Biz Ladies: Financing Alternatives for Women with Small Businesses

Biz Ladies: Financing Alternatives for Women with Small Businesses
Today’s Biz Ladies post comes to us from MoolaHoop, a rewards-based crowdfunding platform that enables women entrepreneurs seeking to raise funds for their small businesses. MoolaHoop enables women-owned, -managed and –led small businesses to easily engage their “crowd” of existing customers, potential customers, family and friends in order to raise funds for their business.  Today, MoolaHoop founders Nancy Hayes and Brenda Bazan are sharing their expertise on various options available to raise funds and gain financing for your dream businesses and projects. Thank you Nancy and Brenda for sharing these valuable resources! –Stephanie

Read the full post after the jump…

Women in the U.S. today start nearly 30% of the new businesses but they receive less than 5% of the venture based equity funding and less than 12% of institutional debt such as traditional bank loans.  As a consequence, women-owned businesses often start out under-funded, which means they will be smaller at the outset and grow more slowly.

The good news is that the number of funding alternatives are growing and a savvy owner should do her research to understand the pros and cons as well as whether her business qualifies for these options.

The options available for your business depend on factors such as type of business, credit worthiness, willingness to trade ownership or debt for access to capital, the attractiveness of the industry to investors and the amount of personal wealth you can leverage to guarantee a loan.

Bootstrapping - Many experienced business owners recommend funding the startup of your business from your own assets (“bootstrapping”).  They believe using your own funds creates a discipline for cost-conscious behavior and builds attitudes toward expense decisions that benefit a company well into the future. There are some great books such as Lean Startup that detail the benefits of and path to bootstrapping your business.

Credit card debt – The most expensive but most common source of funding for very small businesses is credit card debt.  It is universally considered the least attractive option because of the high interest rates but has the benefit of easy access.

Friends and family - Another common way to raise startup small capital is to reach out to friends and family.  You should treat this loan or equity transaction with the same amount of respect you would treat institutional funds.  Create a contract and spell out the terms and the time frame.  Offer your funders periodic formal updates on the status of your business.

Factoring - Factoring is a process where a financial institution assumes your accounts receivables and advances you 70-80% of the total value.  Then they collect the full amount from your customers, forwarding the balance to you minus their fee.  This can be an effective way to obtain short-term capital while also outsourcing the collections process.

Supplier line of credit - If you have a good relationship with your suppliers, you may request a line of credit so that you can receive goods and pay for them over an extended period.  Companies like Zazma provide small loans to keep supplier materials flowing.

Angels - Some investors are dedicated to empowering women through financially supporting their businesses.  They typically want to enter at an earlier stage than traditional equity investors and may have an industry focus. They may provide loans or equity investments and can even partner with local economic development organizations.  Some examples of Angel investors that focus on women are Golden Seeds, Women’s Venture Capital Fund and Springboard, plus many more who operate regionally.

Grants – Look online for federal, state and local grants available to women and minority owned businesses.  The Small Business Administration (SBA) and other economic development agencies are becoming more aggressive in offering small business grants to accelerate women’s economic growth.  Explore non-profit agencies such as Count-Me-In: Make Mine a Million, who works to supports women to grow to $1 million in revenue, and the  American Association of University Women, supporting university graduates in underrepresented professions.

Incubators - There are many business incubators and/or accelerators who invest in businesses with resources, mentoring and capital. Their purpose is to improve the likelihood and pace of growth for businesses in their industry. Incubators are often associated with tech businesses, but there are incubators supporting other industries such as food, fashion, retail and tourism. The Rutgers Food Innovation Center maintains a great list of food industry incubators.

Crowdfunding – Crowdfunding, or the process of raising money from small donations across many supporters, is gaining popularity. There are three types of platforms that can apply to businesses: rewards, debt and equity.

  • Rewards based –  This type of project turns to a customer community or social media followers to solicit financial support in exchange for non-financial rewards.  It is most effective when used to presell products or services to a loyal customer community or social media following.  In this method, a business owner with consumer facing products or services tells their story and requests pledges while promising a product, service or other non-financial reward in the future.  Some large platforms such as Indiegogo accept all forms of fundraising projects, and other platforms specialize.  Kickstarter supports creative projects and many artists, MoolaHoop specializes in women-owned businesses.
  • Debt-based – Kiva Zip offers an option to crowdfund a low dollar value, zero percent interest loan.  This is a great option for those who would not otherwise qualify for credit and need very small amounts, starting around $5,000.
  • Equity-based – One great platform for women is Portfolia.  They focus on matching investors and businesses using capital in exchange for equity.  These platforms work closely with the business owner to build their investment case and provide tools and support for managing investors.  This is typically available to companies with high growth prospects and a foreseeable economic event.

There are many more types of funding alternatives today than ever before. But with the proper research, there are certain to be alternatives to make your business dreams come true.

What project are you dreaming of funding?

Maggie

I am trying to expand/get amazing packaging for my candle line on etsy. I have been researching printing my own, figuring out how much it would cost to outsource the job, etc, and it has been giving me a headache! A terrible part of me wants to just go the credit card route, seeing as I won’t be spending TOO much expanding the line (I was thinking 3-5k) and then I would start working at events and fairs to ramp up sales. Thanks for the lovely post. I love the Biz Ladies series.

Gerard

Like most of these crowdfunding sites they take a 9% cut, then a 2.6% charge for credit cards, and then Paypal will take an additional 3%, so when it comes down to it crowdfunding platforms make a killing by just providing a platform – stick a Paypal buttomn on your site and do it yourself! If your friends donate they don’t realize you wont get 10-12% of the funds they are donating to you….

Suzi (The Pillow Studio)

This was a very helpful post. I make custom pillows (in fabulous fabrics) that I sell through an ecommerce site and through Etsy. I have been growing as my profits have allowed but just recently I have been thinking about expanding on a bigger scale. This is good information for me to start thinking about my options. Thanks.

Mandy

Thanks so much for this post- it’s excellent timing for me. I’d like to grow my business, but am feeling stuck by lack of capital. I’m thrilled to start digging through these options to see if any will work for me!!

Alexis

This is a very helpful breakdown! Would love to see more on Design Sponge about investment options specifically for the design industry.

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