Question Startups usually Asks nowadays. How to Get Capital to Start a Business During a Crunch?
A lot of people would think so. Anyone trying to secure credit during the past few years will attest to how arduous and nail biting this process can be, considering the global credit crunch. Eric Rosengren, President of the Boston Federal Reserve recently noted that from the third quarter of 2010 to the third quarter of 2011, banks steadily and drastically reduced their exposure in the business loan category. The 2010 Small Business Jobs Act wound down last fall, disbursing a measly $4 Billion out of a projected $30 Billion.
However, there is light at the end of the tunnel to get you started, and that light is shining ever more brightly.
Sources Of Getting Startup Financing During A Crunch
- Angel Investors: The University of New Hampshire Center for Venture Research reported that this industry stepped up for $8.9 Billion in the first half of 2011, a 5% increase from a year ago, providing an average of $338,400 to 26,300 new ventures.
- Venture Capital: The National Venture Capital Association also reported a slight increase to $21.2 Billion for the first three quarters of 2011. Venture capitalist Naval Ravikant, founder and CEO of AngelList, disputed the notion of a Series A credit crunch and noted that, instead, there presently is an overabundant deal flow, while George Zachary of Charles Rivers Ventures indicated that in one single day in mid March, 2012, he received 70 funding e-mails that included 40 that were “pretty serious” . A common trend that seems to have emerged is that deals are getting cheaper, with new incubators standing at $50,000, and Series A (seed funding) ranging from $300,000 to $500,000.
- Consulting and Crowdfunding Firms: Rohit Arora, CEO of Biz2Credit, an online credit service that matches businesses with lenders, predicts that 2012 will be the best year for business lending after the recession. A fairly new alternative to angel investing is crowdfunding, where money can be raised from large groups of investors, with a site called KickStarter alone having received pledges of up to $125 Million since April 2009 and boasting of one company having received almost $1 Million from 13,500 investors. Two other companies in the same line of business are IndieGoGo and RocketHub. Still other companies offer to roll over retirement accounts into startups or franchises while avoiding early withdrawal penalties, such as Guidant Financial, Benetrends and SDCooper.
Sources Where You Require Collateral
- Banks: Although large banks have cut their small business portfolios down to $610 Billion in June 2011, from $681 Billion in June 2007, small community banks have actually increased their exposure by $17 Billion to $302 Billion during the same time period. This trend is likely to continue and community banks have the added advantage of providing more personalized services.
- Small Business Administration (SBA): The paperwork involved can be tenuous, but the SBA reported its highest level of loans for fiscal year 2011, ending September 30, to $30.5 Billion, involving 61,689 loans, a 21% jump from two years ago. SBA backed loans are also much preferred by banks as the SBA can guarantee up to 85% of the loan in the case of default.
SCORE to the Rescue
- Feeling overwhelmed by getting startup funding during a crunch?
- The Service Corps of Retired Executives (SCORE), affiliated with the SBA, offers free consulting services to small businesses, and boasts of more than 13,000 business expert mentor volunteers through 364 chapters.
- For your local SCORE chapter, here is the website: http://www.score.org – SCORE can make your getting startup funding during a crunch easier.