Raising Money for Your Startup

Raising money for a new venture can strike fear in the heart of the most ambitious entrepreneur. But don't feel alone. At some point, most entrepreneurs need to borrow money, whether it's to launch the business or fund its growth. So is it a lost cause if you don't have major funds in a savings account or a benevolent aunt ready to bankroll your idea? Not at all. There are several routes you can take to find the funds you need.

First, begin with yourself. After all, if you aren't willing to risk your own money or cut financial corners to fund your business, others aren't likely to, either. Yes, it can be scary to risk your personal security, but there are also ways to temper that risk. You may need to continue your day job longer than you'd like, cut your personal expenses, like vacations and other non-essentials, or grow the business more slowly than you'd intended. Or you can secure a personal loan through a second or third mortgage, use your credit cards or borrow money from family and friends. Even with all these options, however, you'll likely come to a point when you need more financing.

Fortunately, in recent years, banks and other institutions have seen the light when it comes to women-owned businesses. Nearly 10.4 million firms in the U.S. are owned by women, employing 12.8 million people and generating nearly $1.9 trillion in sales. These numbers are only rising. And they're statistics smart institutions can't afford to ignore.

More banks are recognizing that women are a great investment. Traditional bank business loans are becoming easier than ever for women to access but often require at least three years of financials, such as P&L statements and balance sheets. So what are some other options for women, and how do they work?

Micro-loans: This is a relatively new type of loan designed for young companies. They provide smaller amounts than other, more traditional types of loans--typically $5,000 to $50,000--and they're a bit more lenient on the borrowing criteria. This is often just enough to provide working capital and accelerate early growth. To find organizations that offer micro-loans, go to www.microenterpriseworks.org or www.accionusa.org. Even more exciting is an organization called Count-Me-In, which offers micro-loans specifically for women-owned businesses.

SBA loans: The SBA is a federal agency that helps small businesses obtain loans from traditional lenders like banks. Basically, they guarantee the loans if you default, decreasing the banks' risk. To get this type of loan, you need to fit the SBA profile and go through the application process, which can be stringent. However, it can be a terrific way to obtain loans for working capital, equipment or facility upgrades if you've reached a roadblock getting a loan on your own, particularly if the money is intended for infrastructure development.

Factoring: This can be a great option for businesses with growing accounts receivable that are unable to qualify for traditional bank loans. It allows you to leverage your existing assets to gain access to working capital. For instance, if a retailer owes you $10,000 but has 60 days to pay, a factoring company will advance you some percentage of the money you're owed. Then they collect the receivable directly from your customer and earn interest on the advance. Though you'll pay interest, this financing can increase your cash flow and give you more immediate access to working capital. This is something I wish I'd know about sooner.

Angel investors: Angel investors are high net worth individuals or groups of individuals who invest money directly into your company through the purchase of equity shares. You can find them via family and friends, local community contacts, people in your industry sector or organized angel investment groups that exist strictly to find new investment opportunities. These groups tend to fit four different models: regionally based, sector-based, cause-related or general. For an angel directory by region visit: www.angelcapitalassociation.org and click "directory." There are also online posting groups you can access, including www.fundingpost.com and www.activecapital.org.

While venture capital is another option, unless you have significant intellectual property in specific industries, such as software or biotech, it may not be appropriate at the startup stage. You typically need a history of revenues and growth to be seriously considered.