3 Strategies for Improving Small Business Capital Access

The biggest surprise about finding my own company was how much time I spent and continue to spend focusing on cash flow. A good idea was a start, sure, but the hustle really began once I realized the price tag of building a prototype, hiring the best people, and giving them the tools they need to succeed. My co-founder and I aren’t shy about how we maxed out our credit cards in the early stages of Hello Alice; It’s simply what it took to keep the lights on until we landed a life-changing SBIR grant that allowed us to build the foundation of what’s today a Series B venture-backed company.

Of course, my experience is by no means unique. I asked Michael Dell once what he spends the most time thinking about, and he said, “Cash flow.” Hello Alice survey data of more than 600,000 small business owners that shows access to capital is the number one challenge, quarter after quarter. Entrepreneurs everywhere are looking for the credit, loans, grants, and other sources of funding they need to grow their businesses — and often coming up short, especially if they’re part of the New Majority.

As business leaders become more aware of this issue, I’m hopeful that we can open up access to any business owner with a great idea. That’s one reason I recently hosted a conversation with financial leaders to take the temperature on challenges and innovations to look for in the realm of capital access. Here are three takeaways from my conversation:

  1. Adopting digital tools can help entrepreneurs make the most of what they have.

According to Ginger Siegel, North America Small Business Lead at Mastercard International, owners should focus on optimizing their cash flow situation before embarking on the search for outside capital. A big part of this is overcoming the “digital divide” and adopting digital tools that help business owners accept payments in near real-time.

For example, Siegel cited research showing that as much as 75 percent of businesses still use paper invoicing to bill clients and vendors. Once you add up the time it takes to prepare the invoice, send it, and wait for payment, businesses could be waiting months to receive their own money. Adopting digital invoicing software helps owners improve their cash position and reinvest those funds back into operations and growth — potentially eliminating the need for outside capital entirely.

“I hear so much talk about access to capital and everyone’s mind goes to borrowing. However, if you look at a small business, we can also help them get their own money quicker through digital payments, digital invoicing,” Siegel explained.

In a similar vein, Siegel advised businesses to invest in their online presence overall. The e-commerce landscape exploded during the pandemic with few signs of slowing down. If you’re one of the roughly one-third of businesses that had no digital presence as of 2021, your business is functionally invisible to customers. It’s time to invest in a strong website and easy digital payment options such as PayPal and Shop Pay or buy-now-pay-later services like Klarna or Afterpay. The easier you make it for customers to purchase, the more likely you are to close the sale, right?

  1. The wave of new businesses must harness data to get the capital they need.

If the pandemic has an upside, it’s the historic startup boom currently underway. Census Bureau data shows a 53 percent increase in new businesses during 2021 compared to pre-pandemic levels, with the trend continuing into the first half of 2022. But not all of these new businesses are getting the capital they need to survive.

Case in point: Hello Alice survey data shows that more than half of small business owners have pursued some type of financing to fuel growth, counteract inflation, or overcome supply chain challenges in the last year — but 41 percent reported that their applications weren’ t approved. Even worse, applications from black owners who were rejected at nearly twice the rate of white owners, demonstrating a persistent lack of equity in capital outcomes.

Experts agree that data is the key to better outcomes. According to Siegel, it’s a two-way street. On one hand, owners aren’t collecting the proper data and using it to tell a compelling narrative about their business. But lenders also need to gather data that will help them make better, more equitable decisions. “Data can really democratize access,” Siegel said.

When I asked Ashraf Hebela, head of startup banking, analytics, and sales ops for Silicon Valley Bank, he offered a similar perspective about the venture world. Harnessing data and presenting meaningful insights is one of the most valuable tools businesses can present to investors. And while Hedela acknowledged that macroeconomic uncertainty has slowed the pace of dealmaking in 2022, there are still more than enough venture funds available to businesses that tell the right story

“In perspective, last year was the best year VC had,” he explained. “To win a silver medal is not so bad. You can’t have the best year every year.”

  1. Education and mentorship are long-term solutions that will ultimately change capital outcomes

Like the vast majority of entrepreneurs, I don’t have a business degree. My bachelor’s in animal science from Texas A&M definitely taught me plenty of lessons, but it didn’t teach me the essential business skills I needed to run a business of my own. The tools I needed to fund and build my company were acquired through mentors, connections, and countless workshops and conferences — all resources that aren’t always readily available to New Majority owners focused on building their businesses.

When I brought this up to Hedela, he immediately identified with this dilemma.

“Network connections are so important,” he said. “As a first-generation American Egyptian, I didn’t come with this huge network. Then all of sudden I had this opportunity.”

Within Silicon Valley Bank, Hedela says it’s his priority to make diverse hires, support diverse entrepreneurs, and work hand-in-hand with new business owners to harness the necessary data and connections required to tell a compelling story to lenders and investors. And over at Mastercard, Siegel told me she’s proud of her company’s new, $21 million mentorship initiative to support Black women building their own businesses.

To be sure, it’s an uphill battle, but I echo my fellow business leaders’ confidence that these efforts to democratize knowledge and networks will one day bear fruit.

“I believe in the laws of physics,” Hedela said. “Complicated and long duration problems require complicated and long duration strategies.”

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

Leave a Comment