Small businesses can leverage publicly available resources to help meet their funding needs. Programs designed to provide access to funding can complement existing and private sources of capital and provide additional resources for growing a business. In particular, some state and local governments will take the extra step necessary to assist the growth of local businesses.
Here are several ways that a small business can access publicly available funding resources.
In cooperation with academic institutions and other local investor groups, interested state and local governments create incubators dedicated to entrepreneurial growth. At these locations, small business owners can find everything from production facilities to mentorship and other crucial infrastructure that can support them.
A common misperception is that incubators are not open to small and medium-sized businesses. That is not true. On the contrary, startup incubators seek partnerships with more established smaller companies in order to help their current entrepreneurs.
Entrepreneurs can also win grants and prize money from local government initiatives that frequently host business competitions, hackathons, pitch nights and other events designed to bring together investors and entrepreneurs and showcase them to the community. Local governments occasionally promote small companies via job fairs that encourage talent acquisition and trade shows that allow media coverage and exposure to investors.
Small businesses can also leverage government grants and low-interest loans provided by the Small Business Administration. But business owners must keep in mind that grants in particular are often targeted towards specific industries so not every company may qualify.
Small Business Administration loans offer another way that businesses can use public resources to fund their businesses. The SBA 7(a) program guarantees loans for businesses that are just starting out or are already established, while the SBA’s Certified Development Company, also known as the "CDC/504 program", provides fixed-rate financing options for businesses acquiring new facilities or purchasing equipment but it requires long-term credit facilities.
The SBA also offers two programs that, for example, are unique to tech-centered businesses. The Small Business Innovation Research (SBIR) Program and the Small Business Technology Transfer (STTR) are two important competitive programs that fund high-tech, innovative businesses and allow small businesses to gain access to government contracts and
Regulatory compliance resources and technical expertise furnished by local governments can yield cost-saving benefits for small businesses. Businesses can be easily ruined by regulatory malfeasance, especially for environmental violations that incur costly penalties. By following environmental safeguards and providing a safe and healthy workplace, the workforce will be empowered and productivity could improve.
Community Development Financial Institutions (CDFIs) refer to private-sector financial intermediaries who primarily engage in lending activities geared towards community development. CDFIs are attract capital from both private and public sources. CDFIs serve economically distressed communities by providing credit, capital and financial services that are often unavailable from mainstream financial institutions.
There are four main types of CDFIs, which are detailed as follows:
Community Development Banks (CDBs) provide capital to economically distressed communities via targeted lending and investing in select opportunities. Community Development Banks are typically for-profit corporations who are represented by their Boards of Directors. Depending on the individual charter of the institution, such banks are regulated by either the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision or by state banking agencies. Since CDBs are banking institutions, deposits are insured by the FDIC.
Community development credit unions (CDCUs) provide affordable credit through the merits of being a nonprofit financial cooperatives owned by their members. The entities responsible for regulating credit unions is the National Credit Union Administration (NCUA), an independent federal agency, or by state banking regulators or a combination of both. The deposits of most credit union institutions are also insured by NCUA.
Community development loan funds (CDLFs) are entities that provide financing via four main types of loan funds: microenterprise, small business, housing, and community service organizations. Each vertical is defined by the different type of client that is served, although loan funds serve more than one type of client in a single institution. These entities tend to be organized as nonprofits and governed by boards of directors with community representation.
Community development venture capital (CDVC) funds provide equity and debt-with-equity-features for small and medium-sized businesses in distressed communities. They can be either for-profit or nonprofit and include community representation.
Entrepreneurs can also solicit investment directly from the public via the Internet. These practices are broken down into two main areas, crowdfunding and Peer-to-Peer Lending (P2P). Crowdfunding is investment solicited from numerous investors and the public at large, while P2P lending is done on a more intimate and direct basis.
Crowdfunding refers to the practice of raising capital from members of the public, typically via Internet crowdfunding platforms referred to as “Portals”. Individuals and business owners alike can leverage a variety of crowdfunding sites but keep in mind, each site and portal have their own unique terms of use and funding criteria.
According to figures from the Sage Small Business Index, nearly 70% percent of small businesses are looking at alternative sources of funding including crowdfunding resources.
Portals such as Indiegogo, Kickstarter and Fundable allow entrepreneurs to solicit funding from the public. However, crowdfunding is not a guaranteed avenue of meeting capital requirements. For example, if a crowdfunding campaign does not meet its intended fundraising target, Kickstarter’s “all or nothing” funding model will refund any raised monies which leaves the entrepreneur with nothing.
Furthermore, crowdfunding investors may find that their funds are invested in sham or even fraudulent projects. Numerous stories exist in the media of investors who were fleeced for their investments in crowdfunding campaigns that range from solar powered coolers to beef jerky.
Although the crowdfunding sector has become one of the exciting stories in the investing world, investors and entrepreneurs alike must exercise caution.
Unfortunately, getting business funding from publicly available resources can be tedious and time consuming, difficult yet rewarding. These programs require extensive due diligence before they give small businesses what they seek. Entrepreneurs should conduct as much online research as they can and pay a visit to their local library or chamber of commerce to find out more about these programs. But once the criteria are met, these organizations are poised to provide small businesses with ample resources and services that can make seeking capital less onerous for the public. More importantly, local communities see the obvious economic value in promoting local companies that have growth potential. All the small business owner has to do is make the effort to reach out.