Secure the Bag Sis: Funding For WOC Biz Owners
#Entrepreneuerlife is hard! Long days, late nights, a to -do list that never ends, projections, forecasting, hiring/firing, having to wear multiple hates and multi-task whether you want to or not, is only the beginning! And for those who have a business that is operationally sound and need capital to continue growing their business to scale, it’s even harder.
Last year 1,821 new women-owned businesses were launched every day, the Amex-SCORE report revealed. Women of color founded 64 percent of those businesses. Entrepreneurship amongst women of color has recently increased over 322% but only .02% get access to the capital they need to sustain their business.
Business funding options:
Small businesses often need capital to grow, and this funding can come from a variety of sources.
But how do you get your hands on needed capital to fund your business? Well, there are a variety of options.
1. Bootstrapping
The funding source to start with is yourself. Can you tap your savings so you can keep all the profits and company ownership? But we understand, that for many this is not a reality and that and you’ll need to look elsewhere.
2. Loans from friends and family
You can tap your network of family and friends to invest in your business with loans and/or capital contributions. This approach could possibly become negative if they lose money on the investment. However, if the business succeeds, there can be a stronger bond formed.
3. Credit cards
Credit cards are usually the easiest option for getting money, but they come with a high cost for the capital, since credit card interest rates tend to be high. “The good news is that they’re flexible,” says Rachel Alexander, a small-business consultant. “You don’t have to justify what you’re going to spend the money on.”
The amount you can obtain is based on your credit limit, which is probably less than you’d get from a bank or other loan type. Credit cards are a good source of capital for small-scale revolving needs, and for entrepreneurs who want to retain ownership and control of the company.
4. Crowdfunding sites
Online crowdfunding sites have become popular in the past few years. They’re usually used to help businesses raise money to launch a specific product. Crowdfunding can be time consuming and requires putting information on the site, often with a video or photos of the product.
Crowdfunding can be a good way to pre-sell your products and get the capital to build them, but you may use a lot of the money on incentives to get people to sign up. Some crowdfunding sites only let you access the money if you meet your fundraising goal, and the site may take a percentage of earnings.
5. Bank loans
Getting a bank loan or (business) line of credit can be more time consuming than using a credit card, says Alexander. When you make your case to the bank, you’ll need to show that you have a history of paying back debt. The bank will want to see a business plan and financial forecast. “Understandably, the bank needs to know they’re going to get paid back,” Alexander says. Banks provide several types of loans, including some through the Small Business Administration. Some loans require collateral in case you don’t pay back your debt.
6. Angel investors
Angel investors are high-net-worth individuals who get an equity stake in return for their financing. They expect to make a profit and usually have business expertise they share with you to help your company grow. Know that angel investors may scrutinize your business plan and you’ll have to build a case as to why they should invest, which isn’t a bad thing, says Alexander. The vetting process for entrepreneurs should ensure that the business plan is solid.
7. Venture capital
Like angel investors, venture capitalists take equity in your business in exchange for financing. Venture capital funds resemble mutual funds in that they pool money from many investors. Venture capitalists also have business expertise in the areas in which they invest and will be involved in running the business. In exchange for potentially large amounts of money, you’ll cede some control and equity.
Think about how much money you need and what you’re willing to give up in exchange for the funding. That will help you decide the best way to move forward in obtaining capital to expand your business.
Despite the alarming disparities in VC funding being well publicized, pitch rooms are still unwelcoming and inaccessible to black and brown women.
- Girl Boss
The World of Venture Capital
It’s no secret that female entrepreneurs receive a disproportionately lower amount of financial backing than their male counterparts; and women of color owned businesses receive even less. The Biz2Credit 2018 research found that the average size loan for women-owned businesses was 31 percent less than for male-owned businesses. The study, which included 30,000 companies nationwide in more than 20 industries —revealed that the average loan amount for women-owned companies was $48,341 last year, with the most common type of funding being working capital for business expansion.
There is also a glaring inequity in the world of raising capital for women of color. Of all VC funding alone over the past decade, Latinx women-led startups have raised only 0.32 percent while black women have raised only .0006 percent. However, female owned businesses that receive funding outperform their male counterparts by 63%! So it seems that investors need to pay more than just attention attention.
According to Guidant Financial, likely due in part to the struggles of traditional financing for women-owned businesses, more female entrepreneurs use cash (36 percent) than their male counterparts (32 percent), making cash the most used method of funding for women. Female small business owners report their greatest challenge is a lack of capital and cash flow (35 percent).
Needless to say this is a HUGE challenge. However, there are options!
Here are some notable VC funds that we love:
Shea Moisture’s Richelieu Dennis: New Voices Fund - The fun onwed and operated by Sundial Brands (the parent company to Shea Moisture, Essence and a host of other brands), is all about empowerment, acceleration & impact via access, capital and expertise. A $100 Million Fund created to empower women of color entrepreneurs to reach their full potential. This groundbreaking initiative, designed to level the playing field, provides women of color entrepreneurs with unprecedented access, capital, and expertise they need to excel. This highly efficient fund supports start-ups, established businesses, and community-based enterprises.
Serena Williams New venture has over $12billion in its portfolio!
Serena Williams': Serena Ventures - Invests in founders who are changing the world with their ideas and products. With over 60% diversified founder investments, 30+ portfolio companies and over 12billion (yes billion!) in marketing capital within its portfolio.
Latina’s start businesses at 6x the national rate!
Eva Longoria: Eva Longoria Foundation MicroLoan Fund - Through partnerships with LiftFund and ACCION San Diego, we provide loans and business training to Latina small business owners. Longoria’s foundations equips Latinas with the capital and training they need to succeed in business, we can help them on a path towards income stability and growth. The fund is revolving so as entrepreneurs make payments, we redistribute the funds in the form of new loans, benefitting other Latinas in the community for ongoing impact.
The Small Business Association is also a great resource for funding.
Small Business Administration - Loans & Finance
Lending activity from the SBA helps women-owned companies secure capital for growth. The agency facilitates federally guaranteed loans to small businesses that might not otherwise qualify for traditional bank term loans. SBA loans totaled $25.37 billion in the fiscal year that ended in October 2018. Many of the loans go to women-owned and minority-owned businesses.
GRANTS (Free money, if you qualify) is also a great resource. There are tons fo them depending upon your business, location, ownership and many other factors too.
In all it’s not easy, but getting the funding we need as a women of color business owner, is attainable. And there are plenty of resources to explore including those most may even overlooked initially. Just remember before approaching investors to make sure you have your business in order: Test the market, have a solid business plan (with contingencies), know your stuff inside and out and get ready to pitch like theres no tomorrow!
May you secure the bag…
and may the odds be ever in your favor.
Sources: Guidant Financial, Girlboss, CNBC, Nationwide