Small Business Funding: Where Does it Come From?

Categories : Financial, News
May 16, 2018

This week on the Van Wie Financial Hour radio show, we had a guest from Cincinnati who has such an interesting career that we asked him to share his insight with our listeners. Craig Beachler is an “Angel Investor,” which means that he provides capital to small businesses and startups, when customary lending institutions won’t make those loans. This is a topic of much interest to us, partially because we did our own startup in 2015. We have also worked with and advised several entrepreneurs over the past few decades.

Generating startup money has never been easy. In fact, most businesses are profitable when they go under, because they simply run out of money to grow the enterprise. In years gone by, money was available for those who could make a cogent case borrowing and could also demonstrate the ability to repay the loans. Over the years, this has become dramatically more difficult, aided and abetted by such intrusive legislation as Sarbanes-Oxley and Dodd-Frank. Both imposed stricter controls on lending, effectively tying the hands of local banks that formerly made loans to smaller businesses. The end result is that startups have had to rely on alternative sources to obtain capital.

Perhaps the greatest characteristic of capitalism is the creative filling of voids. When a need arises, there will emerge someone to respond. The need for capital spawned an industry known as “Venture Capital,” or VC. The VC business has partially morphed into financial enterprises called Business Accelerators. Although that term was new to me, it is appropriately named.

Economics is the study of allocation of scarce resources. There are four fundamental factors of production; land, labor, capital, and entrepreneurism. Success requires a combination of all four. Land, labor, and capital require an idea and someone to drive that idea. Conversely, an idea, even with a great deal of innovation and energy, will die on the vine without capital, as well as a plan to deploy that capital. Seldom does one individual possess enough of all four factors to become successful.

A recent study found that two-thirds of Americans would love to start and operate a business. Yet few actually do, as the barriers to startup are often insurmountable. Business Accelerators can help a viable idea become reality. Yet few people understand how to seek help.

The bad news is that conventional financing is mostly off limits to startups and very small businesses, as severe regulations curtail lending. The good news is that capitalism has come to the rescue in the form of VC, Angel Investors, and Business Accelerators. Finding the correct path for your idea is not easy, but it can be available. The key is knowing where and how to seek help.

As we so often point out on the Van Wie Financial Hour, our job is not to tell you what to do, but rather to inform you as to what can be done. Small business success is still possible, but it requires an understanding of how the marketplace works in our highly-regulated business environment. You will be surprised, we believe, if you perform a simple search for business accelerators in almost any city, including Jacksonville. Good ideas tend to proliferate. Call us for search recommendations if you are having trouble.

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