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

This type of a loan is made with the understanding that if the borrower meets certain requirements, repayment of the loan will not be required. A forgivable loan is actually a grant, says Ough, "because if you do everything right you don't have to pay the money back." A stipulation may be that you are required to hire and train employees, Ough explains. She cites for example a particular forgivable loan program that allowed recipients to hire up to five employees. "For every employee you hired you were given $5,000 for each. So, you had up to $25,000 you could use for anything related to supporting the growth of your business." As a growing business, you are going to be hiring employees anyway. This program gives you an incentive to do so, adds Ough. The Regional Investment Board manages lottery funds in Oregon which are used for economic development purposes. These monies are available to entities in the form of grants or loans to support projects that will create jobs in the region. Just as well, you may be able to take advantage of other state loans programs and loan guarantees. 

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4. Micro Loans

Poor credit history is a barrier for many entrepreneurs seeking traditional financing. "If you have not positioned your personal credit such that a bank will find you to be a strong enough credit risk, they won't lend to you," says Jennifer Spaziano, vice president of business development at ACCION USA, a microfinance institution that lends to 48 states across the U.S., providing loans to upstarts, especially women and minority businesses. ACCION New York is one of hundreds of regional and national nonprofit groups that make micro loans from as little as $500 up to $35,000. Many of these groups are funded by The U.S. Small Business Administration. Cities like San Francisco and New York City have expanded or introduced their own microfinance programs. Each organization has its own lending requirements. ACCION USA has provided over $119 million in over 19,000 micro loans since inception in 1991. To learn more, visit the Association for Enterprise Opportunity's website.

There is a lot of talk and excitement around technology, particularly coming from the Obama Administration. Review the possibility of obtaining a Small Business Innovation Research (SBIR) grant or Small Business Technology Transfer Program (STTR) funding. You might not be in a position to go after venture capital, yet you may need initial funding for early stage research and development, says Ough. For instance, "we are working with a client who has developed a new process for providing a better educational tool for kids with autism. We pulled out an application to apply for the grant through the National Institute for Health." The SBIR program was established by Congress in 1982 as a means of stimulating innovation with more than $ 2.2 billion dollars set aside annually with first phase funding of up to $100,000. Phase two is a $750,000 award. The SBIR/STTR program reaches out to socially and economically disadvantaged firms. The participation rate of minority- and women-owned firms in SBIR/STTR just within the Department of Defense is roughly 21 percent. Two sites to check out are Zny and

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6. New Market Tax Credit

For companies looking for commercial ownership or to own their own facility, Ough suggests exploring new market tax credits. This federal program is administered by the U.S. Department of Treasury Community Development Financial Institutions Fund. Designed to provide investments to projects and businesses in low-income communities, the program has expanded to include investments in minority business. NMTC permits taxpaying investors to receive a credit against their federal income tax liability for making qualified equity investments in designated Community Development Entities (CDEs). The credit is spread over seven years, amounting to roughly 39 percent of the investment made in a qualified entity. Many states have passed a tax credit for minority business. The provisions and limitations of these credits vary from state to state. Many of them resemble the New Market Tax credit and give tax credits against state income tax to investments that are used to support minority building projects or encourage minority business ownership, which includes women-owned businesses. However, these credits are extremely tough to get and are highly competitive.

In addition, contact your National Chamber of Commerce. There are a number of national chambers of commerce specific to women and minority sectors that offer access to funding sources, including the National Women's Chamber of Commerce, the Hispanic Chamber of Commerce, the National Black Chamber of Commerce and the Native American Chamber of Commerce.

"To find all the funding sources available in your community, you need to become a great connector so that you get familiar with all the programs available for starting and growing your business," says Ough. "If that's not possible, then the next best thing is to find those connectors that can guide you." Connectors are the top ten businesses, organizations or key players in your community that you get referred to when you are trying to find resources and funding for your specific business.

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