Wednesday, 30 January 2013 Written by Adam Hoeksema
Ready to step out of the box?
In the world of small business financing there are the financing sources that you hear about in the media like angel investors and venture capitalists. Then there are specific platforms that you hear about like Kickstarter, Kiva, and Gust. Then there are the funding sources that have been quietly funding hundreds of thousands of small businesses each year. The primary reason that you don’t hear about these organizations is because they are non profits and economic development agencies. They don’t advertise well, or at all, but they make a huge impact, and they are financing early stage companies. Here are 3 major funding sources that you probably have never heard of:
1. SBA Microlenders
There are just under 200 SBA Microlenders in the U.S. These lenders are able to lend between $500 and $50,000 to for-profit small businesses. While a small business loan cannot directly be written off when you file taxes online or through your accountant, some of the items bought with a SBA loan can be. The purpose of SBA microlenders is to fill a financing gap for small businesses and startups. Most traditional banks will not make loans below $50,000, but in this day and age of the Lean Startup, you may not need more than $50,000 to start and grow your business. Most banks require great personal credit and at least a couple years of operating history for your business. Microlenders tend to be a bit more lenient. Here is a listing of all of the SBA microlenders around the country.
CDFI stands for Certified Development Financial Institution. CDFIs are non profit lenders and credit unions around the country. There are approximately 1,000 CDFIs around the country that lend to a population that historically has a difficult time securing financing. CDFIs might focus on lending to minorities or low income individuals, but one thing that startup founders should keep in mind is that they often qualify as low income. You may have left your day job at Google where you made $100,000 a year to start a new company where you haven’t paid yourself in 6 months. Guess what, you probably qualify as “low income” and could qualify for CDFI funding. Here is an Excel spreadsheet with every CDFI in the country including contact info for each organization.
3. Rural Revolving Loan Funds
Generally there tends to be more funding options in cities. Various government organizations have recognized that small businesses in rural areas have very few options when it comes to financing a new business, so they have helped fund and establish rural revolving loan funds around the country. These loan funds are typically limited to small businesses located in towns and cities with less than 50,000 people. If you are a business owner in a rural area, there may be a loan fund available for you, just check with your local chamber of commerce or economic development agency.
These 3 funding sources make hundreds of millions of dollars in loans to startups and small businesses each year. Even though you may have never heard of a microlender or a CDFI, they exist, and they have funding available. Consider these sources as you look to grow your business.