Securing Business Start-up Financing
How post-pandemic enterprises can drink from the lending well
By Tracy Barbour

hile the COVID-19 pandemic forced thousands of companies to permanently close, many new businesses are still opening around the country. Fortunately, there are ample funding opportunities available to help entrepreneurs finance their endeavors—if they apply the right strategies.

A staggering 5.4 million new business applications were filed in 2021, topping the 4.4 million record set in 2020, according to the US Census Bureau. And in October 2022 alone, there were 432,834 business applications—an increase of 1.2 percent compared to September 2022. These applications—which represent filings for tax identification, not the total number of business startups—were mainly in the industries of mining; manufacturing; transportation and warehousing; health and social services; arts, entertainment, recreation, accommodation, and food services; and educational services.

Alaska is also experiencing an uptick in new businesses. In fiscal year 2018, the Alaska Small Business Development Center (SBDC) assisted 140 new businesses, according to Executive Director Jon Bittner. In fiscal year 2022, it helped close to 220 businesses. These numbers relate only to the entities that worked with the Alaska SBDC, which provides confidential advice, assistance, and other resources to entrepreneurs looking to start or grow their small business.

“The timing and structure of the [SSBCI] program is perfect, with the tightening of banks on financing and all the infrastructure money. Also, Alaska is expecting to have a banner year with tourism and commercial fishing.”
Jon Bittner
Executive Director
Alaska Small Business Development Center
Even during the height of COVID-19, the Alaska SBDC still saw a considerable number of businesses opening. “Maybe it’s because there were a lot of people transitioning out of their jobs,” Bittner speculates. This is certainly plausible, given the massive workplace and labor market disruptions the pandemic caused. Job losses prompted many employees to pursue their dreams of self-employment through gig work or full-fledged business ownership.

Regardless of the reason, the Alaska SBDC is seeing new enterprises surface statewide, especially in certain industries and rural parts of the state, Bittner says. For instance, new businesses are emerging in healthcare and technology, with some of them focused on leveraging innovations in artificial intelligence. There has also been a significant increase in tourism businesses, particularly in the area of regenerative tourism. In addition, more construction-related startups and expansions are springing up to capitalize on the Bipartisan Infrastructure Law.

An Abundance of Loan Programs
Start-up financing opportunities have expanded due to a number of new government programs. One of the latest funding sources available is the Alaska State Small Business Credit Initiative (SSBCI). The statewide program—administered by the Alaska SBDC—uses $59.9 million from the US Department of Treasury to finance incentives to help drive private-sector funding to Alaska’s small businesses. The initiative, which mobilizes local sources of capital, such as community banks and local equity investors, is designed to reward investments outside of traditional high-access areas and to startups that have struggled to receive funding.

The Alaska SBDC will deploy Alaska SSBCI funds over the next ten years through a $32 million loan guarantee program, a $15.9 million loan participation program, a $10 million equity investment program, and a $2 million loan collateral program. “We want to make sure people understand that we’re working with the lenders and equity investors,” Bittner says. “They should make sure they talk to their banks about the options. If you need help trying to position yourself on how to take advantage of these programs, SBDC advisors can help.”

The Alaska SBDC launched the loan guarantee part of the SSBCI program in March. “We’re hitting the ground running,” Bittner says. “I believe we are on track to deploy our first tranche [of three] in the next six months.”

In the first month alone, the Alaska SBDC processed approximately $9 million in the loan guarantee program. The first deal—facilitated by First National Bank Alaska (FNBA)—involved a $2.6 million loan to help a new Kenai aviation company purchase an airplane. The Alaska SBDC also recently launched the equity investment program, which further expands funding opportunities for entrepreneurs.

The SSBCI program has a substantial amount of interest—and promise, Bittner says. When Congress authorized the program two years ago, the economy was plagued by uncertainty, but circumstances have dramatically improved. “At the time, we weren’t sure what the financial situation would look like post-COVID,” he explains. “The timing and structure of the program is perfect, with the tightening of banks on financing and all the infrastructure money. Also, Alaska is expecting to have a banner year with tourism and commercial fishing.”

Bittner is excited about the potential impact of the SSBCI program. “It’s not just grants or one-time payments; it’s a partnership between this program, lenders, and equity investors—so it’s sustainable,” he says. “One of the targets is that we get ten times leverage for the money that we receive.”

This summer, the Alaska SBDC is launching a similar Tribal SSBCI program, which will provide up to an additional $100 million in funding to help eligible businesses. The center’s request for the tribal program is in the final review stages with the Treasury Department, and the program funding should be available by the end of this summer, Bittner says. The Alaska SBDC will deploy the funds through a $40 million loan guarantee program, a $12 million loan participation program, a $25 million equity investment program, and a $16 million loan collateral program.

Tribal governments can use the funds to support small businesses on tribal lands, small businesses in states where tribal lands or tribal members are located, and small businesses owned by tribal members anywhere within the United States.

Bittner explains, “It’s hard to collateralize assets in rural communities. They don’t have many on-the-ground financial institutions, so trying to incentivize lenders to do deals out there can be problematic. We think this will help with all of that.”

The Alaska SBDC has also allotted substantial funding for the equity program. “We are hoping to work with Native corporations and tribal programs to help develop non-traditional financial options… to focus on driving economic development and regional change,” Bittner says.

Chad Steadman headshot
Chad Steadman
The SSBCI program can bolster a loan request by making a lender feel more comfortable with the risk involved with backing an untested new enterprise. “The SSBCI guarantee is a credit enhancement that helps the bank mitigate some of the hurdles of financing to a new business,” says Chad Steadman, senior vice president and corporate lending director at FNBA.

In addition to considering SSBCI program funds, Alaska startups can explore a variety of loan programs backed by the US Small Business Administration (SBA). These loans are available through various SBA partners like FNBA and McKinley Alaska Growth Capital. Popular SBA loan programs include SBA 7(a), Community Advantage, and microloan. Another possible non-SBA funding source is the Bureau of Indian Affairs (BIA) loan program, which caters to qualified businesses and sole proprietorships. Which loan program is the best option for an entrepreneur will depend on the loan amount and purpose of the loan, among other factors.

Strategies for Working with Lenders
Generally, a financial institution will be the first stop for startups seeking financing through SSBCI, SBA, or other loan programs. FNBA, for example, works primarily with established companies or individuals who have companies that are starting another line of business. However, FNBA often participates in exploratory conversations that can ultimately assist entrepreneurs on their financing journey. “The bank is always a great place to begin when you’re looking to start a new business,” Steadman says. “We’re a wealth of knowledge, and we have strong relationships with many different vendors and other agencies to help entrepreneurs.”

Exactly how FNBA can facilitate a startup depends on the business concept, type, and goals. For instance, some people walk into the bank with big ideas and big dreams. If they have an incredibly good idea, this is where an angel investor might come into play. Others come in wanting to start a more traditional business to fill an established need in the market. Depending on where they are with their business concept, the bank might want to partner with the Alaska SBDC. Steadman explains, “If someone comes in and there are a lot of gaps, we send them to the SBDC, which works to help them build out a business plan. Once details are in place, we can recommend loan programs to meet their business needs.”

Regardless of the loan program involved, FNBA considers the traditional “5 Cs” of credit—character, capacity, collateral, capital, and conditions—when evaluating a borrower’s credit worthiness. The bank also analyzes the local economic climate and outlook—which are currently overall favorable for Alaska. “While the economic climate is changing in certain parts of the country, Alaska still has a lot going for it,” Steadman says. “Tourism is doing fantastically well, and the Willow [oil drilling] project announcement is very promising. There are so many amazing business opportunities happening locally.”

Logan Birch headshot
Logan Birch
McKinley Alaska Growth
Another viable funding resource for aspiring business owners is McKinley Alaska Growth Capital. McKinley provides small business loans in Alaska primarily through SBA and US Department of Agriculture guaranteed business loan products. “These programs allow us to provide loans to qualifying business borrowers who are unable to obtain credit at a bank or credit union,” says Logan Birch, president of McKinley Alaska Growth Capital. “Loans to new businesses are often the highest risk, which is why these types of programs play an important role in getting capital to entrepreneurs.”

Birch is seeing more new entrepreneurs and potential business owners getting engaged in Alaska, and he says McKinley is doing whatever it can to support and encourage them.

The pandemic, Birch says, will ripple for years to come. “For example, many existing businesses delayed plans for expansion and upgrades, and we are now seeing the backlog that was created related to years of reduced activity,” he says. “The pandemic also caused many of us to closely evaluate how we spend our time, galvanizing the attitude of many that ‘life is too short’ to be doing something you don’t enjoy, and that realization is spurring many new entrepreneurs.”

As a positive outcome, the pandemic accelerated tools and policies that support a remote work environment. “There were a number of documents and forms that previously required a wet signature, and practically all of those holdouts now accept some form of electronic signature,” Birch says. “Our ability to take a new loan from the application all the way through loan servicing can now be done in a much more streamlined manner.”

When pursuing financing, borrowers should keep in mind that different funding sources have different concerns. The key for any good lender will be their ability to understand the primary risks a business will face and how those risks are appropriately being mitigated, Birch says. “The most credible loan requests I’ve seen are from borrowers who have a good understanding of those risks and are able to address them,” he says. “An equity investor wants to hear and understand your growth potential, but a lender must understand and become comfortable with the downside scenario.”

Advice For Landing Financing
Securing debt funding for a new business can be a daunting undertaking, but entrepreneurs should not get discouraged, Birch says. Instead, they should speak with multiple lenders to learn about their risk tolerance and different loan programs. “Be prepared with a complete business plan and financial package and try to find a loan officer who will be an advocate for you,” he says.

True “start-up” financing is very difficult for lenders to provide, Birch says. The entrepreneur must have direct industry experience, sufficient equity committed to the project, and well-defined financial projections that demonstrate an ability to repay the loan. “Listen closely to feedback from lenders who have reviewed your loan package and don’t be afraid to pivot and adjust your business plan as you look to find the right formula for success,” he says.

Steadman also recommends that loan applicants present strong financial documents to support their loan request. “Potential borrowers should have a very realistic pro forma showing what the business can do to earn money and pay back the loan. And they should be willing to provide good collateral—their own skin in the game—upfront,” Steadman says.

Entrepreneurs should also find good advisors who can help them solve problems—and ask numerous questions. “It might feel like you’re going down a rabbit hole until you get to where you need to be, but don’t stop at one solution,” Steadman says. “Have multiple solutions in place so that you can come up with the best option.”

When seeking a business loan, most people do not spend enough time on all the aspects of the financial analysis process, Bittner says. But they should look further down the path to better understand what is happening with banks right now. “You have to bring your A-game. Take away all the small mistakes or missteps. It’s a highly competitive time,” Bittner says.

However, Bittner adds that he is “extremely optimistic” about the financing options available today. “For businesses that are solid, there is going to be a lot of opportunity,” he says. “If you’re interested in being an entrepreneur, now is a very good time.”