Being in business is not for the weak of heart. It takes a lot of drive and stamina to start a business, and even more determination to keep it going. While banks have been the traditional go-to for new companies in the past, more and more entrepreneurs are seeking alternative funding options to help them startup their businesses because there’s an air about the business community that the big banks can’t, or don’t want to get involved in small business development.
Despite the glaring calls to action from governments and local officials to invest in entrepreneurs to help our struggling economy, there is more red tape than ever for small business owners to get access to the capital they need to start and grow their business insurance.
The Amounts Aren’t Large Enough
One of the reasons why big banks don’t get involved in small business funding is because the amount of money most small businesses need to startup is not that much money in the grand scheme of things. Sure, $10,000 is a lot of money to someone who wants to start up a company in a small town, but to a bank, that’s not much money at all.
It’s frustrating for business owners to come across these massive banks with massive amounts of money and ability to help and then be turned away without consideration or so much as an opportunity to fill out an application.
In some cases, banks won’t even look at your application unless you borrow a certain amount of money. I’m reminded of a conversation I had with a fellow entrepreneur who needed $5000 to invest in some equipment to build her business but was told she’d have to take out a loan for at least $100,000 in order to qualify for funding help. Instead of just taking the $100,000 and then immediately paying back the other $95,000 of it and keeping the $5000 she needed, she felt cornered and decided not to invest in her business further.
Small Businesses Don’t Need a lot of Money
Of course, there is the argument that a business that doesn’t have $5000 to invest in itself is probably not worth investing in, and that is certainly the stance of the big banks, but for small business owners, that $5000 could mean the difference between being profitable and not being profitable. Even if every business only created one new job for the owner of the company, it’s worth investing in our communities in this way.
I heard about a small business lending program recently that offered women entrepreneurs an opportunity to borrow as little as $500 with a low-interest payment for the first six months. Again, you might think that $500 isn’t enough to make a difference for any business, but for a small crafting business or a consulting agency just getting going, that money means more marketing and face time with potential clients.
Alternative funding options are quickly becoming not-so-alternative at all. In fact, if you ask a business owner where they got their money to startup, they’ll probably tell you it wasn’t a bank at all. Many people are stretching their own money further and investing in themselves the first time out of the gate, rather than borrowing money at all. The barriers to starting up a business are becoming less and less, but the confusion around lending is still there.
Women and Funding Options
There is a particular concern around funding for women entrepreneurs who are constantly told that there is money to be had, yet women can’t seem to find this so-called money that is available to them just because they are a woman. Ask any woman entrepreneur, and she’ll tell you that she’s heard of this mythical money.
The truth is that big banks don’t want to deal with you unless you have a lot of money in the bank already or they see potential in your idea. But who has time for that? But also, big banks are for everyone and not everyone needs that kind of money to get going. If you are struggling to find the money for your startup, look closer to home first and work your way up to the big banks. Once you have some money to leverage, whether in revenue or investment, you can consider more extensive lending options.
And if you never do, that’s okay too. Alternative lending options or self-investment is quickly becoming the norm. Big banks might not be able to help small businesses, but they really don’t need them.