Non-Profit and Community Lenders
Non-profit and community lenders are one option for obtaining loans. Many of these lenders are mission-driven, meaning they have community or social goals to support low-income communities, and therefore may have fewer restrictions than traditional banks when making lending decisions. Examples of community lenders include community development finance institutions (CDFIs) and some credit unions.
These loans are usually smaller or have fixed interest rates so that borrowers are less likely to default (fail to repay their loan). In addition to providing loans, many of these lenders also provide services like training or technical assistance.
All of the City of Los Angeles' BusinessSource Centers are CDFIs or have a formal relationship with a CDFI, and can be a good starting point to guide you through a few options for lending.
Banks
Bank loans are one of the most traditional ways to finance a business. Unfortunately, they’re also some of the hardest loans to get approved for due to their stricter requirements such as having an alternate source of income, stellar credit, or being able to provide significant collateral. Have a great business plan to support your case, be persistent, shop around for the lowest interest rate, and keep in mind that you can also try other avenues, such as CDFIs.
Talk to a few banks to learn about their requirements and expectations before you count on bank loans as a source of financing for your business.
City Loans
The City of Los Angeles offers various financing programs to assist business owners. These financing and loan programs are designed to benefit low income communities, create jobs and provide goods and services in the City of Los Angeles.
The City offers a Small Business Loan Program for amounts between $50,000 – $500,000. For larger projects, the City also offers Bond Financing and Major Project Financing. You can learn more by visiting the City's Economic and Workforce Development Department website.
Investors
Your investors might be people you know such as friends, relatives, and colleagues. Or it could take the form of venture capital, which comes in the form of individuals (often called angel investors) or venture capital firms who invest in businesses that they think are promising. Angel investors will often provide capital and mentoring in exchange for equity in the business, and may require certain conditions such as influencing how to run the company.
If you receive money from friends or family, it's always a good idea to have the terms in writing to avoid future challenges or legal issues. If the money is a gift and not a loan, keep in mind that you may need to report and pay a gift tax to the IRS.
Peer-to-peer Lending / Crowdfunding
Peer-to-peer lending, also known as crowdfunding, is an alternative funding model in which individual investors provide small sums as personal loans to individuals via Internet platforms. Crowdfunding is a way for businesses to raise money not only from friends and family, but also the general public. There are a number of online crowdfunding platforms where you request a certain amount of money to start or grow your business. People often are interested in supporting small businesses and start-ups, and can use crowdfunding to lend their own money to you at low- or no-interest rates. Because of the highly social nature of crowdfunding, this method of raising money is also a great way to raise awareness of your business or product.
Search for crowdfunding platforms online and choose the best one for you based on fees and campaign rules so that you can maximize your fundraising.