60% of Small Business Owners Never Apply for Funding to Support Innovation

60% of Small Business Owners Never Apply for Innovation Funding

The Creating Wealth through Business Improvements report from BMO Wealth Management reveals 60 percent of small business owners never apply for funding to support innovation.

With the development of digital technology and advances in smartphones, apps, artificial intelligence, and social media to name a few, small businesses have to support and implement the latest innovation as quickly as possible. According to the report, innovation drives financial success for businesses of any size.

This is especially true for small businesses because the right innovation allows for the creation of new products, services and marketing as well as ways to reach consumers. In addition to the improved external capabilities, it also makes internal teams more productive.

Innovation Funding is Important

Even if small business owners would like to innovate, they are often either unaware or not capable of accessing the funds they need. In a press release announcing the results, Tania Slade, National Head of Wealth Planning at BMO Wealth Management (U.S.) explained the importance of access to information for small businesses.

Slade said, “Having access to information about funding options and support networks is essential to the continued success of a small business, particularly in its early stages. Business owners who take advantage of the numerous resources at their disposal have an immediate advantage, and a far greater chance of seeing their innovation initiatives realized.” The challenge is funding, but small business loan numbers are looking much better today.

The report comes from a survey conducted with the participation of 1,021 small business owners across the US. They were asked about keys to innovation success, experiences funding their innovation through business loans and grants, and knowledge of and participation in accelerator and incubator networks.



Key Findings

As to the 60 percent of small businesses which never applied for funding, owners gave a number of explanations for never seeking the capital they needed. More than a third or 36 percent said they didn’t want to incur additional debt, while 22 percent believed they would be rejected. Another 21 percent stated the process was too complicated.

Alternative sources of funding were also explored in the survey, including government grants and incubator and accelerator networks.

When it came to government grants, 34 percent of responding small business owners said they were not aware grants were available. Of a reported 44 percent who did know, they didn’t know where to apply.

The number of small businesses who were not aware of incubator and accelerator networks was high — 63 percent. And there was also a gap in this knowledge between men and women. Specifically, 72 percent of women entrepreneurs said they weren’t aware of funding options  from incubator and accelerator networks while only 54 percent of male entrepreneurs seemed unaware.

Why is Innovation Important?

The number one reason given by small business owners for implementing innovations in their organization was to meet the needs of clients. Sixty-nine percent of respondents gave this as the reason for innovating. Meanwhile, 61 percent said innovation was important  for maintaining growth while 60 percent said it was necessary to create a better product.



The report further indicates older entrepreneurs looked to improve the client side of the business, while their younger counterparts were focused on creating better products or services.

Key to Innovation

In the survey, business owners identified four keys to innovation. Sixty-six percent of respondents indicated funding was most important, while 64 percent said it was networking. Another 61 percent said partnerships with staff were the key to successful innovation while 40 percent identified mentoring programs as most important.

So how do small business owners continue to innovate? In the report, BMO makes the following suggestions:

  • Join a local Chamber of Commerce and attend monthly events.
  • Seek counsel from local banks to get an overview of potential loan options.
  • Read small business blogs which often highlight local, state and federal funding programs.

Conclusion

In today’s highly competitive and technologically evolving economy, small business owners can’t stop innovating. As the report rightly points out, “Innovation should be a never-ending process.” And getting informed is the best way to do it.

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Crypto, Blockchain and The Changing Landscape of Finance

Crypto, Blockchain and The Changing Landscape of Finance

CNBC’s Melissa Lee sits down with John Burbank, Passport Capital Founder and chief investment officer, to discuss the future of crypto and blockchain technology.

6 Best Financing Options For Franchising a Business

 

The 6 Best Financing Options for Franchising a Business

Offering both the flexibility and independence of being a small business owner, plus the support and infrastructure of a large corporation, a franchise can be the ideal opportunity for anyone interested in becoming an entrepreneur.

Even so, opening a franchise requires a significant investment of capital — often including a hefty franchise fee along with ongoing royalties and advertising costs. Not everyone has access to that kind of cash.

So, if you need a business loan to fund your franchise investment, you might find it challenging to navigate the various options available.

One benefit of using franchisor financing is that it becomes a one-stop shop for everything you need. Many of these programs offer financing not only for the franchise fees but also to purchase equipment and other resources you need to start up the business.

If you’re working with a franchisor who offers their own financing program, chances are you won’t need to look much further for funding. After all, who knows the business better than the franchisor? They know the risks you’re taking on and the ins and outs of the business better than any other lender ever could.

Related: Starting a Franchise But Need Financing? Here’s What to Do.

Each franchisor financing agreement will differ, but some offer to take on as much as 75 percent of the debt burden from the new franchise owner. Agreements might involve deferred payments while the business is starting up, or they may structure repayment on a sliding scale. Have your independent business attorney or accountant review the terms of both your franchise agreement and the financing agreement to help you understand the full terms before you sign.

2. Commercial bank loans.

Another common way of financing your franchise is through a traditional term loan from a bank. A term loan is what most people think of when they think of any form of loan financing, especially if you’ve ever taken out a student loan or home mortgage. Under this model, a bank or alternative lender offers you a lump sum of cash up front, which you then repay, plus interest, in monthly installments over a set period of time.

When you apply for a commercial bank loan to purchase a franchise, your lender will want to review your business plan and personal credit history. The lender will use these documents to assess your creditworthiness. Essentially, through this process, the bank is trying to determine whether or not you can reasonably afford to repay the loan you’re requesting, and thereby how likely they are to get their money back.

Overall, you can assume that the stronger your financial history and the higher your credit score, the better the terms and interest rate will be for your term loan to finance a franchise.

Related: His Parents Loaned Him $30,000 to Start a Company. Now It’s Valued at $1.7 Billion.

3. SBA loans.

Of all the loan products on the market, one of the most desirable option for aspiring franchisees tends to be the SBA loan. SBA loans are loans partially backed by the U.S. Small Business Administration and funded by their intermediary lending partners.

Effectively, these loans follow a very similar model to traditional term loans from a bank or alternative lender. However, because the SBA reduces the risk to lenders by guaranteeing a portion of the loan amount, lenders are incentivized to offer more loans with lower interest rates and longer repayment terms than they otherwise would.

The SBA loan is certainly a desirable option for financing a franchise, so if you have the financial chops and credit score to be eligible, you should absolutely apply. That said, keep in mind that qualification standards can be stringent, and the application process is a long one. It’s worth carefully considering your chances of being approved for an SBA loan before you spend significant time pursuing a financing option that may be unreachable for the current stage of your franchise.

4. Alternative lenders.

If you need money to fund your franchise quickly or want to secure additional capital to supplement your commercial or SBA loan, you may want to consider applying for franchise lending through an alternative lender.

Typically, alternative lenders have less stringent requirements and shorter turnarounds than traditional financing options. They offer a variety of loan options like equipment financing, business lines of credit and even term loans. That said, this access and convenience may cost you. Alternative loan products tend to be more expensive, offer shorter repayment terms and lower loan amounts than their more traditional counterparts. However, it may be worth it if you need to supplement your existing financing, can’t qualify for a bank or SBA loan or need cash quickly to jump on a life-changing opportunity.

Related: The 4 Ways Associations Can Help Franchisees

5. Crowdfunding.

If franchise financing isn’t available and bank, SBA, or alternative loans don’t pan out, obtaining financing for your franchise may require some creativity. One of the newer and more creative ways of financing a franchise is through crowdfunding.

You might choose to set up and promote your own personal crowdfunding page or look towards specific organizations that crowdfund for businesses and franchises. There are also websites that crowdfund for specific industries and business types, which they then lend those funds to people in need of financing.

Crowdfunding is a great option if you have a blemish or two in your financial history and aren’t satisfied with the loan products and interest rates for which you qualify.

6. Friends and family loan.

Believe it or not, one of the most common ways to finance a franchise is by borrowing from your friends and family.

Whether you choose to borrow money outright, ask for a gift, or bring a friend or family member on as your business partner, these types of loans generally come at a very good price. That being said, some come at the cost of lost friendships and family disagreements.

If you do choose to take a loan from a friend or family member, be sure to write up a contract that includes repayment terms and expectations. If everyone understands the agreement before signing, breakups and disagreements will be less likely later on.

Becoming the owner of a franchise is a wonderful opportunity to get your feet wet as an entrepreneur. You get to try your hand as a business owner with the safety net of a large corporation behind you. With these financing options in your back pocket, you’ll be ready to get your franchise up and running in hardly any time at all.

By: Jared Hecht – Guest Writer
Co-founder and CEO, Fundera