Raising capital is bit of a Goldilocks quest: on one end, you have cookie cutter bank loans that your business may not quite fit. On the other end, you have venture capital, which conveys status if you’re one of the rare companies that qualify, but may force you to sell you soul.
That leaves a lot of people out in the cold. Consider the following:
Big banks approve just 2 out of 10 small business loan requests. And those numbers don’t count the many small firms that don’t even apply for loans for fear of rejection.
The odds are worse for women and minority-owned businesses: Just $1 out of every $23 in small business bank loans goes to women-owned businesses, even though they represent 30% of all small firms. And minority firms receive smaller loans and pay higher rates than their non-minority peers.
Venture capital firms fund less than 1% of all startups. And they don’t stray far: almost 50% of all venture capital invested globally in 2013 went to just three U.S. states—California, New York, and Massachusetts.
Fortunately, there are many options between those two poles that might feel just right—options that don’t require you to abandon your values or give up control.
What if you could raise money from the people who are your biggest supporters, like your loyal customers, your neighbors or the people in your social network? What if they could become investors and have a stake in your success, so that the value you create benefits the community? How would that change the investor-entrepreneur dynamic?
This is the “middle way” of community capital and mission-aligned investment.
You may have noticed that impact investment has become a big trend in the socially responsible investment (SRI) world. Well, more and more investors are realizing that the place where they can have the most impact is at home. Are you creating jobs in the community? Do you source locally? Does your venture have a positive impact on the community? That may resonate with local impact investors.
At the same time, some forward-thinking financial organizations—many entrepreneurs themselves—are experimenting with new ways of assessing risk that put as much emphasis on your social standing and relationships as they do on your FICO score. Others are making it super convenient for you to apply for and get a loan. The bottom line is, there are more options than ever before for small businesses in need of capital.
With that in mind, we’ve put together a comprehensive guide to new (and old) funding alternatives to help you find a good match. Because we want you to be successful—and keep your soul!