Capital Broads: 10 Ways to Finance Your Business in Denver
Jessica Fialkovich | @jfialkovich
As an entrepreneur, one of the greatest challenges you have is funding your business. From startup to exit, every business experiences cash flow and financing issues, but many business owners – women especially – shortchange themselves when it comes to funding and rely upon only their personal liquidity (check out my article on challenges women entrepreneurs face). The current market is very lender-friendly for business owners in Denver even if cash is not as readily available as it was pre-2008. Below is a list of ten resources and ways to find funding for your business in Denver, none of which include your personal credit cards.
While not exhaustive, this list can get you started on securing funding for your new or expanding business venture.
Cash: Utilizing your savings is a requirement for most businesses. Plus if you do pursue other methods of financing, those investors like to see the entrepreneur believes in her business and has ‘skin in the game’ in the form of their cash.
Small Business Administration (SBA) Loans: There are three types of SBA Loans: 7(a), 504, and Microloans. Typically most businesses will use the 7(a) program to finance their business unless they need a small amount (Microloan program) or are purchasing property or large fixed assets (504 program). The SBA does not loan the funds but guarantees a portion of the loan to the bank you are using. If you default on the loan, the SBA will cover a portion of the default. Almost of the large and local banks offer business loans through the SBA program, so it is best to find the bank to fit your needs first. Every bank is different and has different lending requirements, even for SBA loans. Some great resources to help you find the best bank and learn about the process are the Colorado SBA District Office, Denver Metro SBDC Office, and MiCasa Business Counseling Center.
Conventional Bank Loan: You can also approach a bank for conventional (non-SBA) financing. Some banks do conventional business loans for existing businesses with a strong cash flow. You can also leverage personal assets such as your home and finance the business through a home equity line of credit or another personal loan.
Angel Investors / Venture Capital: Angel Investment is a hot topic among entrepreneurs, and the investment can be structured many different ways. Typically an investor will take a portion of ownership (equity) in your business in return for providing cash for operations. The angel investment and venture capital world can be confusing, and it is best to get a bit of training and mentoring before making your first pitches to investors. MergeLane, Rockies Venture Club, and Women’s Investor Network are all great resources in the Denver Metro area for training and guidance.
Retirement Funds: Many entrepreneurs have cash tied up in a 401(k), IRA or other retirement plans from previous jobs or businesses. These funds can be accessed by “cashing out” or withdrawing funds from the investments, resulting in penalties and taxes. You can also access the funds through a self-directed 401(k) investment using a professional firm like Denver-based Directed Equity to avoid most taxes and penalties.
Crowdfunding: Crowdfunding has gained popularity in recent years allowing companies to raise smaller amounts of capital in exchange for products, rewards, or equity. In 2015, Colorado approved new regulations that allow Colorado-based small businesses to raise capital from non-accredited investors up to $5,000 each. It also eases requirements on audited financials. Besides using Kickstarter or Indie GoGo, Colorado-based businesses can now run their own campaign. Details of the new law are here.
Family & Friends: Many businesses receive initial investment through friends and family. Capital is received as a loan, gift, or exchange for equity. While this method is popular, some risks come with doing business with family. Stay tuned for future articles from me on this topic.
Micro Loans: To the surprise of many business owners, when you are looking for small amounts of capital (less than $100,000) it can be harder to acquire than larger amounts. Many banks and lending institutions have a minimum loan requirement for SBA loans because of the processing costs of the loans. For business owners looking for smaller amounts, there are organizations that provide microloans. These services are often non-bank lenders which makes the process much faster. Great resources include Colorado Lending Source, Rocky Mountain MicroFinance Institute, CHFA, Colorado Enterprise Fund, Accion, and Denver Office of Economic Development.
Grants: Woman-owned business are eligible for many local and national grant opportunities that don’t require debt or equity. Each grant has different submission requirements and you can find more information at Minority Business Office of Colorado and Grant Watch.
Non-Bank Lenders: The recent expansion of non-bank lenders such as Fundera, Kabbage, and Direct Capital online provide more opportunities for business owners looking for small, short-term, and use-specific loans. Depending on the platform available, financing could include funds for start-up costs, growth, acquisition, and equipment. Typically these lenders have higher rates with shorter terms, but many loans can close in a week or two.
Women tend to finance their entrepreneurial endeavors themselves, putting strain on their business growth and chances for success. Be sure to explore the variety of options available to you. And let me know if you’d like me to cover in future posts any of the avenues I mention here.