Finance Links

Access to funding to start a business can sometimes be an issue, especially with those owned by African, Hispanic (Latino), or Asian Americans, who may 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 improving capital formation.

There two 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. 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.

The next stage of equity funding will typically come from "Venture Capital" firms, whose business it is to find 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.