Capital is a crucial element for entrepreneurs, but funding doesn’t flow to all entrepreneurs. At least 83% of entrepreneurs do not access bank loans or venture capital when launching a business. This tilts the scales in favor of those who have access to the wealth to create new enterprises, and the pandemic has only widened this gulf.
Some help may be coming in the American Rescue Plan Act, the recently passed $1.9 trillion federal stimulus package, which contains $10 billion for the State Small Business Credit Initiative (SSBCI). As we wrote in America’s New Business Plan, “The SSBCI addressed gaps for all types of businesses through both debt and equity financing where traditional forms of capital were too often nonexistent.”
Access to funding is one of the key pillars of our plan, and its equitable distribution is a primary way for the country to rebound from the pandemic and create entrepreneurial opportunity for everyone. “Capital must flow to entrepreneurs in every community so that populations too often left behind are given equitable opportunities to turn their ideas into businesses,” the plan states.
The Right Way to Spend SSBCI Funding
It may be tempting for states to use SSBCI capital for immediate fixes, but they should look at the bigger picture to create longer-term solutions, noted Victor Hwang, founder and CEO of Right to Start. “If [capital] is used to build long-term capital infrastructure, it could greatly expand the availability of capital for years to come, helping countless businesses grow and create jobs,” Hwang wrote at Route Fifty. He also recommends pursuing alternative funding models, including revenue-based investing, flexible venture capital, profit-sharing models, and crowdfunding platforms.
Creating “Regenerative Wealth” Is Key for Rural Businesses
The Center on Rural Innovation recently launched a five-part series around the five elements that are crucial to the success of rural businesses. In the capital installment, the center notes that capital “enables entrepreneurs to get their ideas off the ground and ultimately scale their products and services. When capital is flowing into a community, the possibilities for new companies and jobs are exponentially greater.” While it may seem self-evident that businesses need capital, the post also notes that a bigger goal is to create “regenerative wealth,” which encourages business growth that “benefits the local community, and returns are leveraged to strengthen the local ecosystem and expand access to opportunity.”
Funding Advice During the Pandemic
Managing a small business’s finances is hard enough, but the pandemic brought even greater challenges. KCSourceLink detailed several ways entrepreneurs can stay in the black, including providing financing resources, offering counseling sources, and linking to the Small Business Owner’s Guide to the CARES Act.