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Black women entrepreneurs have been on a roll. Between 1987 and 1996, the number of businesses owned by black women has increased 135%, according to the National Foundation of Women Business Owners (NFWBO). But financing these businesses has been a challenge. According to a 1998 NFWBO study, less than half of women business owners of color currently have bank credit, compared to just over half of Caucasian businesswomen. As a result, most African American women have to be creative in raising money to start or expand their enterprises.
To help, we’ve put together a resource list that includes organizations, Websites, books and other sources, along with a glossary of financial terms, to guide you to funding sources targeted to women and minorities. There’s also a list of sources that can help you develop a solid business plan and financial statement while offering advice on a variety of financing strategies. So, get your capital ideas in gear!
Financing Options for Your Business
If you’re not using your own cash, credit or savings, there are generally two ways to finance your business: you can borrow the money or get others to invest in your enterprise.
When borrowing money, consider these options from Idea CafÃ© (www.ideacafe.com):
Bank loans. Most financial institutions, such as banks, loan money to stable, profitable companies and individuals to help finance business expansion and operations. A loan is usually made for a specific length of time, often a number of years. Typically, the borrower pays a fixed amount per month, which includes a portion of the principal (or amount borrowed) plus interest. A percentage of the loan is used to cover the expenses and risks the bank takes by making the loan.
Bank line of credit. Credit lines, like bank loans, are usually only available to profitable, established businesses and can be secured or unsecured. A line of credit allows you to draw on funds, as needed, for routine operating expenses, up to the maximum amount of the credit line. Credit lines usually carry interest rates much lower than credit cards, but higher than bank loans. There is often a minimal annual fee.
The Small Business Administration 7(a) Loan Guaranty. Through this program, the SBA guarantees loans made by commercial banks to small businesses. Banks rely on SBA guarantees when the loan applicant is a slight risk for them under their standard criteria. SBA 7(a) loans can be used for working capital, equipment, real estate, purchase of existing businesses and debt refinancing.
SBA MicroLoan. This program is designed to help new businesses get started. These loans-up to $25,000 for a maximum of six years at an interest rate no higher than the prime rate plus 4%-are handled by community economic development groups selected by the SBA.
SBA’s 504 Loan Program.
This funding source can only be used to finance the purchase of commercial real estate by businesses that are likely to preserve or increase the number of employees they currently have. Qualified small businesses can borrow 80% to 90% of the purchase price of the real estate, with