Business & Career Library

Small Business Guides: How Do I Find Financing for My Small Business?

All Brooklyn Public Library locations will be closed on Sunday, April 20 for Easter Sunday.

Entrepreneurs often have wonderful ideas for starting an enterprise. But how and where can they find the money to build the business they have planned? There are many options, as well as organizations, one can turn to for help.

A wise first step is to use a book on the subject of starting and financing a business. Such books will outline how to calculate the amount of capital you will need, how to establish a good credit record, sources of funding and types of loans. To locate books in the library, you can do a keyword search on the catalog. Try using a keyword search such as "small business finance."

Second, you should understand how much money you will need to get started. Read through the "Where's the Money?" section of the library's MyOwnBiz website to get a handle on these expenses. The interactive How Much Is Enough? and Cash Now, Cash Later tools should be helpful for beginners.

In addition to books please check out the resources the Business Library offers on the following aspects of funding a new business:

The Business Plan

To obtain financing of any type, a business plan is essential. It is a required part of the loan process and it will help you determine how much money your start-up will require.

The library has books with instructions and sample plans, plus demographic and statistical data that are the basis of constructing a convincing plan. Check out How to Write a Business Plan on this website for more ideas, plus some great links to sites with business planning tools and the names of organizations that offer classes on how to write a business plan.

Your Credit Rating

To obtain start-up capital you also will need a good credit history.

AnnualCreditReport.com is a centralized service that allows you to obtain your personal credit report from all three nationwide consumer credit reporting agencies. You are entitled to one free copy of your credit history every 12 months. Usually a fee is charged for your FICO score.

If you find your credit rating is poor, books and advisers address how to repair your rating. Seminars on credit repair are offered by local business assistance providers, such as Accion.

You should also be aware of the difference between personal credit and business credit. Experian Business, one of the main credit reporting agencies, provides useful information on BusinessCreditFacts.com. There are several major business credit agencies as well as a number of smaller agencies:

Personal Investment

Once you have a business plan and a good credit rating, where can you turn for financing? Most entrepreneurs supply the major portion of start-up funds themselves. If you are not willing to make a substantial personal investment yourself, banks, partners and other sources are less willing to contribute. It is easier to borrow money to expand a firm that has been in business for more than a year.

Many business advisers strongly recommend that you continue full-time work at another job to maintain a source of income in the early stages of starting a company. Or even take a second job before starting the business?simply to raise the extra capital you will need. Family and friends often lend money, and may become active or silent partners.

Personal credit cards can be used to finance many purchases, and are a source of quick credit. But their interest rates are high, so only use them if you can pay off the balance quickly.

Outside Investors

If you are looking for investors other than your family or yourself, venture capital firms or "business angels" are possibilities.  This presentation gives a good overview and some resources on Angel Investing.

Resources mentioned in the powerpoint presentation:

Associations

Angel Capital Association
http://www.angelcapitalassociation.org/
This is a professional and trade association which supports angel investors in the early start-up stage. It has more than 200 angel groups and 10,000 individual investors.

Angel Resource Institute
http://www.angelresourceinstitute.org/
This is a charitable organization that focuses on education and research in the field of angel investing and does not provide financing or investment.

Networks

37 Angels (women)
http://37angels.com/
Women angel investors invest in male and female-led ventures.  They have a training program for novice angel investors to invest in young companies.

Astia
http://www.astia.org/
Provides women-led start –ups access to capital through angel investing.

Golden Seeds
http://www.goldenseeds.com/
Golden Seeds is an investment firm which also provides training in angel and venture investing. 

Launchpad
http://launchpadventuregroup.com/
Individual angel investor members finance privately held companies at an early stage of development.

NYAngels
http://newyorkangels.com/index.html
Is a New York based firm that find, fund and mentor great young companies from the pitch stage through a successful exit.

Internet Links

Crowd source funding from accredited investors
https://angel.co/ and  https://fundersclub.com/

List of female angels 
http://femaleinvestors.plumalley.co/

Online simulator for equity dilution
http://ownyourventure.com/equitySim.html

Thypin Oltchick Institute for Women Entrepreneurs http://www.yourfutureinbusiness.org/partnerships.cfm

Start-up Law Firms

Goodwin Procter
http://www.goodwinprocter.com/

Gunderson Dettner
http://www.gunder.com/

Nixon Peabody
http://www.nixonpeabody.com/

Print Resources

The Big Enough Company: Creating a business that works for you.
Adelaide Lancaster and Amy Abrams
658.11 L

What Every Angel Investor wants you to know: An insider reveals how to get smart funding for your billion-dollar idea.
Brian S. Cohen and John Kador
658.15224 C
 

Venture capital firms are interested in investing in high-growth companies but demand a large share of the company's profits and management influence. "Business angels" provide seed money and advice to a business they consider a good risk. Sometimes an angel is a business colleague or friend who has confidence in your venture.

The National Association of Small Business Investment Companies (NASBIC), represents small business investment companies (SBICs), which are private firms licensed by the SBA. Use the Entrepreneur Center to find out about SBIC financing and search for NASBIC members.

To read more about these types of investors or to locate them, use Pratt's Guide to Private Equity Sources, The Corporate Finance Source Book or the venture capital chapter of the Small Business Sourcebook. There are numerous websites designed to link investors with entrepreneurs. Some of these sites represent venture capital firms soliciting business, others are more like clearinghouses and charge a fee for their services. Here are a few examples:

Borrowing Money

Lending institutions are another source of funds. They offer loans that must be paid back with interest. There are many different kinds of loans. Loans for different amounts of money, for different purposes, with different interest rates and for different lengths of time. How do you decide what type of loan you need, and who offers it? Once again there are books that explain this, and there are websites as well. A great site to start with is the Federal Reserve Bank of New York's site on the Small Business Credit Process and BusinessLoanFunds.com a resource for entrepreneurs to find alternative small business loan programs.

Grants vs. Loans

A grant is money given to an organization or an individual to accomplish a task or service, frequently one that benefits a community. Many grants are targeted to aid research, education or the needy. Private foundations and the government usually offer specific grants that are awarded after a proposal is submitted.

It is a common myth that the federal government provides "free money" for starting a business. Business.gov's Small Business Loans & Grants dispels some of these myths and directs small business owners to federal, state and local financing programs with its Loans and Grants Search Tool.

The Foundation Center at 79 Fifth Avenue, 212.620.4230, is an excellent resource for locating grants and foundations of all types available to nonprofit organizations or individuals. Its Reference Guides list useful websites for specific types of grantseekers, such as artists. Its databases, Foundation Grants to Individuals Online and Foundation Directory Online, are also available at the Business & Career Library as well as the Society, Sciences & Technology division at the Central Library. The Catalog of Federal Domestic Assistance is another useful source and can be accessed online or in print at the Business & Career Library.

Individual Development Accounts or IDAs are another source of funds for economically disadvantaged entrepreneurs. They reward the monthly savings of working-poor families who are trying to buy their first home, pay for post-secondary education, or start a small business. This incentive is provided through the use of matching funds that typically come from a variety of private and public sources and are administered by community-based programs. Explore the Corporation for Enterprise Development's IDA page for a complete explanation of IDAs and their eligibility requirments, as well as a state by state listing of IDA programs.

Government Incentive Programs also assist businesses by offering tax abatements, energy assistance and more to qualifying businesses, but these are not grants. Contact the following agencies for more details on government incentive programs:

Types of Loans

When a business needs additional funds to pay for day-to-day expenses before income comes in, for new equipment, or for expansion, a common strategy is to borrow money in the form of a loan. A loan generally incurs interest fees and requires an application fee. Costs vary from lender to lender, and the borrower needs to compare the rates. Though the terms of the loan may vary, the interest and base must be repaid, and the availability and cost of a loan depends on the lender's assessment of the borrower's ability to repay it.

Following are some of the different types of loans to fit various needs and payment terms:

  • Accounts Receivable Loans are secured by outstanding accounts/invoices for up to 75 percent of the value of the amount due.
  • Balloon Loans are identified by their payment schedule. Periodic payments are made and the amount of the principal is due on the final day.
  • Equipment Loans are for new equipment and are secured by the value of the equipment.
  • Equity Loans or second mortgages use real estate to secure the loans.
  • Fixed Asset Loans are used to pay for equipment or improvements.
  • Installment Loans are paid back with equal monthly payments covering both principal and interest.
  • Inventory Loans are secured by the value of your inventory.
  • Lines of credit give access to cash by extending the cash available in the business's checking account, up to a certain credit limit. Usually the terms are for one year and have to be renewed. Interest is payable from the time the amount is advanced until it is paid back.
  • Microloans involve small amounts of money, from about $500 to $25,000. Frequently they accommodate small businesses in their early growth stage and require less stringent criteria. Microloans are usually offered by community-based lenders because the amounts are too small and the terms too risky for commercial lenders.
  • Peer Lending is a system of lending in which a new business is monitored and assisted by business peers to ensure that the business succeeds and the loan is paid off. Project Enterprise practices peer lending.
  • Secured Loans require some type of collateral such as real estate, accounts receivable, inventory, etc., because the business is considered to be risky and less likely to repay the loan. Unsecured loans require no collateral because the business is considered low risk.
  • Term Loans, e.g., Long or Short Term, describe the length of time the borrower has to pay back the loan.
  • Working Capital Loans are used to increase the cash reserves of a company when a special circumstance causes day-to-day expenses to increase.

Loan Programs and Assistance in the Loan Process

To obtain a loan you must submit a loan application, which usually includes a business plan, financial statement, earnings projections and other documents.

Loans are offered by financial institutions such as banks and credit unions, as well as community based lenders.

Assistance in the loan process for small businesses is often available from government agencies and community-based lenders. Frequently they work with commercial lenders, guaranteeing loans and increasing the number of loans offered to businesses in formerly underserved areas.

If you are just starting out, it would be a good idea to contact one of these agencies, since they can outline the different types of loans, as well as the steps involved in securing a loan. Many of the organizations listed below offer classes on writing business plans and other technical assistance.

Accion New York
718-599-5170
235 Havermeyer Street, Brooklyn, NY 11211
Microloans from $500 to $50,000. Start-ups are eligible; there is no minimum length of time a business needs to be in operation.

Bedford Stuyvesant Restoration Corporation
718-636-6924
1368 Fulton St., Brooklyn 11216
An economic development organization that administers the Restoration Capital Fund comprised of four individual programs.

BOC Capital Corp
Business Outreach Center Network (BOC)
718-624-9115, Central Office
85 South Oxford Street, Brooklyn, NY 11217
Offers small business loans of up to $25,000, as well as business development assistance at a number of locations throughout Brooklyn and New York City's other boroughs.

CAMBA
Economic Development
718-282-2500
884 Flatbush Avenue, Brooklyn, NY 11226
Small business and microloans from $500 to $15,000. Additional services include entrepreneurial training classes and business consultations.

Count Me In
212-245-1245
240 Central Park South, Ste 7H
New York, NY 10019
Microloans from $500 to $100,000 to women who are starting or growing their businesses. The first loan must be $5,000 or less.

Grameen America, Inc.
212-735-4031
1460 Broadway, 10th Floor
New York, NY 10036
brottman@grameenamerica.org
Microfinance for low-income entrepreneurs.

New York Business Development Corporation
633 Third Avenue, New York 10017
Offers both conventional and SBA backed loans from $25,00 to $750,000. Affiliated with New York State Empire Development Corp.

New York City Financial Network Action Consortium
718-260-0099
Remsen Street, Suite 350
Brooklyn, NY 11201
Supports and strengthens the capacity of local credit unions' ability to serve low income individuals. NYCfNAC offers business courses, consulting services, financial planning, and loan programs. All loans are prescreened by NYCfNAC, which underwrites loans above $25,000.

NYC Capital Access (Cap Access)
New York City Economic Development Corporation (NYCEDC)
212-312-3600
110 William Street, New York NY 10038
Loan guarantee program that enables banks and community development credit unions to make loans to micro and small businesses.

Project Enterprise 212-678-6734
144 West 125th Street
New York, NY 10027
Microloans to low-income individuals; offers technical assistance and training through its peer lending program.

Renaissance Economic Development Corporation (REDC)
212-964-6022
1 Pike Street
New York, NY 10002
Provides loans to start-up and early-stage businesses up to $100,000.

TruFund Financial Services 
212-204-1300
915 Broadway, 18th Floor
New York, NY 10010
Provides a range of affordable financing products to small businesses, nonprofit organizations.

U.S. Small Business Administration
212-264-4354
26 Federal Plaza, Room 3100
New York NY 10278
The SBA has designed many loan packages, including microloans. Many banks offer loans backed by the SBA. For a complete listing of the offerings, check out the website.

Women's Venture Fund
212-563-0499
240 West 35th Street, Suite 201
New York, NY 10001
Borrowers must be in business a minimum of three months and be 51 percent women-owned to receive micro loans up to $15,000.

Bank Loans

Nearly every bank offers loans to small businesses. Check with banks in your area to compare services and fees. Many of the community-based lenders listed above, as well as the Small Business Administration, work with commercial lenders and will provide you with a listing of banks.

The Library has a number of directories such as the Bank Directory and the Savings Directory.

Other Small Business Guides: