Houston Voices

From credit to crowdfunding, experts discuss how startup lending has evolved

Startups have more cash flow options now than ever before. Getty Images

For companies trying to get off the ground, one of the biggest hurdles normally revolves around acquiring funding. Whether it's a friends and family round, early seed stage or a full blown series round, finding funding is a difficult process. This augments the importance of entrepreneurs understanding the full arsenal of tools at their disposal.

Late last month, Cannon Ventures and Texas Citizens Bank teamed up to host a Lunch and Learn at The Cannon's Main Campus to help describe some of the different options for fundraising and explain the evolution of fundraising over the past few years.

This Cannon Lunch and Learn consisted of a panel of industry experts from varying backgrounds answering questions from the crowd about fundraising. The session was moderated by Cannon Ventures' investment analyst, Kristen Philips, where she was joined by the below panelists:

Each of the below strategies were highlighted by our panel of experts, offering a number of potential options for entrepreneurs in search of the best fundraising strategy for their company:

Factoring

Factoring is a form of financing in which a business will sell its accounts receivable (invoices) to a third-party at a discount. This option gives businesses access to immediate funds that can be used to pay for business expenses. This can be an effective option when working with a client who has outstanding invoices and may not be able to pay you back in a timely manner.

Credit insurance

Credit Insurance protects the policyholder in the event that a customer becomes insolvent. Insolvency in business can be a more common scenario than many realize, so credit insurance can serve as a solution if a customer isn't able to pay its debts. Industry standards for credit insurance will often cover around 90 percent of your accounts receivable.

SBA loans

Contrary to popular belief, SBA loans are not direct loans made by The Small Business Administration to entrepreneurs to grow a small business. Instead, an SBA loan provides a guarantee to banks and authorized SBA lenders for the money they lend to small businesses. If a business owner defaults on a loan, the SBA will promise to pay a portion of the loan back. This can alleviate the risk associated with lending money to small business owners and startups that may not qualify for traditional loans. SBA loans open up lending opportunities to thousands of entrepreneurs. In 2017 alone, SBA approved over 68,000 loans and provided over $30 billion to small businesses.

The evolution of lending

The panelists also remarked on how the industry of traditional lending has grown over the years and suggested to be wary of new predatory lending entities. When lending entities do not use depository funds, they are not subject to the same level of regulation that more traditional establishments like banks do. Because of this, predatory lenders can offer large amounts of capital quickly but lock founders into unsustainable interest rates and mechanisms that can trap clients into long-term agreements.

It is important for founders to do their homework and understand the terms whenever you are accepting a loan regardless of how established they may seem, or your need for capital.

Crowdfunding

Crowdfunding is a relatively new phenomenon that has started to become more mainstream after a change of regulation in 2016 by the SEC to allow non-accredited investment in private companies. Crowdfunding is typically done to supplement efforts to an offline fundraise and a way to both market your opportunity to a wider base as well as directly raise funds. These platforms offer the flexibility of either a straight equity raise or a convertible note.


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via thecannonhouston.com

The Cannon is expecting to open by the end of next month. Courtesy of The Cannon

If all goes according to plan, The Cannon's new space will be up and running by the end of June. The bulk of the construction, which started a little over a year ago, is done, and the team is on the home stretch.

The original plan was to open in March, but construction faced a series of setbacks due to weather.

"Houston's rainy winter pushed back our initial timeline a bit, but we are currently on track for opening late next month and are excited to get our amazing community moved into our brand new home," says Lawson Gow, founder and CEO of The Cannon. "We can't wait to show off our space to Houston's entrepreneurial community through events, programming, new partnerships and more, continuing in our mission to support Houston's startups and small businesses."

Two Houston-based companies are responsible for the 120,000-square-foot, 32-acre coworking and entrepreneurship campus in West Houston — Burton Construction is the general contractor and Abel Design Group is the architect.

The new space is already 80 percent pre-leased. Currently, The Cannon has a 20,000-square-foot space next door to the construction site. While companies working out of this so-called "waiting room" building will be moving over, Gow, who is the son of InnovationMap's CEO, is excited to announce a few new startups excited to call The Cannon home next month.

The goal of The Cannon's project is to fulfill a need Gow says he recognized in Houston.

"The problem that we're addressing — every startup is addressing a problem — is Houston has really struggled to develop vibrant startup communities," Gow tells InnovationMap in a previous interview. "Entrepreneurs and talent will leave to go to Austin and beyond, and so the mission was to create a place and an infrastructure and a density of resources to prevent them from having to do that and keep our entrepreneurs here."

The new space will allow Gow and his team to host pitch events and even live fundraising events, due to a partnership with LetsLaunch.

Progress

Courtesy of The Cannon

The Cannon's construction delays were mostly due to a rainy season in Houston.

Take a video tour of The Cannon here:

The Cannon Flythrough www.youtube.com