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Access to the funding needed to start a business is almost always an issue, especially
with those owned by African, Hispanic (Latino), or Asian Americans, who are more likely to
lack the financial resources necessary to achieve adequate capitalization. A 2000
report published by the
U.S.
Minority Business Development Agency concludes that the growth of Minority Business
Enterprises (MBE or MWBE) has contributed to the strong growth of the U.S. economy, but
that growth cannot continue without removing capital formation constraints.
There two basic ways to fund a business: debt and equity. Debt
financing involves borrowing funds from a lender with the promise to repay.
Loans can come from friends and family, or from lenders in the public or private sector.
By far, the most popular small business lending source in the public sector is the
Small Business Administration. The SBA does
not actually make loans - they merely guarantee that the borrower will repay the loan back
to the lender, typically a bank. Therefore it makes sense to look first to a bank
who is a
certified or preferred SBA
lender.
Click here to see which
banks do the most SBA lending. Most of the SBA's programs are oriented toward
small businesses in general, however their
Prequalification Pilot Loan Program
is focused on MBE or MWBE firms.
Equity financing means funds are raised by selling a share in the business to
investors. At the startup and infancy stages of a new venture, investors are
typically friends and family of the founders. The next stage of financing often
comes from "Angel" investors, who are individuals willing to invest their own
money in new ventures, usually in the range of $20,000 to $100,000 per venture. If
you are looking for Angel investors, check out
Active Capital,
Keiretsu Forum,
and
AngelList. The next stage of equity funding will typically come from "Venture Capital"
firms, whose business it is to find high potential ventures to invest money raised from
individuals, companies, or other financial institutions. As with Angel investors, VC
firms vary greatly in terms of areas of interest and size of investment. In general,
most VC's are looking for deals over $1,000,000.
Click
here for Yahoo's directory of venture capital resources.
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