We all know this moment: you have a great idea that can change the world, and it’s something that you’re so passionate about that you want to start your own business. Great! You clap your hands together, burst out of your chair, and head over to Google: “How to… start… my own… business…”
The first thing you learn? That you have a lot to learn.
You’ll have to do market research, ask for feedback, learn how to create a business plan, get a Federal Tax ID — a lot of multistep procedures. For most small business owners, this means quite a bit of money — out of pocket. And, if you are running a brick and mortar business that involves selling inventory, you’ll have to figure out how to pay for that inventory — before you have money from sales!
Eventually, if you are lucky, and your business is successful or headed towards being successful, you’ll realize that you need capital to keep it going. I’ve learned a lot about the pain and hardships of trying to identify and secure funding over the years. My clients find that they have little or no access to traditional capital, and, instead, they end up choosing credit cards and/or high-interest financing options. Most of the these loans don’t even call the interest “interest” — they call it a fee — which makes them cash-advance companies, even though they definitely call it a loan. And being a cash-advance company means, regardless of how early you pay the loan off, you still have to pay the fee.
This is not transparent pricing, nor is it a conscious business practice that seeks to support and nurture new business opportunities. This is a market driven strictly by financial returns — and it is a huge market. The reporting from just one of these companies shows that they have given over 3 billion dollars to small businesses. Additionally, many of these companies weave into their language a story about how they exist to help small businesses. The reality is that making the payments uses so much capital that many small business owners borrow more and more money to keep making the payments and growing their businesses. By the time they hit year 3 to 5, and their business is making money on its face, they are so over-leveraged that they are broke.
For many businesses, particularly mission-based or values-driven businesses, the focus on skyrocketing growth and one-sided terms can be a dream-killer. In fact, over 50 percent of small businesses fail before year five, many times due to money problems.
Small businesses are truly the backbone of our country and particularly our local economies. It’s time to rethink how we are funding these businesses and find ways to support rather than squash their dreams. Here are three options to consider.
This is when financing is about more than money and a return. I’ve been participating in a startup program for a new FinTech company for an impact-based small business loan with friendlier, more custodial terms. Financing will be evaluated on a new kind of score: your impact score. This will be comprised of the whole view of you and your business: what is your environmental footprint? Are you paying a living wage? Are you using organic/fair trade/local suppliers? Are you contributing to your community? Are you incorporating a social good or give-back policy? And not only do fresh, optimistic entrepreneurs receive funding, they receive training on how to run their business — presented in a fun, simple, gamified way that provides incentives to encourage them to seek support, community, and training.
This approach is about spreading out financial risk through a group that is personally invested in the outcome. I met Bill Huston last year, from Louisville, Kentucky, who told me about a new program he is part of called Buy the Block. The idea is that residents of an area can come together and invest in a community project. The goal is to have some control over what is happening on their own block. Residents create a project and find support in their community. The community invests in the project — in dollar amounts that are reasonable for them.
Crowdfunding, which many of us are more familiar with, also grew out of this need for people to find access to capital. One distinction is that, in addition to your own community, you might get donations from strangers who may not have a personal connection to the entrepreneur or business owner, but definitely have a personal connection to the mission and business values. These sites also include resources that help you learn how to run a business — including how to raise money! From smaller dollar amounts raised through sites like Kickstarter to larger amounts raised through sites like iFundWomen, crowdfunding sites are all about finding people who support the kind of business you want to grow and create.
For example, iFundWomen was created to help female founders/business owners get funded. The founders of iFundWomen and the people in this community care about supporting women business owners and are eager to share their knowledge, resources, and money to see women-owned businesses become successful.
Like most things in life, there is no one solution that will work for everyone. (Although I hope my FinTech product is close!) The important thing is that we start working together to understand the unique challenges and joys small business owners experience and create financing options that work for them instead of against them.
LaKay Cornell is a culture critic, writer, speaker, and feather-ruffler. She is on a mission to change the way we create change. Using her unique combination of exciting anecdotes and enticing data, she positions her clients’ work in the context of the social problem they are solving. LaKay also writes, speaks and moderates discussions on Intersectional Feminism, the Language of Empowerment, and Womxn’s Entrepreneurship. To learn more, visit lakaycornell.com.