Alternative financing options for small businesses

Brian DiGiacco

It’s a challenging time to be a small business owner. The high inflation rate is leading to high interest rates and a more volatile stock market and economy. Increases in cost of goods and services put greater stress on many businesses who may find they need assistance in accessing additional cashflow now more than ever before.

Businesses experiencing financial hardship may have more difficulty obtaining secondary financing from banks and credit unions — particularly as credit requirements begin to tighten. Fortunately, there are many alternative pathways to borrowing that make it easier to find the right fit.

Traditional options

It is always best to look to the company’s existing bank to help navigate the current challenges as they best know the business. If the bank is unable to provide financing alone, they may recommend options through the Small Business Administration (SBA), which offers various loans, including SBA 7(a), SBA 504, and SBA Express loans. The SBA guarantees a portion of the debt, reducing the lender’s risk and increasing the likelihood of obtaining greater financing at more favorable rates. These loans do carry higher upfront fees and require more paperwork than a typical loan.

Opening a line of credit can also be helpful. It is always a good idea to establish maximum borrowing capacity before it is needed so it is there if the time comes. While lines of credit usually feature variable interest rates, which can be a deterrent during a period of rising interest rates. The major benefit is the flexibility to borrow only what is needed and pay down the balance as able, since interest is only charged on the outstanding amount.

Another traditional option is to refinance business real estate. This is best for business owners who already hold a good amount of equity in their real estate. Refinancing for a longer term — 20 or 25 years — with a cash out payment can provide access to additional funds if necessary. While mortgage rates are higher than in recent history, they are still relatively low compared to years ago.

Online lenders

When commercial and regional banks are unable to help, there are many online lenders to explore. While they often have higher interest rates, their loan requirements tend to be more flexible, giving them the ability to approve loans that a bank or credit union may not. In researching options, make sure to look at the types of loans offered, the eligibility requirements, interest rates and fees, and the speed of application processing and funding.

Business grants

Outside of loans, other options to generate capital are through grants. There is an incredible number of grants available to small businesses from the government (federal, state, and local) as well as from private organizations. Grants are particularly attractive to small business owners because they don’t need to be repaid; however, this means that they can be very competitive, and often the process of applying for and receiving the grant can be a long one. In seeking grant options, it’s important to thoroughly read and understand eligibility requirements to determine if it is worth the time it takes to apply.

New grants always become available, so be diligent in searching for them. can be a valuable resource, and national or local trade organizations can be helpful in identifying grants that are industry specific. For example, a Tourism Return-to-Work Grant was offered earlier this year for businesses engaged in tourism-related activities such as arts and entertainment, sightseeing, and more.

There also continue to be COVID-19 recovery related stimulus available for qualifying businesses. One to be particularly aware of is the Employee Retention Tax Credit, which can still be applied for wages already incurred between March 2020 and September 2021 by filing amended payroll tax returns for eligible businesses.

Sale of equity

Another option to access additional capital is to sell equity (or shares) of the company. Before taking this route, it is important to understand and be able to demonstrate how much capital is needed, what it will be used for, and how it will impact the business. While these funds do not need to be paid back, the business owner gives up a piece of the company — which could be worth a substantial amount in the future. For this reason, this option should be considered as a last resort unless coupled with another strategic purpose an investor may bring to the table. It is also important to be mindful about not raising more capital than is truly needed.

If this approach is of interest, business owners should work with their CPAs or attorneys to prepare a business valuation and projections before engaging individuals or firms to raise outside capital.

Peer-to-peer lending

For those who prefer a traditional loan structure but cannot or do not want to work with banks, credit unions, or online lenders, consider whether there are others with which to partner. Who in the business owner’s personal and professional network has the financial means to help? Borrowing from family, friends, and peers has benefits, but can certainly have its drawbacks, too. It is critical to develop clear loan terms and have a plan to pay it back. Business owners also need to ensure they make it worthwhile for their lenders; what will they get in return?

Asset-based lending

For a small business that has assets — typically accounts receivable, inventory, or equipment — but needs working capital, asset-based lending is another type of alternative financing. The assets can be used as collateral to secure a loan or line of credit. If this is not done through a traditional bank, there are generally higher interest rates and fees (origination fees, audit fees, due diligence fees). However, in these cases, a business owner can usually access more capital through asset-based lending than a traditional loan, as these lenders specialize in industries and structure the loans based on their confidence in recovering the borrowed funds through the collateral, guarantees, etc.

Owning a business—especially a small business—in tough economic times is difficult and finding a financing solution can be stressful. Not every option is right for every business, and there are many factors to consider. But with thorough research and partnership with accounting and financial advisors, it is possible to find a solution that is best for each individual business.

Brian DiGiacco, CPA, is a partner at RDG+Partners, a Rochester-based firm that offers tax, business planning, accounting, auditing, payroll, and wealth management services. For more information, visit


Urban League of Rochester to operate new SBA Women’s Business Center

The U.S. Small Business Administration has launched a Women’s Business Center (WBC) here that will be operated by the Urban League of Rochester, N.Y. Inc. (ULR). The new center will carry out the mission of helping women-owned small businesses throughout Upstate New York start, grow and expand their businesses.

“The SBA is committed to helping advance opportunity for all, including for our underserved entrepreneurs who have been disproportionately impacted by the pandemic,” said SBA Administrator Isabella Casillas Guzman. “Women and people of color are starting businesses at the highest rates but face historic barriers to their growth and resilience. With the launch of every new Women’s Business Center, we are advancing equity and focusing needed resources on creating strong enterprises.”

The continued expansion of the SBA’s WBCs will play a critical role in addressing historical inequities and barriers, in addition to bridging opportunity gaps so more of America’s potential entrepreneurs can build connections, find resources, secure access to capital and pursue transformative opportunities, officials said.

“A core part of our office’s mission is to support the development and growth of women entrepreneurs, especially those who have been historically underserved,” said Natalie Madeira Cofield, assistant administrator, Office of Women’s Business Ownership of the U.S. SBA. “As a native of Rochester, N.Y., I know this region has experienced economic challenges that make the expansion of our network and its services within this community much needed and vital. We look forward to continuing to do our part to help grow the small business ecosystem, creating opportunities for women in business.”

ULR will receive a renewable grant award of $150,000 annually to operate the Women’s Business Center. The center will be the SBA’s 140th to offer one-on-one counseling, training, networking, workshops, technical assistance and mentoring to women entrepreneurs on numerous business development topics, including business startup, financial management, marketing and procurement.

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REDCO awarded $1 million to continue its Resource Partner Enhancement Program

The Rochester Economic Development Corporation (REDCO) has been awarded a $1 million Small Business Administration grant to continue to improve Rochester’s entrepreneurial ecosystem through its innovative Resource Partner Enhancement Program (RPEP).

RPEP is a two-year peer learning cohort program designed to provide developmental support and collaboration opportunities that increase the cultural relevance of services and resources offered by local entrepreneur support organizations (ESOs). The program leverages public investment and a team of organizational coaches to build and maintain a cooperative network of support services for the region’s diverse small business community.

Cohort two is scheduled to launch during the winter of 2021 and will include Rochester Institute of Technology’s Center for Urban Entrepreneurship, Venture Jobs Foundation, Consumer Credit Counseling Services of Rochester and the Business Insight Center at the Rochester Public Library among its participating organizations. Each organization will be assigned an organizational coach who will assist with the development of an evidence-informed enhancement plan, piloting new and improved programs and resources. They also will attend an annual convening, participate in an Undoing Racism Workshop and collaborate with their peers during monthly meetings to develop cohort-wide enhancements.

“I’ve never seen this before. This is the beginning of a new era of collaboration between our partners in service to our local entrepreneur community, and ultimately their families,” said Baye Muhammad, CEO of REDCO.

Cohort one launched in November 2020 with $1.5 million in support from Empire State Development as part of REDCO’s Revitalize Rochester Fund. Cohort one participating organizations include Urban League of Rochester, Ibero-American Action League, the Rochester Commissary, JustCause, Walker’s Legacy Foundation and Greater Works Collaborative.

“I am overjoyed by the SBA’s transformational investment in our second cohort of the Resource Partner Enhancement Program,” said Lomax Campbell, president and CEO of Third Eye Network. “Our first cohort has been able to accelerate the evolution of their organizations and increase the relevance of their offerings for our diverse small business program community in the first year of the program.”

[email protected] / 585-653-4021
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SBA reopens EIDL small business loans

The U.S. Small Business Administration has reopened its Economic Injury Disaster Loan and EIDL Advance program portal to all eligible applicants experiencing economic impacts due to COVID-19.

“The SBA is strongly committed to working around the clock, providing dedicated emergency assistance to the small businesses and nonprofits that are facing economic disruption due to the COVID-19 impact,” SBA Administrator Jovita Carranza said in a statement this week. “With the reopening of the EIDL assistance and EIDL Advance application portal to all new applicants, additional small businesses and nonprofits will be able to receive these long-term, low-interest loans and emergency grants — reducing the economic impacts for the businesses, employees and communities they support.”

The EIDL program loans can provide vital economic support to help alleviate temporary loss of revenue. EIDL assistance can be used to cover payroll and inventory, pay debt or fund other expenses. In addition, the EID Advance will provide up to $10,000, or $1,000 per employee, of emergency economic relief to businesses that are currently experiencing temporary difficulties, and these emergency grants do not have to be repaid.

“Since EIDL assistance due to the pandemic first became available to small businesses located in every state and territory, SBA has worked to provide the greatest amount of emergency economic relief possible,” Carranza said. “To meet the unprecedented need, the SBA has made numerous improvements to the application and loan closing process, including deploying new technology and automated tools.”

To keep EIDL loan payments affordable for small businesses, SBA offers loans with long repayment terms, up to a maximum of 30 years, and the first payment is deferred for one year. The interest rate for small businesses is 3.75 percent and 2.75 percent for nonprofits.

[email protected] / 585-653-4021
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SBA, U.S. Commerce Dept. team up in Rochester to assist exporters

business-cargo-container-commerce-906494The U.S. Small Business Administration will co-locate with the U.S. Department of Commerce in Rochester, a plan that is expected to help businesses in Rochester visit one office for programs and services related to exporting.

The SBA’s Buffalo district director Franklin Sciortino made the announcement Friday, noting that the co-location also included a “renewed partnership” between the SBA and the DOC.

As director of the Rochester U.S. Export Assistance Center, Timothy McCall will provide frontline outreach and service operations for U.S. exporters, assisting businesses that are new to exporting, want to expand to additional export markets or want to increase their market share in existing markets.

“Exporting can be a vital avenue for small business growth as the majority of the world’s population lives outside the United States,” said Virginia Smith, branch manager for SBA Rochester, in a statement. “The Rochester economy benefits greatly from the ability of local businesses to sell their products and services internationally. Co-location with the U.S. Department of Commerce is a step forward in assisting Rochester area businesses to connect with additional international trade resources.”

[email protected] / 585-653-4021
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