Most of us grew up hearing that we could do anything we wanted.  That’s the beauty of capitalism. With American business lending, anyone can start a business. We are told all we need is a great idea, and with a lot of hard work and a business loan, we can turn that idea into a thriving livelihood.  The thing is, the business fundraising piece isn’t as easy as we may have thought. 

Business Fundraising Hinges on Fundability

I mean, the majority of us are smart enough to know that not all new businesses see success.  We also know getting investors and loans is not always easy. The thing is, no one tells us what to do if business fundraising turns out to not be as easy as we thought.  No one really gives any options, which means when we hit that first brick wall of a lender turning us down for a loan or an investor saying no, we don’t know what our next move should be.

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Business Fundraising: Why Loans Don’t Always Work

For starting up a small business, the first stop on the business fundraising train is typically the bank.  You go in, fill out a business plan, and hope for the best. If your personal credit is stellar, you are golden.  If not, you have a problem.  

That’s why traditional loans do not always work.  If your personal finances cannot handle the up-front expense of starting a business, and you do not have investors, you have to find another way. This is the part that no one tells you.  How on earth do you start a business if you cannot get a business loan based on your personal credit. 

Business Fundraising: Loans to Apply for When Traditional Loans Will Not Work

Okay, so, here’s the thing.  You are going to have to get your business going a little at the time, on your own.  Surprisingly, this strange economy created by the coronavirus is prime for this.  Maybe you take on a few clients or sell to a few customers in your spare time. Who knows?  You need to be in business for at least 6 months before you start applying for these types of loans.  In fact, some require a year in business and a minimum revenue.  

They key is, you get started, and you get started on your own.  Then you figure out where you can turn for business fundraising to grow your business further.  If you hit the one year in business mark, you may qualify for SBA loans.

Business Fundraising: SBA Loans

The Small Business Administration is designed specifically to help small businesses.  Whether you need working capital or a natural disaster has struck, the SBA can help. 

Overall, there’s a wide range of products offered through SBA programs.  Typically, the SBA does not lend funds directly. Conversely, they work through lender partners to guarantee loans. This means, they are able to leave the administration of the loans and disbursement of funds to those who regularly handle that sort of this.

7(a) Loans

This is the Small Business Administration’s most popular loan program. It offers federally funded term loans of up to $5 million. Additionally, the funds can be used for expansion, purchasing equipment, working capital and more. Banks, credit unions, and other financial institutions, in partnership with the SBA, process these loans and distribute the funds. 

A credit score of 680 is necessary to qualify.  In addition, there is a required down payment of at least 10% for the purchase of a business, commercial real estate, or equipment. Lastly, the minimum time in business is 2 years. Business experience equivalent to two years will do the trick for startups, so this is one you don’t have to wait for if you have experience. 

504 Loans 

These loans are available up to $5 million.  Funds can buy machinery, facilities, or land. Generally however, they are for expansion. Private sector lenders or nonprofits handle these loans. They especially work well for commercial real estate purchases. 

Microloans 

Microloans are available in smallter amounts. They go up to $50,000. Typically, they work well for starting a business, purchasing equipment, buying inventory, or for working capital. Community based non-profits administer microloan programs. Unlike the others, financing comes directly from the Small Business Administration.

Even though SBA loans have less stringent requirements, sometimes they still won’t do the trick.  What then? 

Business Fundraising: Private Loans to the Rescue

If you see that you do not qualify for SBA Loans, private loans could be an option.  They should be the second option for business fundraising, after SBA loans. Here’s why.  They typically have higher interest rates and less favorable terms than traditional and SBA loans.  That’s the downside. The upside is that their eligibility requirements are even easier to meet than SBA loans, making them a viable option if you do not qualify for other types of financing. 

There are lots of private lenders out there, but be careful.  Do your research, check the Better Business Bureau, and read reviews so that you know what you are getting into.  Some of them are fine, but there are a lot of bad seeds in this category as well. Proceed with caution. Here’s a list of lenders to get you started. 

Fundation

Fundation offers an automated process that is super-fast. Originally, they only had invoice financing. Then they added the line of credit service. Repayments are automatic, meaning they draft them electronically.  This happens on a weekly basis.  One thing to remember is that you could have a repayment as high as 5 to 7% of the amount you have drawn, as the repayment period is comparatively short.  

You can get loans for as little as $100 and as high as up to $100,000, but the max original draw is $50,000.   They do have some products that go up to $500,000.  There is no minimum credit score requirement, but they require at least 3 months in business. Also, $50,000 or more in annual revenue and a business checking account with a minimum balance of $500 are necessary.

Fundation reports to Dun & Bradstreet, Equifax, SBFE, PayNet, and Experian, making them a great option if you are looking to build or improve business credit. 

BlueVine

The minimum amount available from BlueVine is $5,000 and loans go up to $100,000.  You must have annual revenue of $120,000 or more.  In addition, the borrower must be in business for at least 6 months. The personal credit score minimum is 600. It is also important to know that BlueVine does not offer a line of credit in all states. 

They report to Experian.  They are one of the few invoice factoring companies that will report to any business credit bureau. 

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OnDeck

With OnDeck, applying for financing is fast and simple. You apply online, and you will receive your decision once the application processing is done. Loan funds go directly to your bank account. The minimum loan amount is $5,000 and the maximum is $500,000.

The personal credit score requirement is 600 or more.  Also, you must be in business for at least one year. The annual revenue requirement is at least $100,000. In addition, there can be no bankruptcy on file in the past 2 years and no unresolved liens or judgements. 

OnDeck reports to the standard business credit bureaus.

Business Fundraising: How to Not Worry About It

Okay so, that’s how to make it work in the beginning.  Still, wouldn’t it be great to not have to worry about it? How would it feel to know that, if you needed a business loan, you would have no trouble getting one?  How does that even happen? 

While there are no guarantees in life, the best chance you have at making this happen is to build strong business fundability. That is your ability to get funding for your business based on the merits of your business and not completely on your own personal finances.   To do this, you have to understand exactly what it is that makes your business fundable. There are a lot more working pieces than you may imagine. 

Business Fundraising: Fundability

The first step in building fundability has to do with how you set up your business.  Regardless of whether you are just getting started or if you have been operating for ages, if these things are not done, do them now.  The sooner the better. You cannot build business fundability if you do not establish your business as an entity separate from yourself, and that doesn’t just happen.  You have to make it happen. 

Don’t Share Contact Information with Your Business 

Make  sure your business has its own phone number, fax number, and address.    That doesn’t mean you have to get a separate phone line, or even a separate location.  You can still run your business from your home or on your computer. There are options for virtual business addresses and internet based phone numbers that will serve these purposes nicely.

Apply for an EIN

Next, get an EIN for your business.  This is an identifying number for your business that works in a way similar to how your SSN works for you personally.  It’s free from the IRS.

Incorporation is Non-Negotiable

You have to incorporate your business as an LLC, S-corp, or corporation. Which option you choose doesn’t really make a difference for fundability.  However, it can make a difference for your budget and needs for liability protection.  Talk to your attorney or a tax professional about which one will work best for your business. 

 You are going to lose any time in business that you already have.  When you incorporate, you become a new entity.  You basically have to start over. You’ll also lose any positive payment history. This is why you have to incorporate as soon as possible.  

Separate Bank Accounts

Open a separate, dedicated business bank account.  There are a lot of reasons for this, but the first one is that it creates the separation you need to start building business credit, which is necessary to fundability.  

Licenses

A legitimate business should have all of the licenses it needs to run.  If it doesn’t, red flags are going to go up all over.  Research what you need to do to ensure you have all of the licenses necessary to legitimately run your business at all levels. 

Website

Spend the time and money necessary to make sure your website is professionally designed and that it works.  Also, splurge and pay for hosting. Don’t use a free hosting service.  Along these same lines, your business needs a dedicated business email address.  Make sure it has the same URL as your Website. Don’t use a free service such as Yahoo or Gmail. 

What Else Affects Fundability?

While setting up your business in this way is vital, there are a host of other things that affect fundability. Here’s a brief rundown. 

• Business Credit Reports

This is a cornerstone of fundability.

• Other Business Data Agencies 

Two examples of this are LexisNexis and The Small Business Finance Exchange. 

• Identification Numbers 

Specifically a D-U-N-S number.  Get one on the D&B website. You cannot have a business credit file with Dun & Bradstreet without one.  Since they are the largest and most commonly used business credit agency, you have to get this number.

• Business Credit History

This includes how many accounts you have, what types of accounts, and whether or not you pay on time. 

• Business Information

Not only do you have to have separate contact information for yourself and your business, you need to be consistent with when and where you use it.  For example, if a business account has your personal address on it, it could cause problems. Be sure to keep everything up to date. 

• Financial Statements

• Business Financials

• Personal Financials
• Bureaus

One example is ChexSystems, which keeps track of bad check information.  

• Personal Credit History
• The Application Process

This is everything to do with the application from when you apply to which lending products you choose to apply for.

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Business Fundraising: Don’t Let the Traditional Loan Brick Wall Stop You

If you hit a brick wall with traditional loans, don’t despair. Don’t let problems with business fundraising stop you.  Just fix the problem. There are other options. In addition to these financing options and finding investors, you can explore grants and crowdfunding.  While the fierce competition with each can make it hard, they are still viable options. However, you have to start working on fundability now, wherever you are in the life of your business.  If you do, one day you will not have to worry about business fundraising. You will be able to access all you need.

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