This document summarizes various options for financing green businesses, as securing capital is especially challenging for green startups. It discusses traditional bank loans but notes many green entrepreneurs lack experience with financial terminology. Alternative options include grants, venture capital, microloans, credit unions, crowdfunding, credit cards, and accounts receivable financing, each with pros and cons. The key is having a strong business plan that convinces financiers of the viability and profit potential while demonstrating the entrepreneur's financial responsibility and experience. Local resources like incubators and networks can also help green startups develop their ideas and learn financial presentation skills.

1. News & Views from the sustaiNable southwest
Building a Local Living Economy • Española Valley Chile • Financing Green Business
An Entrepreneurial Ecosystem • ¡Sostenga! • Making Local Food Your Daily Bread
Recycling Economics • A Community of Partners • The Carbon Ranch • Slow Money
November 2010 Volume 2, Number 11

2. fInancIng green BusInesses
Drew Tulchin
G reen business is where most
look for the greatest growth in
America to come. Given the current
include the Santa Fe Alliance, which
hosts regular events; “Green Drinks,”
green business trainings, and oth-
economy, it is needed as soon as possi- ers listed at http://santafealliance.
ble. Many home-based businesses and com/. You can also sign up for their
start ups, environmental or not, often newsletter. The Santa Fe Incubator
lack a major green element—money. is another outlet. Founder and CEO
Ensuring a green entrepreneur has a Marie Longserre says, “We have a
successful idea, the financing to launch, green cluster, and are working to
and then the cash flow to continue his brand identity around that group.”
or her enterprise is a vital necessity. Open Coffee Club is held monthly at
the Santa Fe Complex.
considEring capital options
Securing capital is challenging for
start-ups in general and green busi-
nesses in particular.
Managing expectations is an impor- of Social Enterprise Associates. “It Woosley, SBA New Mexico District
tant first consideration. Although NM is important for entrepreneurs to un- Director. He encourages setting up
EnsurE thE BusinEss idEa has a healthy venture capital commu- derstand how bankers make decisions. your personal accounts at institutions
will work nity, these equity risk investors are rare They sell their products just like any able to handle your future needs, so
Having a good idea and a strong plan options unless the business can grow other business person.” How would when you are seeking a loan, you aren’t
are initial steps. Many support institu- very fast (like five or ten times). you convince a banker you will man- forming brand new relationships.
tions in Santa Fe and northern New Grants are usually reserved for non- age a loan?
The SBA offers loan guarantees. “If
Mexico help small businesses of all profit charities. There are exceptions, Advance planning is something bank- the borrower doesn’t have enough
kinds. The U.S. Small Business De- particularly for businesses in rural ar- ers value. “It is a poor strategy to have collateral or can’t secure a loan, they
velopment Center, SCORE, Santa Fe eas, minority/women/veteran owned, the first time a banker hears from can explore the option of a SBA
Community College and WESST are or offering specialty niche technolo- you, when you need a loan,” says John conTinued on paGe 14
just a few offering training, mentors and gies. “Our local office has to send
other services. “We help all local busi- Washington back millions of dollars
nesses, regardless if they are a Chamber in funding that goes unclaimed each What Do BaNks Look For?
member or not,” says Val Alonzo of the year,” says Terry Brunner of the NM Banks seek to minimize risk of loan repayment. They look for the “5 C’s
Santa Fe Chamber of Commerce. USDA. “We are always looking for of Credit”:
An extensive list of resources is avail- appropriate matches for projects.” It is
worth seeking help from that govern- Capacity to repay is the most important factor. A bank will not lend to
able at the city’s Department of Eco-
ment agency or others who have done a business if they are worried the business will not be able to repay the
nomic Development website (http://
it successfully, as grants can be chal- loan. Credit Score is a major indicator. Business profitability – typically
santafebiz.org/). City staff is available.
lenging to navigate. indicated by cash flow or profit/loss – is important, and shown by good
“We’re here to assist business and
financial statements.
workers towards success,” the website
prominently states. traditional f inancing Capital includes what the entrepreneur has personally invested in the busi-
options ness. Personal investment increases motivation for the business’ success,
Finding a supportive community is Local banks are still a viable option. and should be clear from financial statements as well as in conversations.
a good step toward building a green They often offer good pricing. NM
business. Business networks to tap is home to many local banks that did Collateral or guarantees include equipment, buildings, inventory, or
much better than their peers national- other physical items that could be sold. Cars, for example, must be
ly. “There is a gap in perception. People owned free and clear. They may only be valued at 50% of blue book,
are hearing banks aren’t lending, period,” due to the process of selling them. The US SBA offers guarantees and
says Alan Austin of New Mexico Bank has increased its levels due to the economic crisis.
& Trust. “I hear people say that, and I tell Conditions are the reasons for the loan, such as opening a new store,
them that isn’t correct.” purchasing new equipment, or launching a marketing campaign. Con-
© anna C. hansen
To make a loan, bankers need specific ditions in the business plan should show how the money spent will lead
ways to assure they will get paid back. to increase business profitability.
“People who care about the environ- Character speaks to how trustworthy the business and managers are.
ment don’t always trust or feel they Experience, education and industry connections / relationships all com-
share the same values as financial municate elements of character. They should be included in biographi-
professionals,” says triple bottom line cal summaries.
drew Tulchin speaking at a santa Fe alli-
business consultant Nicole Cowing
ance workshop at the santa Fe Complex
12 Green Fire Times • november 2010 www.GreenFireTimes.com

3. f inancing grEEn BusinEssEs
StrategieS continued from page 12
guarantee,” ex- Barter or trading goods and services for non-
for the plains Woosley. cash is another potential option. It is a much
These are available older version of ‘sales.’ It works better when
green through banks and
NM micro-lenders
you want what the other can offer. If a ready
trade is not clear, ask. A solution might pres-
economy (detailed below). ent itself that wasn’t obvious on the surface.
permaculture credit union and other credit
unions are another option, pooling financial approaching a f inancial
resources of the community. PCU members institution
believe in the ethics of Permaculture (the care Many green entrepreneurs have experience in
of the earth, care of people, and reinvestment the nuts and bolts of business operations and
know that language well. They are often less
transforming challEngEs of surplus for the betterment of both). They
understand environmental approaches, such as familiar with banker-speak like “value propo-
into opportunitiEs offering lower interest rates on loans for fuel- sition,” “net income” and “profitability.”
efficient cars. They will still have official finan- Securing financing requires an understand-
B usinesses are entering the green marketplace at break-
neck speed to keep pace with customer and societal de-
mands to reduce their environmental impacts. Companies
cial underwriting.
altErnativE f inancing sourcEs
ing of bankers and financiers. Entrepreneurs
should consider not only banking buzzwords
There are more financing sources suited for but also what bankers value. What bankers see
need to comply not just with the laws of government and
green ideas, which accept varying levels of when looking at a green start-up is different
the marketplace, but also the laws of nature. But greening
risk. Caveat emptor for all of these – buyer be- than what an entrepreneur communicates.
one’s business is no small feat. While clear opportunities
abound in this new economy, business leaders pursuing a ware. Read the fine print. A financial professional needs to document
green strategy are finding few roadmaps and established how he/she will get their money back. Loan
Investors include family and friends. They
rules, and plenty of hidden twists and turns. package materials should make it easy to un-
can use services which help formalize a loan
or equity agreement in a professional way so derstand how the business can repay a loan,
In Strategies for the New Green Economy, (McGraw-Hill,
all parties have the same expectations. One ex- what collateral is available and other assur-
2008, 290 pgs.), Joel Makower offers insights and inspira-
ample is Virgin Money (www.virginmoneyus. ances. (See the sidebar “What do banks look
tion gleaned from his 20 years of experience helping For-
com). for?”)
tune 500 companies and start-ups alike formulate strategies
that align environmental and business goals. Providing a Consider your strategy to seek a loan:
credit cards allow small business owners to
comprehensive and realistic look at both the opportunities • Know your credit score—personal and busi-
use personal credit to finance. America has the
and challenges, Makower shows how leadership companies ness
highest per capita consumer debt in the world.
have profitably integrated green thinking into their opera- • Use an accounting system and monitor cash
Credit card companies are becoming stricter
tions in ways that create value for their shareholders, em- flow
as defaults and late pays are increasing. Deals
ployees, customers, and communities. This sometimes takes • Know your banker by first name
still exist with low introductory rates, transfer
re-imagining not only products and processes, but also the • Build a long-term relationship—start small
offers, and inexpensive cards. Mismanagement
companies themselves. and build over time
of credit cards leads to high interest rates, cau-
strategies systematically tackles the central issues of tions Finance New Mexico, another helpful Credit score is important. For many small
greening a business: local resource (www.financenewmexico.org). businesses, the lender regards it as an exten-
• What does it take to be seen as an environmental leader? sion of the individuals involved. Owners or
local microlenders include ACCION,
• What are the standards, implicit or explicit, that you must guarantors need to know their finances. Their
WESST, and the NM Loan Fund. They make
meet to be green? credit challenges will reflect on the business.
small business loans to those not yet “bank-
• How do you communicate what your business is doing Establishing credit is part of what a bank sees
able.” Each offers slightly different services
right—and what it’s doing wrong? as “Character.”
and loan conditions. Again, it is still a loan
• How can you overcome consumer, media, and activist dis-
that must be repaid. Securing financing can be a significant hurdle
trust?
• How can your company be heard amid the green noise in peer-to-peer and social loan networks are for a small business or entrepreneur to over-
the marketplace? like eBay for lending. Www.prosper.com and come, but it is a crucial step in the process
• What are the new opportunities emerging for companies in www.lendingclub.com, among others, connect of translating green ideas into meaningful
the green economy? people directly to borrow and lend money on- businesses. t
line, with lenders taking parts of loans. Drew Tulchin is Managing Partner of Social Enterprise
Also discussed are the dangers of “greenwashing,” a term
Associates. The company helps small businesses and non-
levied on companies viewed as disingenuous in creating a accounts receivable financing is also called profits set up and run successful
green image. factoring. A business sells its invoices or con- operations, raise capital, and
tracts at a discount based on the risk and time much more. Based in Santa Fe,
Makower is author of more than 20 books, including Beyond the firm is New Mexico’s only
to collect payment, receiving immediate cash
the Bottom Line: Putting Social Responsibility to Work for your registered B Corporation. More
for those accounts receivable. Factoring in-
Business and the World, one of the first business books on cor- information can be found online
creases working capital and cash flow, but at a at www.socialenterprise.net.
porate social responsibility, published in 1994 and still used in
cost. This is a regularly offered service but can
business schools. His new book will strengthen a company’s
be expensive, so figure out the percentages.
ability to develop a winning sustainability strategy.
14 Green Fire Times • november 2010 www.GreenFireTimes.com