Where Community-Oriented Entrepreneurs find Startup Cash

The advantages of seeking startup funds from community development banks

Q.   My wife and I are trying to start a children's clothing store in an area that desperately needs it. Unfortunately, we keep hitting brick walls when it comes to getting startup funds. Heck, we can borrow money for a car that we can't afford from the same banks that say no to a business idea that will make money.  And the people who say they are impressed with the plan, don't want to invest.  We are so aggravated.  What next?

A.   Not too long ago I was asked why I bothered to write about small business funding for what I call the "everyday entrepreneur" since the entire banking and venture investment community seemed to help only the favored few.  This comment came from a disgruntled fellow who gave up his entrepreneurial dreams in the face of financing adversity.

Unfortunately, this prospective entrepreneur didn't understand that adversity is not the same as failure.  Tougher challenges require a tougher attitude.

In many ways the reason why most startup entrepreneurs end up relying on credit cards and personal savings to finance their companies is they give up too soon.   Many lose faith because of the frustration associated with pursuing the wrong type of funding source for their startup enterprise. 

It doesn't have to be.  And, this is why I write this column.

Take for example, commercial banks.  They are willing to offer credit for new car purchases because there is an asset securing the debt.  If a borrower is unable to make the car payments on a timely basis, then the bank can recover some of the outstanding debt by selling the car. 

This type of secured loan is less risky to banks than financing a startup clothing store which typically lacks assets to cover loan balances.  In addition, traditional bankers understand that retail stores are capital intensive and likely to lose money for several months maybe more.  Simply stated, asset-based lenders are not good funding sources for startup retail operations.

There are, however, community development banks which are willing to overlook asset coverage shortcomings in order to create new jobs and economic activity in low income urban communities.  Further, it is not uncommon for these banks to steer prospective merchants to real estate developers who are equally committed to community development.  Many of these banks are members of The Community Development Bankers Association.  

There are other options for retail-oriented businesses too.  Entrepreneurs who are most likely to eventually receive funding from angel investors and retail-friendly venture funds are armed with workable business plans that promise investment upside through fast unit expansion or franchise. They also identify experienced retail executives who know how to create a unique store brand identity in an otherwise crowded retail market.

What other steps can you take to make your business more attractive to investors?  The most practical solution is to shave startup costs to reduce operating risk.  Can you test your retail concept within an existing store before signing long-term retail space leases?  Can you ask smaller clothing manufacturers for extended credit terms in exchange for more shelf space? 

Successful entrepreneurs are determined and resourceful.  They keep routinely update their business plans, seek out knowledgeable advisors and take the time to research a seemingly endless list of well-targeted funding partners until they piece together the startup funding they need.

Write to Susan Schreter at susan@takecommand.org for great funding tips for startup entrepreneurs and small business owners of any age and business building objective.

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