Sometimes, business owners must consider alternative options for funding their projects. Gina Harman (CEO of Accion, The U.S. Network) and Paul Quintero (CEO of Accion East) discuss the other avenues business owners take to find funding.
Gina Harman: In today's market, I think small business owners are in a position where they can move from what we've seen traditionally as the top three ways they fund a business, right, which is they use every dollar they have of savings. They lean on every friend and family and then they lean on them again, and again and again. And for so many of our borrowers they use credit cards.
Paul Quintero: That's true.
Gina Harman: But among those three, which we can assume people are going to use, right, we can add now crowdfunding. We can add grants. I know that we have certainly borrowers today who are making a real effort to participate in competitions all across the country so that they can win prize money which is more like a donation. It's certainly not a loan. They have loans they can take against receivables. They have loans like those that Accion offers that – how does somebody look at that landscape and decide what's best for them?
Paul Quintero: It's tricky. Probably something that merits a longer conversation but ways to think about it, if you're a business owner – first, in terms of something that might be a competition or a grant, know that those options are fairly limited. Typically one off, and if you think about even the nature of a competition puts you at one, in however many participants there are in terms of probability of securing. I think they're still important nonetheless, and I think the best way to leverage those is through the visibility that it can create for your business even if you don't win so that people can become aware and you might engage other stakeholders. But I think, importantly, the critical test is whether you have a business that can actually generate revenue and some kind of ability to repay a loan. If you are not at that stage then you have all sorts of, and I call it not charity but now let's say a business equity type of investment, where the cash flows are going to be coming back at a later stage but where you can raise money to hopefully carry you until you start generating cash flow. Because it would be imprudent, and we spend a lot of time at Accion educating people about this, you don't take on debt if you don't have a clear way to repay it. It might be equity in risk but it's different. The debt doesn't go away. You have an obligation and so we spend a lot of time educating people about that. So, to that extent I think that the crowdfunding, anything that could be looked at as a sort of form of equity, would be more viable. It also has turned out to work best for people that have products to sell. It doesn't work particularly well if you're in the service area. I can send you bracelets or necklaces or beads …
Gina Harman: Or jam.
Paul Quintero: Or jam, or cakes, but I can't cut your hair, or do your nails or give you a massage necessarily on a scalable way with all the people that participate. So know that, I think that sector is really good for people that manufacture things. Then, when we come to debt I think the question there is, and that we spend time with clients on, is why us versus a traditional lender? Because the biggest, deepest, and lowest cost opportunity will be with the financial institutions. We don't want to crowd out private capital, we want to augment it. So one of the things that folks often don't do is actually go and ask their bank if they have a relationship and they've never tried. So we would, we would steer those that have good cash flow, arguably have managed their credit very well, arguably can repay a loan to at least pursue that opportunity and where you'll see that that becomes a challenge is traditionally collateral or early stage.
Gina Harman: Early stage, yes.
Paul Quintero: So, later stage I think better. Earlier stage better for traditional lenders and institutions earlier stage better for micro lenders. And then ultimately, if you've been around over five years well established in the community then, then your need for an organization like Accion that is trying to find creative and flexible ways to create the access to capital I think what we have found is at that point you're optimizing the cost of your capital. It's not about getting it. It's about at what price. And when you're at that stage I think then a whole plethora of options can open up. But I would look at that as a continuum, as one initial cut at how to think about it and just know that within each of those offerings there are a myriad of suppliers and a number of alternatives that we would be more than happy to talk to you one on one, and that's one of the roles that the loan consultants play – educating folks on the tradeoffs based on their own experiences and the experiences of the clients that they work with.