Disparities In Access To Financial Capital – Part II
Link to El Nuevo Herald column in Spanish: Here
"Don’t come to me with a problem unless you can also come with a couple of solutions that we can discuss."
That has been my father’s philosophy for as long as I can remember, and which served as the introduction to my column last week, Disparities In Access To Financial Capital – Part 1. If you didn’t have a chance to read last week’s column, you can access it at www.elnuevoherald.com/columnistas/manny-garcia-tunon. In Part 1 I address the problem reported by the U.S. Department of Commerce Minority Business Development Agency on the disparity in access to financial capital. This week I am addressing potential solutions to the problem by highlighting the various sources of capital available to small and minority-owned businesses. Next week’s column will focus on the requirements typically sought by lenders of borrowers and the local and national agencies and resources available to assist business owners with the process.
By no means are these solutions perfect. They are meant to open a discussion that I hope you will join so that together we can shed some light on the issue of access to financial capital for minority-owned firms. Many of you responded via email after last week’s column and I have incorporated some of your suggestions here today. One example in particular is an email I received from Eliéser Gonzalez of OUR Microlending, who writes, "Somos una institución que da préstamos a pequeños negocios o a personas que tengan alguna actividad económica, como tu bien lo dices en el articulo hay pocas fuentes de financiamiento y te escribo ya que nos consideramos parte de la solución al problema." Being part of the solution is critical to achieving the kind of results that we, as a united Hispanic Community – the largest minority demographic group in the nation, are capable of. Be sure to visit my resource center at www.mgtunon.com for additional information and links to the resources you will read about in this column, and where you will also be able to post your comments, join the discussion, and be part of the solution.
Despite the difficulties brought about by the recession and the disparities previously mentioned which cannot be ignored, access to financial capital is available. The number one priority of every Hispanic business owner is to become educated on the various sources of capital, the requirements to access that capital, and the programs offered by local and national agencies to assist in the process.
Sources of Capital:
Traditional Banks: It is true that the credit crunch attributed with this recession has eased and the banks that have survived financial demise are now vociferously claiming that they have money to lend. Banks lend money to businesses for working capital and even for expansion, but not without firm collateral. Don’t underestimate the importance of relationships, however. Establishing a good relationship with your banker, particularly from a community bank, will provide valuable insight on improving your likelihood of getting a loan. Next week’s column will include loan guarantee programs offered by the Small Business Administration through commercial lenders aimed at helping minority-owned businesses. The SBA guarantees loans for small businesses in some circumstances. You still need to have 30% of whatever you need to borrow as collateral, but that’s a lot less than the normal 100%.
Venture Capital: Venture capital firms are a select few who look for companies with high-growth potential in high-growth industries to invest in. They look for qualified leadership within organizations with a history of proven success. Typically, venture capital firms look for investment opportunities in the millions of dollars in exchange for substantial ownership, generally more than 50%. These firms may not represent the right capital source for many smaller companies, but Hispanic businesses come in a wide variety of sizes and industries – many of which might find venture capital as the right fit. For additional information visit the National Venture Capital Association at www.nvca.org.
Angel Investors: This is a term being used to describe individuals and groups looking to invest in businesses that offer a higher return than more conventional investments. Angel investors tend to congregate around networks focused on specific demographics or industries. They are similar to venture capital firms in their analysis of potential companies to invest in, but they typically deal in smaller investment amounts, generally between $150,000 to $1.5 million, and for a smaller percentage ownership than as well. For a list of various angel investor groups, visit my resource center at www.mgtunon.com and click on "Sources of Capital".
Microloans / Microfinance: Microlending has been around since the 1970’s and started as a means to help entrepreneurs in third-world countries with small loans. The trend has made its way to the U.S. and has become a viable source of capital for businesses who don’t qualify for traditional commercial loans. That’s because microlending doesn’t focus solely on credit scores, but on business potential and payment capacity. Microloans typically range from $1,500 – $35,000 with an average payoff of 8 months. You will find a list of microlenders in t he resource center of my website.
