Uncertain economic times and a tight credit environment call for creative, nontraditional financial solutions for minority entrepreneurs.
It takes money to make money. That is the plain and simple truth in business. A shortfall of capital is one of the most commonly cited reasons why a company is unable to expand business and succeed. The prospect of getting financing for a start-up even in a growing economy is very difficult due to the fact that business owners lack operating experience and solid credit history.
America's credit crunch environment is making it tougher than ever for entrepreneurs to raise money to start or grow their businesses, particularly minority-owned firms. A study released by the Minority Business Development Agency found that minority-owned firms are less likely to receive loans than non-minority-owned firms, especially businesses with gross receipts less than $500,000. The tightening of lending standards on traditional loans means minority businesses have to become more vigilant about their funding sources.
Today, only 59 percent of small businesses are able to obtain adequate financing, reports the National Small Business Association (NSBA). That number has steadily decreased in the last five years. Banks don't finance dreams, says Todd McCracken, president of NSBA. They finance businesses that are likely to be successful. Your company has to have a good financial track record and a solid business plan, he adds.
Business owners must look past the SBA and beyond traditional lending sources, says Kedma S. Ough, business director of AVITA Business Center, a small business consulting firm headquartered in Portland, Ore., which offers targeted funding resources and grant opportunities. When working with its clients AVITA often examines non-traditional funding sources first, says Ough. For instance, minority entrepreneurs can consider participating in business plan competitions or industry specific contests.
Take Leah Brown, founder and president of A10 Clinical Solutions in Cary, N.C. In 2007, Brown was named a Make Mine a Million $ Business winner. In addition to a cash prize, her award package included marketing and technology tools, mentoring and coaching to help grow her business. Make Mine a Million $ Business is powered by OPEN from American Express and Count Me In for Women's Economic Independence, a national not-for-profit provider of resources, business education and community support.
Brown's innovative-driven firm manages clinical trials to get drugs approved by the FDA for Merck, GlaxoSmithKline, and other clients. Brown's company also does work for the National Institute of Health and other government agencies. The 48-year-old onetime lawyer was inspired to start the company in 2004 when a close relative passed away from AIDS. A10 focuses on ailments prominent within minority communities and has started opening medical "check-up centers" at businesses, airports and bus stations.
What's more, A10 ranked first on Inc. Magazine's 5000 Fastest-Growing Companies' list of the Top 10 Black-Run Companies in the country and placed in the top 500 of the list of Fastest-Growing Privately-Owned Companies in America at No. 92 overall, with a three-year growth rate of 2,714.3 percent. The firm employs more than 300 people, generating nearly $20 in revenues reportedly in 2010. Brown is among thousands of women entrepreneurs to benefit from the Make Mine a Million $ Business and M3 Race contests. Since its inception, the program has hosted over 20 "elevator pitch" competitions in cities around the country. Cash awards have ranged from $1,000 to $100,000.
Ough suggests checking out competitions or grants that are specific to a particular minority group, industry, sector, or region. For Native American entrepreneurs, some tribes provide grants up to $100,000 towards a business, Ough explains. "Women and minority business owners should examine their background to see how that may play a role." For example, "you might have a disability and struggling to get a loan. In that instance, we would look at collaboration to piece a couple of things together to get multiple funding. Various agencies, everything from vocational agencies to the Veterans Administration, have funding sources for small businesses," she explains. In addition, check with your state economic development agency to see if there are specific programs or grants associated with your particular industry cluster, adds Ough.
Here are five other funding sources worth investigating.
1. Individual Development Accounts (IDAs)
These are grants with strings attached. The way it works is that IDAs are savings accounts that match the deposits of individuals with modest financial means. For every dollar saved in an IDA, savers receive a corresponding match. Savers agree to complete financial education classes and use their savings for an asset-building purpose such as to capitalize a business. There is no limitation on how long you can be in business but there income requirements which vary by county. Typically revenues for business owners fall under $50,000. In addition to earning matching dollars, savers learn about budgeting and receive additional training before purchasing an asset. For example, programs in Oregon let participants save $3,000 and the agency can match them with $9,000, allowing them to use a combined total of $12,000 towards building their business and without having to repay the funds. For more info, review the IDA directory.
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2. Capital Assistance
The U.S. Department of Commerce's Minority Business Development Agency (MBDA) recently announced $7.8 million in funding for 27 MBDA Business Centers (MBCs). These centers help minority firms with access to markets, contracts, capital and other strategic business consulting services. MBCs interface directly with minority business owners and managers at the local level. Whether it's securing working capital from a lender, applying for an SBA loan, or responding to a grant proposal, MBCs help business owners prepare a funding package. Last year, MBCs helped their clients gain access to more than $800 million in financial packages, including working capital, equity investments, and bonding.
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3. Forgivable Loans
