One of the most significant stumbling blocks to growth that the majority of small business owners will face is access to capital. You can have an incredible product, talent, or service specialty, but if no one wants to pay for it, you can’t earn a living. If you launch a business that does good, you have an added incentive to turn a profit because all those sales you so painstakingly secure directly equate to increased financial support for a cause you’re championing. Your growth catalyzes your cause’s success. For example, at my business Mata Traders, we launched a fair trade fashion brand produced by women co-op members in India and Nepal because we saw, time and time again, that women with economic power use it to stabilize their families and educate their children, helping to end the cycle of poverty in marginalized communities. While access to capital can feel near impossible sometimes, there are definitely ways you can obtain it and further your growth.
Seed Capital
In the early stages of your business’s development, your options for access to capital will be limited, and some may be more risky than others. If you need seed capital, which almost everyone will to get started, there are at least two ways to raise it. You can either self-fund, or ask friends and family for a loan or gift. We did both.
To self-fund, we took out multiple low interest (0% APR if you can still find them) credit card cash advances with long repayment terms, either 36 or 60 months. With a basic cash flow statement and a short term sales plan with strategies and tactics built twelve months out, we felt comfortable with that level of risk. We drafted out repayment schedules to insure the money was paid back before the end of the terms, which kept the money interest-free and boosted our credit score to make us more appealing to other types of lenders.
The next thing you’ll need to be able to do is sell, sell, sell whatever it is you’re marketing. At Mata, the more dresses we can sell, the more business we can provide the women who make our dresses, which amplifies our mission. We would vend at street festival booths, and exhibit at trade shows and conference expos. We’d take road trips to visit customers and sell out of the back of our van.
Because we invested in product development and could actualize sales dollars, we established a track record of profitability that helped us woo bank lenders when it came time for that.
We also found that leveraging the support of bigger companies like ModCloth and Stitch Fix really helped legitimize our brand. A vouch from them went a long way with their loyal customers, and helped establish a pathway for our growth.
Debt Financing
Once you can establish a solid sales history, make relationships with lenders. We found three avenues with which to access additional growth capital, and we succeeded in all three because we built relationships with those institutions that had capital to lend. The first, most traditional route is to obtain debt financing through a major national banking institute.
All I can recommend is when it’s time to make the big ask, avoid your local branch.
You want to find a lender motivated to act as a mediary between you and the bank’s underwriters, and oftentimes these people are headquartered in the bank’s corporate offices. Make an appointment with a business banker at the bank’s headquarters located nearest to you. Ask to partner with a business banker who handles small businesses specifically. Our bankers work in teams, but one handles businesses like ours, with revenue under five million; the others handle much larger businesses and wouldn’t be a good fit in the immediate future.
Cooperative Lending Societies
The second type of lender to look for is one who lends specifically within your niche. We launched at a time when fair trade clothing labels like ours had virtually no competition; which is something I’d recommend to anyone. Find a niche market and ask: what are these customers missing? What can’t they get? And then give that to them.
Once you’ve identified your niche, there may very well be lenders who exist solely to help businesses within that niche survive.
We found an ethical investment organization called Shared Interest that shares Mata’s mission to alleviate poverty through fair and just trade, and who will only lend to other accredited fair trade businesses and organizations. Because we are members of the Fair Trade Federation, they agreed to take us on and over the years have given us access to a credit limit three times the size of the line of credit are allotted from our bank directly.
Grants
The third type of lender to invest resources in connecting with is an organization who provides grants to businesses like yours. We found more success with this type of lending at the local level, as opposed to national. Two places to look would be your neighborhood chamber of commerce and your local municipality. We found two resources in our city through which we were able to access funds; our city had a center set up to specifically support entrepreneurs, which we qualified as, and our city also had grant funds set aside specifically to aid businesses in our sector (i.e. fashion). Grant research can be daunting and there are so many options out there to wade through. One thing we found to be helpful was to establish a rapport early on that encouraged local business owners like ourselves to communicate often and share resources.
The thing to remember in all of this is that as your business grows and prospers, and your revenue and net income increases, your business will become more and more self sustaining. Financing options will become less of an imperative and more of an aside. We learned, as Viola Davis puts it, “Your ability to adapt to failure, and navigate your way out of it, absolutely 100 percent makes you who you are.” That ability can also make or break the success of your small business. I wish you so much good luck with your own venture, and may any problems you encounter along the way become stepping stones to greater success.