Finding Cash For Your Business

Karen Tappin Saunderson has been an entrepreneur ever since she was a college student putting together gift baskets for parents to send to their children. While working as a high school teacher in New York, she continued to sell the baskets at selected times of the year in shopping malls.

“One year,” says Tappin Saunderson, 29, “my husband, Damani, and I put together spa gift baskets with shampoos, scrubs, fragrances, and so on. The response was overwhelming. As a result, in 2004, we rented retail space nearby and opened Karen’s Body Beautiful.” The couple used $45,000 of their savings to finance their new boutique, but they came up a few thousand dollars short. They couldn’t afford a kitchen in the new space so they had to prepare their products at home and carry them around the corner.

“Fortunately,” says Tappin Saunderson, “we were able to get a micro-loan, which paid for a kitchen on the premises. Not only has this made our lives easier, but our new kitchen has become a huge draw. Our store is something of a local tourist attraction, where people come to watch us work, and they usually buy something when they’re here.”

A new kitchen may not be the answer to every business owner’s problems but an appetite for more capital is a familiar feeling. This appetite, though, is often hard to satisfy from traditional sources. Bank loans can be difficult for African American entrepreneurs to snare without adequate collateral, proven cash flow, or good credit history. Thus, small business owners frequently are forced to turn to expensive credit card debt or friends-and-family financing, which can create touchy, personal problems.

Those aren’t the only financing alternatives, however. BLACK ENTERPRISE takes a look at three nontraditional sources for raising money: micro-lending, angel investments, and accounts receivable financing. These alternate sources of funding can provide crucial cash as long as entrepreneurs know the true costs of accepting what seem to be pennies from heaven.

As the name suggests, micro-lenders make very small loans to emerging companies. A micro-loan helped Tappin Saunderson make her move away from home-brewed products. “I saw a newspaper ad, went to a one-day workshop, and was assigned to a group,” she recalls. “Some of the group discussions helped me with marketing and publicity ideas. I applied for a $3,000 loan, which I used to pay for my in-store kitchen.”

The new kitchen, Tappin Saunderson reports, helped business so much that she was able to repay her $3,000 loan early. “I have since received another loan, for $5,500, which I used to increase my inventory and ramp-up for Christmas.”

Tappin Saunderson obtained her micro-loan from Project Enterprise, a micro-lender that supports and develops entrepreneurs and small businesses in underresourced communities in New York City. “We don’t require collateral and we don’t do credit checks,” says Arva Rice, executive director of Project Enterprise in New York. “We’ve made over $500,000 worth of loans in seven years, with a 93% record of current repayment.”

Instead of traditional credit criteria, Project Enterprise relies upon