It’s no secret that finding the capital needed to finance your startup will be no picnic this year. We’re in the midst of one of the worst economic downturns since the Great Depression, causing potential funding opportunities of all kinds to become scarce.

As 2009 progresses, funding sources like venture capitalists and large banks, many of which are already on the rocks, will continue to view entrepreneurs as too great a risk. The fear of losing money is causing them to tighten their financing standards even further and reduce the amounts they do choose to put forth.

With this kind of climate, it’s easy for entrepreneurs to become discouraged and possibly even give up, but there are other viable alternatives to financing your startup during these tough times. Let’s examine your two best options.

  1. Community Banks and Credit Unions: As larger national and regional banks struggle, many small community banks and credit unions are stepping up to the plate and offering loans and lines of credit to small business owners and entrepreneurs. Right now about 50 percent of small business loans under $100,000 are made by community banks, according to the Independent Community Bankers of America. For entrepreneurs and small business owners dealing with the effects of the economic downturn, these institutions have added appeal. Large banks tend to make and approve loans through a set formula of criteria and a meeting with a lower-level representative. Community banks on the other hand allow you to meet and interact directly with higher-level decision makers willing to take a closer look at your business and apply a varying set of standards to approving a loan.
  2. Bootstrapping: The trouble with any kind of debt financing is that it can be dangerous to start your business off submerged in vast amounts of debt that need to be paid no matter what. Nonetheless entrepreneurs still need working capital for their day-to-day functions, which is why bootstrapping is increasing in popularity and is one of your best and most likely options. By turning to friends, family, savings, second mortgages and frugal ingenuity, entrepreneurs can build a cost-effective business and maintain a customer-focused mentality from day one. You can’t waste much money when there isn’t much money to waste. Bootstrapping is a solid investment for anyone with the determination and brainpower to find a way to make it work.
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