“Access to credit” has become a popular concept in the business community and media. It
has become the business seminar du jour to attend for business owners, accountants and
lawyers and financial planers. But what does it really mean for you and your business? “Access
to credit” describes a business owner’s ability to successfully acquire enough financing
Many stories in the media portray the current lending landscape as a barren wasteland; however,
business owners now have more options than ever to access the funds they need to survive, and
hopefully, to thrive. Some of the options include:
Commercial Banks It is true that commercial banks have become more conservative than they
were ten years ago, but contrary to what some may say, the commercial banks in the Lehigh Valley and
beyond are approving and funding deals.
Underwriting standards have returned to a more traditional model. You may need to have more cash on
hand now in order to get your loan request approved. You may not be able to get approved for a loan
with a 90% loan-to-value ratio. This is probably for the best, as we have all seen what happens when
the worlds of relaxed underwriting and borrower overconfidence collide.
Economic Development Agencies Nearly every city or region has an economic development agency. These are
private corporations set up with the mission of helping the local region’s economy to grow.
These agencies offer many loan programs to help small businesses get started.
Private Lenders Many private individuals will lend money to small businesses as an
investment strategy. You can expect more flexibility (read: more relaxed underwriting criteria). You
can also expect somewhat higher interest rates and closing costs.
Venture Capital (“VC”) VC can be the best option for a start up business, especially if the start
up has no record of earnings by which a lender can gauge the borrowers’ viability or
creditworthiness. VC also can bring in managerial or strategic experience necessary to bring the new
company’s products or services to market. You should expect, however, that the VC will require
some equity ownership of your company.
Crowd funding Crowd funding is a recent phenomenon that has grown out of social
networking. Crowd funding websites, such as kickstarter.com and microventures.com,
post descriptions of lending opportunities and invite the viewer to submit a donation, often in
increments as small as the “investor” wishes. On these sites, many users pool their
investments together to get the project owner the funds he or she may need.
Microlending Microlending is a lesser-used – but very effective – way to
get small amounts of cash in the hands of the small business owner. This can also be a way of direct
philanthropy, in that some microlending websites like kiva.org enable you to contribute
money to a worthy project in the developing world – but potentially receive a return on that
investment. Through microlending, a small business owner who may need only a couple thousand dollars
to launch their business can borrow more efficiently and incur fewer transactional costs.
Funding is out there, and by researching, planning, and developing relationships with potential
funders, it can be yours.
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