, nonprofit microfinance institutions. Though anyone can apply for funding, these programs tend to favor business owners working in rural or disadvantaged communities as well as those struggling with limited money or poor credit.
SBA Microloan Program. Through its microloan program, the Small Business Association (SBA) provides direct funding to designated non-profit intermediary lenders (typically community-based organizations) who then provide microloans to small business owners and entrepreneurs. With the passage of the 2010 Small Business Jobs Act, SBA microloan program was expanded; now the loan limit is $50,000 (up from $35,000).
The maximum term allowed for these loans is six years, with interest rates ranging between 8 and 13 percent. They do have some restrictions on use, however. While they can be used for a variety of purposes including the purchase of inventory, equipment, supplies, and furniture, the money cannot be used to cover debt or make a real estate purchase. For a list of participating microlenders by state, see this document.
Accion USA. Accion USA is one of the largest microlenders in the US. It’s a microfinance community organization that offers small business loans up to $50,000 as well as business consulting to small business owners who are unable to secure traditional financing. Interest rates are competitive, there’s no fee to apply, and you can even apply online.
Kiva. Kiva is an international organization dedicated to fighting poverty. It operates a peer-to-peer lending Web portal where small business owners and entrepreneurs apply for loans by posting their stories online. Borrowers are not required to offer collateral. Those interested in investing make donations of $25 or more. The funds are then pooled till the total amount is reached and are subsequently distributed to the borrower via local microfinancing institutions. Kiva just recently entered the US, with its headquarters based in San Francisco.
Communities at Work Fund. In May 2010, global financial services company, Citi provided $199 million of capital in conjunction with Calvert Foundation and Opportunity Finance Network to establish the Communities at Work Fund. The program offers loans to Community Development Financial Institution (CDFI) loan funds that finance small businesses in addition to community service organizations in under-served communities.
In addition to the above platforms, business owners can also try locate a local microlender through search portals such as the Microfinance Gateway or through the Association for Enterprise Opportunity.
Commercial Peer-to-Peer Lending Resources for US Small Businesses
Unlike the microlending programs mentioned above, when it comes to commercial peer-to-peer lending, only borrowers with good credit need apply. Those who can access this form of microlending will enjoy good interest rates on unsecured financing and avoid all the processing, requirements, and fees associated with traditional business loans.
Lending Club. Business owners with a credit score of 660 or higher should definitely give the Lending Club a try. After a loan request is made, individual investors make small investments of $25 or more till the full amount is reached. With Lending Club borrowers can get a personal loan up to $25,000 payable in three years with fixed interest rates that are often better than those charged by traditional lenders. Borrowers can apply online for free, and get a quick approval. Upon approval financing is typically received within two weeks.
Prosper.com. Like Lending Club, to borrow at Prosper, business owners must have a good credit score- 640 or higher. Prosper.com just modified the way it connects lenders and borrowers. In the past, lenders would make bids and compete, auction style, for borrowers by offering the best interest rates. Today, Prosper operates much like Lending Club, offering personal loans up to $25,000.
Crowdfunding Sites for Small Business Owners and Entrepreneurs
In the crowdfunding model, the online collective pools together money in support of a project or organization. In this case, the borrower’s credit rating is not the main factor determining whether funding will be achieved. Instead, significant emphasis is placed on the borrower’s online reputation in addition to the idea behind the funding request. Unlike more traditional forms of business financing, the money raised through crowdfunding is not directly repaid. Recipients instead may offer their investors a specified item or service in exchange for their pledge of money.
Kickstarter is perhaps the most well-known crowdfunding site, but several other services exist. Not all of them are free, however. Many will charge a fee on the funds collected (usually around 5%) as well as third party processing fees, so make sure you do your research before submitting a request for funding.
Here is a list of the current top crowdfunding sites for small business owners:
-Venture Socially- Offers several tools and features to help pitch your project to the masses.
-33needs. Provides crowdfunding for social entrepreneurs, social enterprises and businesses with a social mission.
-MicroVentures. Targets businesses that are creating technologies, products and services in areas, such as business products, consumer products, electronics, and online technology.
-Quirky. Offers product designers and inventors the chance to bring their products to market.
-FansNextdoor. FansNextdoor is a platform for all creative professionals to promote and fund their projects together with their fans.
-Cofundos. Crowdfunds open-source software projects.
-Indiegogo Submit any kind of project: creative, social, or entrepreneurial, and get the tools and platform you need to raise funds.
-Growvc A global marketplace for startup funding.
-Rocket Hub. RocketHub is a community for “creatives and fuelers.”
-Peerbackers. Peerbackers is for business owners to raise capital from their peers
Bottom line: with a little persistance, small business owners and entrepreneurs of all walks of life can use various microfinancing platforms to get the capital they need to start and run their businesses.