One of the biggest challenges for small-business owners is finding the cash they need to fund working capital and fuel growth.

Finding capital is one of the hardest things a Main Street entrepreneur has to do. Since 2008, when the biggest of the big banks brought our economy to its knees, the smallest of the small-business community is still strapped for cash — despite the fact that larger small businesses, medium-sized businesses and larger business are having an easier time as restrictions ease up, according to the Cleveland Federal Reserve and the National Small Business Administration.

It’s not unreasonable to ask why financing for Main Street is so important. I think the arguments made by former SBA Administrator Karen Mills identifying Main Street as the creator of 70 percent of new jobs in the U.S. is a good starting point. She also says that half of the workforce is there as well. Unfortunately, my dry cleaner and the shop you take your car to when it needs repair isn’t going to have much luck in the shark tank. Neither business is really scalable enough to impress an equity investor.

Main Street grows on credit.

Unfortunately, not only is credit hard to come by for Main Street, many Main Street business owners have been hit so hard by the last five years of tight money, they might not even really be credit-worthy — or should we say as credit-worthy as they might have been just a few years ago.

Last month, Pepperdine University published its Private Capital Index for the second quarter of 2013. The big news in the report is the difference between where these entrepreneurs are looking for money and where they are finding it. It’s not really a surprise, but here is where they are looking:

  • 59 percent are looking at the bank
  • 57.2 percent turn to business credit cards
  • 49.9 percent access their personal credit cards
  • 48.4 percent sought out a personal loan
  • 44.2 percent went to friends and family
Most of the business owners on Main Street visit the local bank. After all, that’s where they have their checking account, maybe a credit card, why wouldn’t they go to the local bank? Unfortunately, they don’t leave the bank with a loan — as many as 90 percent of them leave without a loan. So where are they finding the money they need?
  • 71 percent found success with friends and family
  • 58 percent with their personal credit cards
  • 57 percent used trade credit
  • 54 percent used business credit cards
  • 27 percent found success at the bank
Although 27 percent is a little better than the 10 percent I suggested, that still means that most Main Street business owners are going to leave the bank empty-handed. Not a ringing endorsement when you consider the TV and radio ads we hear every day claiming this bank or that bank is the “small business” bank.

A few weeks ago I wrote about some of the things Holladay Bank is doing to help the small businesses in that community. Unfortunately, Traci Flynn and Holladay Bank are the exception rather than the rule.

Outside of the local bank, there are still a lot of options available to small-business owners looking for capital. Crowdfunding might even be one of them. “Entrepreneurs could use the Internet to sell a stake in their business to anyone in the country under the rules proposed Wednesday by the Securities and Exchange Commission,” writes Dina ElBoghdady and J.D. Harrison of the Washington Post.

The new rules would allow just about anybody to invest in up-and-coming startups. The SEC unanimously approved the idea, which would make it a lot easier for early stage entrepreneurs in particular to find the cash they need to grow their businesses.

Companies can raise up to $1 million a year this way. It does limit the amount of money people can invest — from $2,000 to $100,000, depending upon their net worth. It also mandates that the funds be raised via a regulated portal or other intermediary.

Critics argue, and they could be right, that this might enable unscrupulous entrepreneurs to take advantage of inexperienced and less-than-savvy investors. It basically overturns a law established during the Great Depression that did exactly that. However, it does provide an opportunity for small-business owners to raise funds they might have to otherwise find by going hat in hand to family members, another option. If the recent Pepperdine report does nothing else, it illustrates how difficult it is for small-business owners to find capital. This has the potential to do something about that.

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Saying that, I realize that small, Main Street businesses are risky endeavors and investing in them is not for the inexperienced or the faint of heart. P.T. Barnum supposedly said, “There’s a sucker born every minute.” Although I think this could be a potential boon to entrepreneurs — and likely many investors — let the buyer beware. In other words, I would suggest potential investors don’t jump in with both feet. Small businesses fail. That’s what they do. Even great ideas fail. Only half of small businesses make it to their 10th birthday. Make sure you’re up to the risk many professional lenders choose to avoid.

I’m in favor of anything that allows small business greater access to more capital, and that includes a small business loan or equity funding — including crowdfunding. Washington likes to talk about creating jobs and growing the economy. Small-business owners shouldn’t have to play a game of hide and seek to find it. I think this new move by the SEC might do just exactly that.

As a Main Street business evangelist and marketing veteran with more than 25 years in the trenches, Ty Kiisel writes about leading people and small-business issues for