National Small Business Week helps small businesses learn about the resources available to grow and sustain a business. Today we will focus on "Access to Capital" because capital enables a business to invest in effective tools to compete and grow.
Earlier this year, the U.S. Census Bureau released data on new small business applications. The past two years have been the most vital for new small business formation. In 2022, the five million applications received by the U.S. Small Business Administration (SBA) was second only to 2021, when 10.5 combined applications marked significant growth at the start of the Biden Administration.
Small businesses can access capital through loans provided by banks, credit unions, SBA programs, Community Development Financial Institutions (CDFIs), and unregulated loan funds.
If you run or own a small business, you can begin to look for capital by becoming familiar with available programs. Below are websites that point in the right direction:
- U.S. Small Business Administration - SBA
- State Small Business Credit Initiative - SSBCI
- Community Development Financial Institution - CDFI
Second, prepare your business to qualify for funding opportunities. Here is what you will need to get started:
- Personal or business credit score. Personal credit scores indicate your ability to repay debts, such as credit cards, car loans, and mortgages. Small-business lenders require a personal credit check to see how you manage debt.
- Annual revenue. Many lenders will only consider businesses that bring in at least a minimum monthly or yearly revenue. How much cash flow you'll need depends on the lender.
- Years in business. To qualify for a business loan from a bank, you'll typically need to have been in business for at least two years.
- Business industry and size. Every industry has a different risk level — and some industries, like restaurants and beauty services, can be considered high risk because they are more likely to have inconsistent revenue.
- Business plan. Lenders will want to know how you plan to use the money and that you can repay. They may require a business plan explaining your business goals and how you plan to reach them.
- Collateral or personal guarantor. To qualify for a small-business loan, you may have to provide collateral to back the loan.
- Business and financial documents. Banks and other traditional lenders typically require a wide range of paperwork when you apply for a small-business loan — documents such as tax returns, bank statements, and personal income statements.
Third, ensure that you understand the process and do not hesitate to ask questions from reliable and accurate sources. If you need help understanding the process, ask for help from your local SBA office. Black small business owners have been taken advantage of for far too long. Do not rely on the Internet, particularly social media ads, or word of mouth.
Look for more blogs this week on how to support and grow local Black-owned small businesses.