Businesses need money to survive and thrive. No amount of flawless execution will save a business with no cash flow. In the early days of a business before steady sales, businesses need access to money to cover their operating expenses and generate sales. The irony is that this is also when many businesses are deemed too new to be eligible for lending. It is a vicious cycle that in many ways is exacerbated by a range of systemic inequities. Traditional lenders have often overlooked or placed additional burdens on businesses owed by Black people for access to capital. Owners who do not have the luxury of being the third or fourth generation owner find proving their credibility to banks a challenging process.
How, then, does a new business secure the capital it needs to operate?
FIRST, get your business operations in order. You will have to demonstrate your business is healthy and thriving. That is difficult in the early days, but you can show that you have the right structure to your business and are primed for success. This is your best marketing too in the early days when you don't have years of financials to prove your point.
NEXT, consider private lending from friends, family and acquaintances. Tap your network. Yes, it is always risky to borrow from friends and family, but you can mitigate this risk by having a solid agreement in place, by properly communicating expectations (i.e., no guarantee of return), and by focusing on what’s in it for them. If your business becomes profitable, what do they get in return? Give them confidence that you can and will operate a profitable business. Understand your market. Understand your target customers. Provide examples of successful, profitable projects or sales.
THEN, relying on the strong operational foundation you have created to help your business run as efficiently as possible, use the friends and family funds to focus on business development and sales. Strong sales plus lean operations gives you the best chance at profitability.
FINALLY, after you have a demonstrated track record of at least one or two sets of financials, approach banks for more traditional lending. Don’t be surprised by the l hurdles in the form of additional paperwork, personally guaranteeing the loan, or any number of asks. Don’t take “no” for an answer. If the financing they are offering isn’t favorable, push for other options. Visit another lending institution and shop around. Find banks that lend SBA-backed loans. These loans often give banks more confidence when lending to more newly established companies. Be relentless. Don’t accept no, and don’t be shy about marketing your businesses’ worthiness.
Here’s to more business birthdays!