3 Strategies to Improve Small Business Access to Capital

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The biggest surprise of starting my own business was how much time I spent and continue to spend on cash flow. A good idea was a start, of course, but the turmoil really started once I realized the price of building a prototype, hiring the best people, and giving them the tools they need to succeed. My co-founder and I aren’t afraid of how we maxed out our credit cards at the start of Hello Alice; it was just what it took to keep the lights on until we landed a life-changing SBIR grant that allowed us to lay the groundwork for what is now a serial enterprise B backed by venture capital.

Of course, my experience is by no means unique. I once asked Michael Dell what he spent the most time thinking about, and he said, “Cash flow.” Data from the Hello Alice survey of more than 600,000 small business owners shows that access to capital is the number one challenge, quarter after quarter. Around the world, entrepreneurs are looking for the credit, loans, grants and other sources of funding they need to grow their business – and often fail, especially if they’re part of the new majority.

As business leaders become more aware of this problem, I hope we can open up access to any business owner with a good idea. It’s one of the reasons why I recently hosted a conversation with finance leaders to take the temperature on the challenges and innovations to look for in the area of ​​access to capital. Here are three takeaways from my conversation:

  1. Embracing digital tools can help entrepreneurs make the most of what they have.

According to Ginger Siegel, head of small businesses in North America at Mastercard International, owners should focus on optimizing their cash position before jumping into the hunt for outside capital. A big part of that is overcoming the “digital divide” and embracing digital tools that help business owners accept payments in near real-time.

For example, Siegel cited research showing that up to 75% of companies still use paper invoicing to bill customers and suppliers. Once you add up the time it takes to prepare the invoice, send it out, and wait for payment, businesses could be waiting months to receive their own money. Adopting digital invoicing software helps owners improve their cash position and reinvest those funds into operations and growth, potentially eliminating the need for outside capital entirely.

“I hear so much about access to capital and everyone thinks about borrowing. However, if you’re looking at a small business, we can also help them get their own money faster with digital payments, digital invoicing,” Siegel explained.

Along the same lines, Siegel advised companies to invest globally in their online presence. The e-commerce landscape has exploded during the pandemic with few signs of slowing down. If you’re in the roughly one-third of businesses that didn’t have a digital presence in 2021, your business is functionally invisible to customers. It’s time to invest in a strong website and simple digital payment options like PayPal and Shop Pay or buy-it-now-pay-later services like Klarna or Afterpay. The more you make it easy for customers to buy, the more likely you are to close the sale, right?

  1. The wave of new companies must exploit data to obtain the capital they need.

If the pandemic has one upside, it’s the historic startup boom currently underway. Census Bureau data shows a 53% increase in the number of new businesses in 2021 over pre-pandemic levels, with the trend continuing into the first half of 2022. But not all of these new businesses are getting the capital they need. need to survive.

Case in point: Hello Alice survey data shows that more than half of small business owners have sought some type of financing to fuel growth, stave off inflation, or overcome supply chain challenges over the past last year, but 41% said their apps weren’t approved. Worse still, applications from black homeowners were denied at nearly twice the rate of white homeowners, demonstrating a persistent lack of fairness in capital outcomes.

Experts agree that data is the key to better results. According to Siegel, it’s a two-way street. For one thing, owners aren’t collecting the right data and using it to tell a compelling story about their business. But lenders also need to collect data that will help them make better, fairer decisions. “Data can really democratize access,” Siegel said.

When I asked Ashraf Hebela, head of banking, analytics, and startup sales for Silicon Valley Bank, he offered a similar perspective on the venture capital world. Harnessing data and presenting meaningful insights is one of the most valuable tools companies can present to investors. And while Hebela acknowledged that macroeconomic uncertainty has slowed the pace of deals in 2022, there are still more than enough venture capital funds available for companies telling the right story.

“Looking forward, last year was VC’s best year ever,” he explained. “Winning a silver medal isn’t so bad. You can’t have the best year every year.”

  1. Education and mentoring are long-term solutions that will ultimately change capital outcomes

Like the vast majority of entrepreneurs, I don’t have a business degree. My bachelor’s degree in animal science from Texas A&M certainly taught me a lot of lessons, but it didn’t teach me the essential business skills I needed to run my own business. The tools I needed to fund and grow my business were acquired through mentors, connections, and countless workshops and conferences – all resources that aren’t always readily available to the new majority-focused owners. creation of their businesses.

When I told Hebela about it, he immediately identified with this dilemma.

“Network connections are so important,” he said. “As a first-generation Egyptian American, I didn’t come with this huge network. Then all of a sudden I had this opportunity.”

At Silicon Valley Bank, Hebela says its priority is to hire diverse entrepreneurs, support diverse entrepreneurs, and work hand-in-hand with new business owners to harness the data and connections needed to tell a story. compelling to lenders and investors. And at Mastercard, Siegel told me she was proud of her company’s new $21 million mentorship initiative to help black women start their own businesses.

Admittedly, the battle is tough, but I echo the confidence of my fellow business leaders that these efforts to democratize knowledge and networks will one day bear fruit.

“I believe in the laws of physics,” Hebela said. “Complicated, long-running problems require complicated, long-running strategies.”

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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