Small business owners face a number of challenges when it comes to accessing capital. Whether it’s debt or equity, many lenders and investors just don’t provide capital to startups.
According to Small Business Trends, only 56% of businesses started in 2014 made it to their fifth year. These statistics lend credible support to why banks do not lend to startups.
There are, however, several alternative sources of capital that potential entrepreneurs can take advantage of.
Here are three sources of financing for startups.
Pitch competitions are usually organized by economic development organizations. They are not only held in major metropolitan areas but in dozens of localities.
The competitions showcase entrepreneurs who are in the ideation or startup phase.
These aspiring entrepreneurs and business owners pitch their business plans to a group of judges who consist of advisers, bankers, and other business owners. The best idea or viable business plan is usually awarded a cash stipend.
Crowdfunding is an interesting concept and many of us are familiar with it. We’ve all heard the stories of large businesses that have obtained financing through crowdfunding. There are also opportunities for smaller businesses to obtain financing through some of these platforms.
C2C or consumer-to-consumer platforms, such as Prosper and apps such as Kickstarter can help you build. It is going to pitching your business or idea in front of an audience of hundreds of potential funders to obtain capital. For the creative business owner, with the right pitch, this can be an excellent source of capital.
Community Development Financial Institutions
These nonprofit organizations help businesses in disadvantaged communities access capital. Each CDFI has a unique social mission. Some finance startups and others only lend to existing businesses. Like banks, CDFIs range in size. National lenders like CRF or Accion, have a much larger footprint. Regional lenders, such as Pursuit in New York City or PIDC in Philadelphia, provide capital and technical assistance to businesses in their respective metropolitan areas.
Financing a startup is not easy. Aside from bootstrapping, or using capital from friends and family, their options are few and far between. You can, however, work with a business adviser to produce a viable business plan and realistic financial projections for lenders and investors.
By developing an interesting package, you will attract the right mentors and resources to move your business idea forward.
To learn more ways that you can secure funding from an investor, click here to watch John Henry share what it takes.