By Cynthia Nevels | Post February 4, 2014
The number one problem small businesses have when it comes to growth is deficient access to capital. Acquiring capital for your small business is a process, sometimes, a technical process that can dehumanize the experience for some entrepreneurs.
Traditional Capital Acquisition
Traditionally, financial institutions will not take into account why you started your business, the social impact your idea may have, or your level of passion (albeit passion is not a safe gauge for risk and potential success.) Bank and credit union underwriters simply want the facts about your credit, capacity and credibility when calculating their risk tolerance.
This traditional lending experience has often left some entrepreneurs out in the cold and unable to acquire the capital needed thus leaving some ideas on the shelf, stagnating growth, limiting the development of new jobs and dampening innovation in some markets.
All that is changing. There is a shift happening based on new technologies, changing federal regulations, and new investment models that offer alternative funding options to entrepreneurs that may have never had access to traditional capital or massive potential investor populations until now.
“New technology is essential to large populations making sense of each other,” states Judd Hollas, CEO of EquityNet. If you have a micro enterprise or startup you may no longer have to go through the, some would call, dehumanizing lending process to obtain the funding you need to see your idea come to life.
Alternative Financing Options
There are new and not so new funding models and options available to those who are ready to take their business idea to the next level, such as:
- Equity Crowdfunding – is a method for raising capital and selling shares or ownership in your business using online crowdfunding platforms
- P2P Lending – peer-to-peer lending is the non-traditional practice of raising capital through loan funds from unrelated peers outside of a traditional financial institution
- Program Related Investment – investments made by foundations to support social activities that involve potential return of capital within a given timeframe; PRIs can be a combination of funding options such as bank loans, loan guarantees, linked deposits and equity investments in commercial ventures for charitable purposes
Alternative funding sources are growing in popularity due to demand for options; and with new regulations surfacing the supply is stepping up to meet the challenge and reap the financial and social rewards.
Recently, experts at the Impact Texas Summit held in Austin, Texas shared new ways private and charitable foundations are helping to fund for-profit social ventures. “If we can help small businesses grow it will create jobs for people and often address many social and environmental challenges some face,” states Randall Kempner, Executive Director of the Aspen Network of Development Entrepreneurs. The need for alternative funding is on the radar of many individual investors. Today, everyone is a potential investor.
Some unaccredited investors are anxious to see how the new Title III regulation of the JOBS Act will help them take advantage of new opportunities.
The market may soon be flooded with dollars searching for the next Amazon.com or the next innovative food chain. IRA Services Trust Company located in San Carlos, CA is preparing to offer accredited investors the option to use self-directed individual retirement accounts (IRA’s) and 401K’s to invest in small businesses tax free using online crowdfunding platforms.
So, the next time you attend a local networking event and exchange business cards you may no longer ask yourself “who does she know,” you may ask, “how much does she have to invest?”
At this year’s, Coastal Shows’ Global Crowdfunding Expo held in San Diego, CA some experts shared news that alternative funding options will open new doors for serious innovative business owners looking for ways to share the human side of their business idea while searching for funds to make their dreams a reality, proving their business models work and creating viable ventures that positively impact the local economy.
Research published by Dr. Richard Swart of UC Berkeley shows more than 90 percent of businesses raising $5,000 through crowdfunding turn into viable businesses.
Alternative funding sources, technology, and federal regulation offer windows into the brain trust of stagnate micro enterprises and offer entrepreneurs a way to connect with a large population of like-minded investors on a human level. Unlike most traditional lenders and underwriters, individual investors care more about the human story behind the people, the ideas, and the social good or problems the ideas can solve. Audrey Jacobs VP of Business Development for OurCrowd, a hybrid venture capital firm and crowdfunding platform shared, “One reason we make a decision to invest in an innovative startup is because of the people.”
Never fear, the numbers remain important and regulations are being reviewed to ensure there’s safety in numbers.
Cynthia Nevels is known as “The Go-To Lady” in business management consulting, marketing strategies and technology integration. She is the Senior Editor of Disruptive View and host of Disrupt Radio. Follow her on Twitter @cynthianevels and Facebook @meetcynthianevels.