How to Raise Money for Your Business - Part 2: Micro-Loans

Posted on Wednesday, September 19, 2018

Getting a business started is like approaching a massive steel wheel. There are no axels, no motors, just you, an idea and the wheel. The wheel is stationary. Like Atlas, you shoulder the wheel and start to press with all your strength. The wheel budges a little. The more effort you put in, the more the wheel moves. The goal is to have the wheel spinning with so much momentum, you hardly have to work at all.

Like with a small business, once you get the wheel moving, you usually hit a speed bump. In the small business setting, this speed bump may present itself as needing a piece of equipment, getting a prototype developed, or protecting your intellectual property. In comes a micro-loan. Micro-loans are often the final leverage that can help a business overcome the speed bump. This post will introduce you to field of micro-loans, what micro-loans are available and how to get them.

This post is the second part of a four-part series. The first part was on Grants & Programs.

This post is on micro-loans and other low interest loan options. In the next post, I’ll discuss bank financing, which will include a blip on seller financing. Bank financing is anything from $50,000 up into the millions. Finally, we will venture into equity capital.

Of all the funding options, micro-loans are my favorite to discuss. They are easier to obtain than grants and more abundant than grants. They are also easier to obtain than bank financing. Micro-loans are a small business’s best friend and are often available with zero or low interest paybacks. Below are micro-loan programs available in Iowa, but many similar programs exist in your state as well. Feel free to reach out to BW's Intellectual Property Team if you need help finding funding options to help you get over the speed bump.

Micro-Loans ($500-$500,000)
The Iowa Economic Development Authority (IEDA) has a number of micro-loan options available. The goal of the IEDA is to strengthen the economy and communities of Iowa by providing resources. These resources include micro-loans but also include people with knowledge that can help Iowans and others create jobs and economics in Iowa. In addition to providing grants, IEDA provides four major micro-loans including: Proof of Commercial Relevance (POCR), Demonstration Fund, Innovation Acceleration Propel, and Innovation Acceleration Expansion. The IEDA’s homepage is available here:https://www.iowaeconomicdevelopment.com/

The very basics of these funds are laid out here. I have noted funds in an order that a business would pursue them. For example, the POCR might be the first small speed bump your business hits, while the Demonstration Fund is for that second, larger speed bump your business hits, and so on.

Proof of Commercial Relevance ($25,000)
The purpose of the (POCR) is to provide a $25,000 loan to a business opportunity that is able to demonstrate a proof of concept for their innovative technology. So, the more innovative your technology, the better. This loan is designed to target advanced manufacturing, biosciences, and information technology. Your business is not required to be in one of these fields, but these are highly targeted shoe-ins.

POCR is a low interest loan, often times 0% for an early term, such as 5 years. The funds can be used for anything from Intellectual Property development/evaluation, validation of market potential, and even beta testing or team assembly. One other thing worth noting: you must have functional viable product or concept and a minimum of 2 team members.

For more information about POCR and how to apply, visit: https://www.iowaeconomicdevelopment.com/Entrepreneurial/POCR

Demonstration Fund ($100,000)
The purpose of the Demonstration Fund is to provide a $100,000 royalty based or low interest loan for marketing, sales, distribution, product refinement, market research, and more for a small business. The Demonstration Fund intends to help businesses in that next step of commercialization, marketing, sales and distribution, or other business refinement modeling.

Again, the Demonstration Fund would love to see advanced manufacturing, biosciences, and information technology, but it is open to other options as well. You should try to have a defined and articulated business opportunity before getting into the Demonstration Fund. As you can see in the description above, the fund is geared toward the commercialization, marketing, and sales of that defined business plan.

For more information about the Demonstration Fund and how to apply, visit: https://www.iowaeconomicdevelopment.com/Business/Demo

Innovation Acceleration Propel & Expansion Funds ($300,000-$500,000)
The purpose of these two Iowa Innovation Acceleration Funds is to accelerate the pace of market development for companies that have critical management in place. In other words, the fund validates a business model, analyzes the customer base of the business which is generating revenue for the business, and then provides funds for industrial expansion of that business.

These funds are expected to be used to recruit and hire key personnel for an expansion, to purchase equipment and possibly for construction costs for a facility. The funds are limited to these activities but they do have a variety of uses focused on whatever is needed to expand and grow the business. The fund is not limited to any particular area, but a proven business model and fewer than 500 employees are a couple of core requirements.

For more information about the Innovation Acceleration and Expansion Funds and how to apply, visit: https://www.iowaeconomicdevelopment.com/Business/SSBCIInnovation

Iowa Center for Economic Success Loan ($50,000)
The Iowa Center for Economic Success is another organization that provides micro-loans to businesses in Iowa. Additionally, the Iowa Center for Economic Success has other resources, such as informational, educational, advocacy and networking to help entrepreneurs. The mission of the Iowa Center for Economic Success is to empower Iowans educationally and financially to succeed at pursuing opportunities.

This loan provides a $50,000 low interest loan for any business need. The money can be used for any business purpose with the exception of purchasing or developing real estate. You can simply buy whatever you need to advance your business and then pay back the loan over a period of 5 years with fixed monthly payments.

For more information about the Iowa Center for Economic Success loan and how to apply, visit: http://theiowacenter.org/microloans/

Revolving Loan Fund ($10,000-$50,000)
The corporation for economic development in Des Moines offers a revolving loan fund (RLF) which can provide your business with short-term financing for fixed assets, equipment, inventory or other working capital. This loan fund does require the business to be located within the city of Des Moines. However, the process can be helpful, especially if a quick $10,000 is needed.

For more information about the Revolving Loan Fund or how to apply, visit:
http://www.ceddm.com/revolving-loan.html

Agriculture
A number of loan and tax credit programs are available to farmers, from beginners to pros. These programs range from assistance to lease land to assistance to buy equipment. Some of the programs include the Beginning Farmer Loan Program, the Loan Participation Program, the Beginning Farmer Tax Credit Program, and the Custom Farming Tax Credit Program.

These Iowa grants are among a number of other federal grants, loans and resources available in the agriculture industry. To learn more about these programs, visit:
https://www.iasourcelink.com/funding/programs-and-resources-for-agriculture

In Summary
While micro-loans are not as enticing as grants because the money must be paid back, the chances of getting and securing funds with a micro-loan are much higher than with a grant. Micro-loans may be more worth your time, especially if you have not developed an innovative technology. Also, remember, there are other micro-loan programs out there, some of which may be designed for your specific business type or have other benefits that are more appealing to your situation. If a micro-loan will help you get past the speed bump, then don’t be afraid to go out and get it!