We do not have to rely completely on loans anymore. Thankfully, there are companies out there that are willing to become investors. But do you know where to look?
The question that is commonly heard regarding this area, is where do we find investors that would be willing to help with your company? With the ever-evolving internet and technology, we are able to connect with investors everywhere, regardless of our location.
One site that connects investors with businesses looking for money is the Opportunity Finance Network (OFN). According to their website they:
The opportunity finance industry finds and finances opportunities that others miss. We see the
world differently. Where others see risks, our industry sees possibilities. To us, people are
people. And every person deserves opportunities - good, family-wage jobs; decent, affordable
housing; healthy foods; locally owned stores; quality schools. We believe and invest in these
opportunities. For all.
In order to be eligible for a loan, you must first become a member. The application for financing is as follows:
Application for Financing
The purpose of OFN's financing is to aggregate and distribute capital in ways that create and
foster opportunities for Members, other key financing partners, and the people and
communities they serve to develop a high-volume financing system benefiting low-income and
low-wealth people and communities.
CDFI Criteria Overview for Loans and Investments
OFN underwrites loans to and investments in Community Development Financial Institution
(CDFIs). Prior to beginning the underwriting process, OFN staff must ascertain that the CDFI
meets the following minimum mandatory requirements. CDFIs must:
- Have a primary mission of community development and/or serving economically disadvantaged people and communities. For organizations that are part of a larger corporation, the parent corporation must also have a primary mission of community development.
- Be a Member in good standing (i.e. current on dues, completed annual survey, etc.) of OFN, or commit to becoming a Member prior to closing the financial transaction;
- Demonstrate that the use of capital is consistent with OFN's mission;
- Be a private, independent financial intermediary;
- Use financing as a key component of their community development strategy;
- Have a demonstrated track record of at least two years of community development financing;
- Demonstrate the capacity to use capital productively;
- Demonstrate at least two years of operating surpluses in the last three years.
OFN will not invest in: government-controlled organizations, wholly-owned bank subsidiaries,
or multi-bank community development corporations.
Application Process
Applications for financing are considered throughout the year.
OFN staff will review all completed applications to determine if the applicant meets OFN's
financing criteria.
Staff will contact the applicant to inform them if OFN will move forward with the application
and begin an underwriting or if the application has been declined.
Underwriting Process: The underwriting process requires an in-depth analysis of the
applicant's organization and will require conference calls with key management. At this time,
the analyst may request additional information in excess of what was submitted with the
application.
Investment Committee Review and Decision: Final decisions are made by the Investment
Committee, which on average meets every six weeks. Applicants will be notified of the
decision by phone and in writing.
Programs that they offer include:
Business Model for Growth: A Workshop for Small Business Lenders helps CDFIs grow their
small business lending capacity.
Performance Counts is an industry-led collaborative effort to develop industry standards and
best practices around financial statements and financial management and an industry forum for
sharing information, documents, and ideas on these topics.
Small Business Financing Initiative, a partnership with Goldman Sachs, provides national
training opportunities for CDFIs and other community lenders to scale lending to small
businesses in underserved communities.
Small Business Leader Award for Mission-driven Lenders recognizes innovation and growth in
mission-driven small business lenders.
Wells Fargo Diverse Community Capital will distribute, over three years, $50 million in debt
(lending) capital and $25 million in grant capital to CDFIs that are expanding lending to
diverse small businesses, with a priority focus on African-American businesses.
Wells Fargo NEXT Awards for Opportunity Finance celebrates the opportunity finance industry
- its creativity, accomplishments, and enduring importance.
Youth Opportunity Pledge commits OFN's network of CDFIs to originate $1 billion annually in
new financing that benefits young people of color across the U.S.
Another site that one might seek for financing is the Association for Enterprise Opportunity (AEO) the Voce of MicroBusiness. They offer:
TILT Forward Network: The largest, most diverse (and newest) network of CDFI small
business loan funds and other nonprofits that work with underserved entrepreneurs in the
United States. The network is designed to accelerate identification and adoption of critical
innovations in the way that small businesses and aspiring entrepreneurs in low-wealth
communities access capital and guidance on the path to capital. The network formally
launched in May 2016 with 13 inaugural CDFI loan funds. The network continues to grow,
including CDFI banks and service providers. Interested in learning more about how your
organization can benefit from joining? Click here to learn more.
DreamFund: DreamFund creates scale benefits to support lending to small businesses in low-
wealth communities. These benefits accrue to small businesses, CDFIs and investors alike. It
does this by performing two functions: 1. licensing products from third parties and making
them available at below-market rates to qualified applicants; 2. aggregating capital from
funders seeking to target their investments and limit their risk (and diligence) to the prospective
performance of the loans. DreamFund's unique structure mimics the safety and security of a
for-profit Special Purpose Vehicle (SPV) within a 501(c)3 tax-exempt charitable organization.
Interested in learning more? Contact thalevy@aeoworks.org.
Project CUE: AEO won the Treasury Department's CDFI Fund Innovation Challenge with a
proposal to design, build and test a solution to connect small businesses that financial
institutions can't effectively serve to community lenders. The Project CUE solution enables
financial institutions to direct small business credit applicants they can't serve to the high touch
guidance and resources of community development financial institutions. The CUE system
works both as a turnkey referral program fro banks and as a qualified lead generator for
community lenders that offer products and services that might be a better fit for the business
owner. To get your organization involved in Project CUE, sign up at bit.ly/signupCUE.
The major benefit of this site is that they connect your business with other successful organizations, businesses, and mentors. They also provide an area for you to promote your products and services all while networking.
According to NIBusinessInfo.com.uk:
The main advantages of equity finance are:
- The funding is committed to your business and your intended projects. Investors only realize their investment if the business is doing well, e.g. through stock market flotation or a sale to new investors.
- You will not have to keep up with costs of servicing bank loans or debt finance, allowing you to use the capital for business activities.
- Outside investors expect the business to deliver value, helping you explore and execute growth ideas.
- The right business angels and venture capitalists can bring valuable skills, contacts and experience to your business. They can also assist with strategy and key decision making.
- In common with you, investors have a vested interest in the business' success, i.e. its growth, profitability and increase in value.
- Investors are often prepared to provide follow-up funding as the business grows.
The principal disadvantages of equity finance are:
- Raising equity finance is demanding, costly and time consuming, and may take management focus away from the core business activities.
- Potential investors will seek comprehensive background information on you and your business. They will look carefully at past results and forecasts and will probe the management team. Many businesses find this process useful, regardless of whether or not any fundraising is successful.
- Depending on the investor, you will lose a certain amount of your power to make management decision.
- You will have to invest management time to provide regular information for the investor to monitor.
- At first you will have a smaller share in the business - both as a percentage and in absolute monetary terms. However, your reduced share may become worth a lot more in absolute monetary terms if the investment leads to your business becoming more successful.
- There can be legal and regulatory issues to comply with when raising finance, e.g. when promoting investments.
No mater how you go about getting your financing, make sure you do your research. Know who you are trying to get the money from. It is important for you and your investors to be able to relate to the business that they are presented. By knowing who you are seeking funds from, you will be able to personalize your business plans and presentation directly towards them.
So no, ads yourself, who do you want to supply the funds for your business, and how do you want them to do so? By answering these questions, you will begin to narrow your field of potential investors, and be able to find the one that is perfect for you and your company.
