Business Entrepreneur

Start a business with this lesser known financing option

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If you have an idea for a business and you’re ready to take the next step, family funds, the bank, and venture capitalists are all options, but there is a fourth, less traditional option that you should know about.

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Getting your business idea off of the ground

Starting your own business can be challenging due to the fact that a lot of factors must be considered such as the performance of the market in the location you’re looking at, the need for and viability of your product, and most importantly, the funding source that will take this idea from concept to reality.

It’s often difficult to get a loan from a major bank as lenders may question the true need for your business. Luckily, CDC SmallBusiness Finance specializes in providing loans to experienced entrepreneurs who have a great idea for a small business but not enough dollars to get things going.

Background on the CDC

There are several CDCs throughout the US and the most prevalent type of loan they issue is the 504 Loan,which provides entrepreneurs with funding and affords them the opportunity “to enhance business equity through building ownership.”

One key differentiator between the CDCs and traditional banks is that they are often nonprofits that have programs in place to provide capital to businesses that are just starting out and don’t have much collateral. The mission is to drive businesses within the community; if an applicant is having problems meeting the criteria of a bank, they can come to the CDC and finance their business with an organization that understands the plight of small businesses and has the flexibility to assist with these difficulties in order for the entrepreneur, and surrounding community, to benefit.

Once entrepreneurs get their foot in the door and things begin to pick up with the business, they can easily apply for additional financing through a conventional bank and maintain their CDC loan as it is designed to “complement or bridge the way to conventional bank financing.”

What You Need to Get the Application Process Started

There are over 260 CDCs worldwide, so do a search for the closest one in your area and schedule a consultation. Loans often range in sizes from $10,000 to more than $10 million dollars and the organization requires a business plan as well as a monetary injection of 30 percent of the total cost to run the business. This injection can be comprised from donations from friends and investors, but at least half must come from your own sources (savings or home equity). If you don’t have that large of a contribution, they also offer credit based loans that require either no capital injection or a smaller 10% contribution; these loans are generally under $50,000.

The takeaway

If you’re an experienced entrepreneur with a great business concept, don’t count yourself out if your finances aren’t where you’d like them to be. CDCs are great options because they are inherently designed to drive growth and increase value within their respective communities; if you think your business meets these qualifications, fill out an application. If you come prepared and make a strong case, there’s a good chance that they’ll agree with you.

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