Small business funding sources are limited - partly because capital markets shut out the small biz, and partly because commercial loans require a stronger asset base than most small businesses can offer.
Venture merchant financing (VMF) has become appealing for the small biz owner whose business is growing fast – so fast, usually, that it's hit the wall in terms of growth, and needs a cash boost to help it to the next level. Although venture merchant financing is over 400 years old, few small businesses have even heard of this type of financing.
The best contacts and resources to help you get it done
Activities funded
Venture merchant lenders might finance clients' trade activities, including distribution and imports, or any number of factors to help the business leap to the next level.
I recommend: For a great source of all things VMF, go to
vFinance. They offer information, an investor directory, and other great tools. Check out
Business Finance: Funding Resources for free business loan courses/guides, checklists, and more!
Designing your pitch
If you've determined that venture merchant financing is the way to go, then there are many online resources to help you choose the right firms to approach and plan your pitch.
I recommend: Check out the
VC Quiz to evaluate your biz for VMF. Then visit
VC Pitch for step-by-step helpers through the process.
What they offer
Venture merchant capitalists offer funding backed by assets (for example, accounts receivable), inventory, or purchase orders. Many also offer advisory management services, as well.
I recommend: Saints offers investment capital and advisory services for emerging companies. Merchant banking organization
Capstone Group offers several financing options.
The cost of cash
While venture merchant financing has its benefits, in terms of fairly immediate cash, its drawbacks are significant. The main downside? The cost, which ranges from about one-third to one-half of your company's profits during the relationship. Because the financing is so high, most VMF agreements last three years or less.
I recommend: Check out
ABFJournal for listings of many types of investors that serve the asset-based lending industry.
Business Finance, "America's Business Funding Directory," allows you to search more than 4,000 business loans and capital sources.
Go to the government
Or, more specifically, to a government-sponsored venture capital program involving Small Business Investment Companies (SBICs), which provide long-term loans, equity capital, and management help.
I recommend: See an
SBIC program summary which also provides links to individual SBICs.
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