Five Alternative Ways To Finance Your Business - Black Enterprise

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Black Enterprise Magazine September/October 2018 Issue

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Are bank loan officers giving you the bum’s rush to the door when you try to finance your business enterprises? If you’re like most small business owners, the answer is yes. Entrepreneurs get turned down for bank loans for a variety of reasons, including lack of assets, collateral and business experience. And discrimination continues to be a persistent problem for many African American business owners.

Fortunately, a rejection stamp on your bank loan application doesn’t have to derail your dream of owning a business. Alternative sources of capital are available to help you get a new company off the ground or expand an existing enterprise.

Rejections have forced business owners to become more creative when it comes to financing. “The number of small businesses that cite bank loans as the primary source of financing has fallen,” says Tood McCracken, president of National Small Business United(NSBU), a lobbying group in Washington, D.C. These findings were included in the NSBU/Arthur Anders 1997 Survey of Small and Mid-Sized Business Trends.

Five creative forms of alternative financing include “factoring,” or selling accounts receivables for up-front cash; finding an “angle investor” (a wealthy investor); obtaining loans or credit from suppliers; seeking loans from venture capital firms that cater to small businesses; and joining a susu, where you pool money with friends and family.

By using these methods, thousands of businesses are getting working capital to lease property, buy equipment and supplies and pay employees. But while these sources are more willing than banks to take a risk on growing businesses, they are hardly giving money away. You still need a viable idea, a sound business plan and clear marketing strategies. You must show realistic projections for growth and earnings so investors know how and when they’ll recoup their money. Note that every business eventually needs a strong relationship with a bank for lines of credit and expansion capital. Use these sources of financing to shore you up and make you more presentable to bank loan officers. .


One way to get cash for operating expenses is to sell your accounts receivables to companies that will buy your invoices and collect payment form your customer. In return, you pay a finance charge or “discount fee” on the total amount of the receivables–a process called factoring. Payment from the factoring company can be as quick as a few days–as opposed to waiting 30, 60 or 90 days for customer payments.

Factors are willing to buy your accounts because they believe your clients will have a good credit history, even if you don’t.

Factoring accounts helped W.C. Miles keep his executive transportation company on the road. Miles-Chicago Transportation Inc. provides limousines and sedans to clients including the University of Chicago Hospitals and the City of Chicago Special Events Department.

“The banks wouldn’t touch me,” Miles says. “I had a logjam of receivables and no systematic way of getting the money in a timely fashion. While money slowly rolled in, I had cars to service and drivers to pay.”

Miles sold $9,000 in accounts receivables

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