What is the biggest challenge faced by small business owners?” It’s a question I often hear, and one that’s almost guaranteed to be posed by any moderator of entrepreneurship panel discussions. It’s not surprising. Funders, supporters and other resource partners want to know how they can help small businesses thrive, and aspiring entrepreneurs want to know what potential speed bumps they might encounter.
The reality is that small businesses face tons of challenges. Navigating the emergence of AI, differentiating their products and services from the competition, acquiring and retaining customers, and maintaining an unwavering focus in the midst of an unpredictable post-pandemic market.
But the perennial challenge continues to be access to capital. How is a business owner going to fund their idea initially or acquire the money needed to grow and expand an existing venture?
The topic is so timely that the Hampton Roads Small Business Development Center (SBDC) presents a monthly “Access to Capital” seminar at Norfolk State University’s Innovation Center and at other regional locations on demand.
The first thing Bill Holloran, SBDC’s Senior Business Advisor and “Access to Capital” facilitator, advises small businesses to do is to start with their local lender.
Bankers can be an underutilized resource for small business owners. We often advise entrepreneurs to meet with their banker well in advance of needing a loan to gain an understand of lending parameters including minimum loan amounts, collateral requirements and credit scores so they’re in the best position to put forward a successful application. For business owners who have yet to open a business account, it’s important that they take the time to meet with several lenders to find the optimal match: someone who is interested in their business plan and who has experience lending in their particular industry.
The local lender category includes both traditional financial institutions as well as credit unions and CDFIs (community development financial institutions). Leah Fremouw, President and CEO of Bridging Virginia, an emerging CDFI, is one of a handful of mission-driven lenders serving the Hampton Roads region.
“CDFIs are regulated differently than traditional lenders and are subsidized with grant dollars which allows for lending flexibility,” says Fremouw. “We also bridge a gap in the small dollar and micro-lending space, providing an alternative to potentially predatory products like payday loans and high interest credit cards.”
Fremouw acknowledges that there’s nothing wrong with credit cards to bootstrap or fill short-term money gaps but advises caution. Holloran agrees. “Credit card financing is not my favorite thing but it is one type of strategy as long as business owners understand the debt service parameters, include the interest rate in their cash flow projections and have the discipline to pay it off in 90 days rather than using a 17.9% rate 360 days a year.”
A better strategy may be to explore friends and family as a source of capital provided a promissory note is in place. According to Holloran, friends and relatives will often offer favorable terms like holding principal and interest payments for six months to allow time for the entrepreneur to grow revenue. Holloran explains. “My experience when suggesting this approach to clients is that friends and family members will become interested when you propose a business relationship that includes a promissory note.”
Accessing capital is a layered process which is why it’s beneficial to work with a fellow business owner, banker, bookkeeper, accountant or business advisor. The small business ecosystem in Hampton Roads offers a number of resources, many of which are free of charge including SCORE, the Women’s Business Center, the Veterans Business Outreach Center, Virginia PTAC and Virginia Department of Small Business and Supplier Diversity. Organizations like these are available to provide existing and aspiring entrepreneurs with the resources they need to launch, grow and expand their business ventures.
Jolie Spiers is Executive Director of the Hampton Roads Small Business Development Center and Vice President of Small Business for the Hampton Roads Chamber. Both organizations help set the conditions for business success in Hampton Roads and provide resources for entrepreneurs and small business owners to build solid foundations and focus on business growth.