Finding cash for your business: entrepreneurs who are shut out by bankers and venture capitalists can stay in the game by finding alternate sources of financing

Black Enterprise, Feb, 2005 by Donald Jay Korn

The community development venture capital industry, which includes over 100 members, explicitly supports companies located in low-income and distressed neighborhoods.

"Traditional venture capital funds tend to focus on a limited portion of the U.S.," says Kerwin Tesdell, president of the Community Development Venture Capital Alliance in New York City. "There's a focus on certain types of companies, especially in high-technology fields, and a desire to make very large investments."

"Our members have the same focus on potentially strong investment returns," says Tesdell, whose organization acts as the trade association for this group of venture capitalists, "yet we are willing to make an extra effort to look for deals in early-stage companies in urban and rural areas. In particular, we focus on companies where there's a potential for job creation." As is the case with most venture capital arrangements, support as well as money is provided.

"We are very involved in helping the businesses in which we invest," says Tesdell. "We may take a seat on the company's board, help to develop new markets, and line up other financing."

A list of the various community development venture capital funds can be found at www.cdvc.org.

With all of the financing options available to small businesses, a well-run company with a well-reasoned business plan need not run short of cash. Even if traditional banks and venture capitalists turn you down, there are plenty of other capital ideas.

debits & credits

Here is how some financing techniques stack up:

Traditional Bank Loans

Pro: That's where the money is

Con: Collateral and a long record of profitability might be required

Venture Capital

Pro: Some community VC firms target urban and rural areas to promote job creation

Con: Host traditional VC firms focus on making very large investments in high-tech industries rather than back small, low-tech startups

Alternative Techniques

Micro-Loans

Pro: Entrepreneurs might be able to borrow small sums that other lenders won't consider, sometimes without collateral or a credit check

Con: Loan size is limited and the process may be time-consuming

Angels

Pro: Financing arrangements can be very flexible as angels often provide knowledge as well as capital

Con: Not only can angels be hard to locate, they need to be investigated by entrepreneurs seeking to protect intellectual property

Accounts Receivable Financing

Pro: Accelerated cash flow

Con: Costs may be considerable

--DJK