Where Can Small Businesses Turn for Financing?

In the past few years especially, small businesses have likely had significant difficulties in obtaining financing from traditional sources, as banks have largely reined in their lending overall, and on large lines of credit in particular. As such, owners might need to get a little more creative as a means of finding the best ways to keep themselves as flexible as possible.

Small businesses have largely been successful in their fundraising efforts overall, but not in the ways that one might expect, according to a report from New York Newsday. The crowdfunding site Fundable found that these enterprises raised some $531 billion in 2012, but of that amount, roughly $185.5 billion came from personal savings or credit extended to a person rather than the company itself. That, in turn, means personal risk increases as companies have less access to credit overall.

"Statistically the likelihood that someone else is going to fund your company is so ridiculously low," Wil Schroter, CEO of Ohio-based Fundable, told the newspaper.

Where can companies turn?
More and more businesses are turning to the Internet when it comes to seeking some capital, putting their products on crowdfunding sites that allow them to get payment up front, before production begins, the report said. Of course, not all companies will be capable of doing this kind of thing, so seeking out investments from other non-bank sources, such as investment groups the specialize in the enterprise's field, or financing through the U.S. Small Business Administration, which has been increasing efforts to finance independent companies as a result of banks' reticence to do so in recent years.

Small businesses that still want to seek funds from banks themselves, however, may want to do a little more work to make themselves look like reasonably good investments, the report said. Many lenders now like to deal only with companies that have been operating for nearly a year or more, and which have demonstrable histories of success.

One way in which owners may be able to set themselves up for such positive dealings with lenders of any type may be to simply cut internal expenses, including those for small business insurance. Taking the time to find more affordable workers' compensation insurance, or general liability insurance, can go a long way toward improving a company's bottom line because doing so can save thousands of dollars per year.