Building a successful business is no easy feat and many owners learn what works by trial and error. That’s why we’ve rounded up some of the best financing lessons learned from the small business owners we talked to this year.
Beware of online lenders
When Maria Cruz, owner of Heavenly Flowers Too, had an unexpected flood in her shop, she went to her bank to apply for a loan. Even though she had been a customer since she started her business, the bank denied her application. “Because I was so desperate, I decided to go with online funding … The online process was appealing because it was easy money. I didn’t have to send them all these documentations that you send to a regular bank. Little did I know that it came with a huge interest rate, which did a lot of damage to my business … When I started adding up what I was paying them, it came to over $11,000 a month. That’s when reality kicked in.” Luckily, the Small Business Administration (SBA) referred Maria to Excelsior Growth Fund (EGF), a Community Development Financial Institution (CDFI) helping businesses in New Jersey, New York and Pennsylvania. With a loan from EGF, Maria was able to pay back the online lenders and reduce her monthly loan payments from $11,000 to $902.
Keep looking and you’ll find the right lender for you
Heather Chung, owner of Brown Rice Korean Grill, applied for a traditional bank loan to help her open her second restaurant. When she was denied, she considered online lending but decided to keep looking for an organization that could not only help with financing, but also provide business coaching. She found exactly that in the Latino Economic Development Center (LEDC), a DC-based CDFI that equips Latinos and other D.C. and Baltimore area residents with the skills and financial tools to create a better future for their families and communities. “I understand how difficult it is opening and running a business and if you’ve got trouble, don’t give up. You can find some organization to help you like LEDC helped me.”
Take the time to plan and stay strong when the going gets tough
When Andrew Li and Chris Caquelin were developing the business plan for their American-made clothing store, Frankin & Poe, they weighed different financing options to determine which one best fit their business model. They decided on a Kiva crowdfunding loan, which offered a 0% interest rate and allowed them to leverage the support of family and friends. After the business was up and running, they realized they would need additional financing. “I think any entrepreneur would agree that before you start your business, it’s hard to understand how much financing you need. Just looking at the forecasting, we needed more capital and we reached out to EntrepreneurWorks,” explained Andrew. The team at EntrepreneurWorks, a CDFI serving the greater Philadelphia area through microloans, business training, and one-on-one guidance, spent a lot of time gaining an understanding of the current state of and future plans for Franklin & Poe, so they could guide Andrew and Chris in the right direction and offer them the financing they needed. “The advice I would give to small business owners is to stay positive and stay strong,” continued Andrew. “You’re going to have ups and downs, probably more downs than ups. But if you’re committed to your idea, and really believe in your idea, just keep on pushing forward.”
Stay away from enticing online loan offers
When launching Amalgam Comics and Coffeehouse, Ariell Johnson received various online and direct mail loan offers, but she instead went with crowdfunding and a loan from Women’s Opportunities Resource Center (WORC), another Philly CDFI. “I have been approached by online and mail lenders, and those offers are very enticing, especially when you see all of the zeros on the page … ‘your business could have $50,000 today.’ I personally do not respond to them. I shred them because they are not from accredited institutions. In terms of financing, it is not always an easy process, so I would say endure, push through, keep going.”
If you’re a small business owner looking for affordable, smart financing options, browse the many resources at Venturize.org or check out our mission-driven lender locator map to find a CDFI near you. And don’t forget to follow Venturize on Twitter and Facebook!