Accessing Capital and Building Credit
Navigate the funding landscape and build strong business credit to fuel your entrepreneurial journey. Learn strategies to overcome the capital gap and secure the resources you need to grow.
The most innovative business model is destined to fail without the fuel of capital. For Black entrepreneurs, the struggle to access funding is one of the oldest and most significant barriers to growth.
The racial wealth gap means less personal and family wealth to invest, and a long history of discrimination in the financial system has resulted in Black-owned businesses receiving less funding, at higher interest rates, at every stage of their development. Overcoming this capital gap requires a multi-pronged strategy that combines traditional and alternative funding sources with a disciplined approach to building strong business credit.
The funding landscape is challenging, but it is not barren. A new ecosystem of capital providers is emerging, one that is more attuned to the needs of underserved entrepreneurs. The key is to know where to look and how to position your business for success.
Funding Pathways Comparison
- Minimum Amount
- Maximum Amount
Different funding sources serve different capital needs. Start with CDFIs and faith-based funds for smaller amounts, then graduate to SBA loans and angel investors as your business grows.
Key Insight: The New Capital Ecosystem
Key Funding Sources for Black Entrepreneurs
CDFIs are private financial institutions that are 100% dedicated to delivering responsible, affordable lending to help low-income, low-wealth, and other disadvantaged people and communities join the economic mainstream. There are over 1,300 CDFIs across the country, managing over $222 billion.
The SBA does not lend money directly, but it provides a guarantee to banks and other lenders, which reduces their risk and makes them more likely to lend to small businesses. The most common SBA loan program, the 7(a) loan, can be used for a wide variety of purposes, including working capital and purchasing equipment or real estate.
Investment crowdfunding (also known as Regulation CF) allows businesses to raise up to $5 million from a large number of small investors. This allows community members to literally buy a stake in local businesses, creating a powerful cycle of local ownership and support.
An emerging and powerful model involves churches and other faith institutions creating their own venture funds to invest in businesses owned by their members. By pooling a portion of the congregation's tithes and offerings, or by creating a separate investment vehicle, the church can provide seed capital to promising entrepreneurs within its own community.
Case Study: Jasmine's Ghost Kitchen
Building Strong Business Credit
Parallel to seeking funding is the critical work of building business credit. A strong business credit profile is essential for securing loans, getting better terms from suppliers, and ultimately separating your business finances from your personal finances.
- Business Credit Score
Step-by-Step Guide to Building Business Credit
Formally incorporate your business as an LLC or corporation and obtain an Employer Identification Number (EIN) from the IRS. This separates your business identity from your personal identity.
Open a dedicated business bank account using your EIN. Keep all business finances completely separate from personal finances. This demonstrates financial discipline to lenders.
Apply for trade credit with your suppliers. These vendors will report your payment history to business credit bureaus like Dun & Bradstreet. Start with suppliers that report to credit bureaus and pay on time.
After 6-12 months of vendor credit history, apply for a business credit card. Use it for regular business expenses and pay the balance in full each month to build a strong payment history.
Regularly check your business credit reports from Dun & Bradstreet, Experian Business, and Equifax Business. Dispute any errors immediately. As you build a strong credit profile, you'll unlock access to larger loans and better financing terms.
Action Step: Start Building Credit Today
Overcoming Common Capital Access Barriers
Understanding these barriers is the first step to overcoming them. Build business credit, create a solid business plan, and seek out mission-aligned lenders who understand your journey.
What This Means for You
Don't wait until you need capital to start building business credit. Incorporate your side business now, even if it's generating minimal revenue. Build vendor credit relationships early. When you're ready to scale, you'll have the credit profile and relationships to access capital quickly.
Diversify your funding sources. Don't rely solely on traditional banks. Build relationships with CDFIs, explore crowdfunding for specific projects, and consider faith-based venture funds if you're part of a supportive congregation. Multiple funding relationships create resilience.
Consider establishing a faith-based venture fund to support entrepreneurs in your congregation. Start small with a pilot program of $25,000-$50,000. Create clear investment criteria and governance structures. This creates a powerful cycle of community wealth building.
Connect entrepreneurs in your network with CDFIs and alternative funding sources. Organize workshops on building business credit and accessing capital. Create a community investment club where members pool resources to invest in local businesses.