Finding Funding Sources

By Iva Palacios 

May 2010

In today's economic environment, many small business owners find themselves reading reports about the credit markets and how traditional funding sources are scarce or unavailable. What many don't realize is that there are organizations that have always been focused on small business, and now more than ever, are even more committed to ensuring there is adequate capital to support entrepreneurs.  

Government backed organizations, local private banks, and non-profits provide a plethora of services to the business owner, including, business loans or equity positions. However, these alternate avenues of financing have not been immune to the economic downturn, and entrepreneurs need to be aware of how their business will be evaluated and the requirements of a cautious lending community.    

Today, most successful loan applicants are presenting solid business plans based on their proven track record within a service sector or industry. The experience provides them the opportunity to better identify potential pitfalls within the business and address concerns that risk management departments may have. Additionally, risk management departments are stressing market research data to support the business plan's competitive edge. This holds true for most industries; arguably, traditional risk management departments have elected to no longer underwrite industries where most of the financial stress of the previous two years originated from.

Businesses focused on speculative real estate, the purchase of or development of, truly will be hard pressed to find funding today. Similarly, any service that supports financing or mortgage activities will have difficulty in today's economic environment. There are exceptions, including real estate projects with clear missions to develop distressed areas or loans promoting sustainable products or services ("green"). These loans are viewed as distinct and align with social missions of many community development organizations and thus can obtain funding through the city or state governments.      

Applications are also being evaluated for their holistic impact. How many jobs will the business be sustaining or creating? How will it benefit the community and the surrounding neighborhood? Is there an opportunity to foster existing relationships in the community for added support? Will the enterprise provide a relevant and quantifiable impact in their community? Non-profits and local economic development agencies are always looking for businesses that support and are aligned with their social mission to foster job growth in their communities.