Lenders like CEI differ from banks in a few ways. If banks see “poor credit,” that business will almost always end up in the “no” pile. CDFI lenders look at credit scores, too, but in a different way.
“We look for borrowers who have been fiscally responsible, but we understand that unfortunate things happen to good people and businesses,” Sporzynski said. “We seek to understand what happened and assess its relevance.” [See more information on choosing the right small business loan for you.]
For instance, personal or family medical issues and job losses can all negatively impact a borrower’s accounting, but those can all be explained. Also, CDFI lenders do not need nearly as much collateral as a traditional bank would. Other things can compensate for a lack of assets to be used as collateral.
2. Venture capitalists
Venture capitalists (VCs) are an outside group that takes part ownership of the company in exchange for capital. The percentages of ownership to capital are negotiable and usually based on a company’s valuation.
“This is a good choice for startups who don’t have physical collateral to serve as a lien to loan against for a bank,” said Sandra Serkes, CEO of Valora Technologies. “But it is only a fit when there is a demonstrated high growth potential and a competitive edge of some kind, like a patent or captive customer.”