Funding Opportunities for Small Businesses: Expert Advice from S. Boyd Karren

If you are a pre-revenue start-up or a new business less than two years old and you go to traditional sources of financing, you will likely get a “no.”

This is due to perceived risks such as inconsistent cash flow, limited credit history, and the high failure rate of small businesses, especially in their early years. It’s no surprise that investors are hesitant to provide loans under these conditions.

This has happened to S. Boyd Karren as well. He experienced his own difficulties in finding funding for his small business opportunities. This personal challenge led him to become a business loan broker and eventually start Otro Financial, the firm that particularly adepts at finding funding for pre-revenue start-ups and new businesses less than two years old.

“I actually became a business loan broker after being told “no” by the banks when I was trying to buy a business a few years ago. I remember thinking, there’s got to be other people going through the same thing I’m going through. So now, I help people avoid the same challenges I faced,” Karren recalled.

There are many things that need to be clarified before small businesses jump in to seek funding opportunities, and S. Boyd Karren can help you with that. In a podcast episode with Kizzy Parks, he laid out a comprehensive plan for new entrepreneurs to successfully secure loans. Let’s dive in.

Alternative Sources of Funding for Small Businesses

According to S. Boyd Karren, startups and young businesses often face significant challenges when seeking traditional financing from banks. The primary issue is that banks generally prefer to lend based on past performance, which means they look for a track record of success and financial stability. For a startup or a business that has only been around for a couple of years, this history simply doesn’t exist.

As a result, these businesses struggle to make banks comfortable with loaning them money. Even if they present detailed business plans and projections, these are often viewed as speculative and not reliable enough for banks to base their lending decisions on.

“You have nothing to make them comfortable about loaning you money except, ‘Well, I have a plan. I have projections.,’ But projections are just hopes and dreams, honestly, so it’s hard to lend on. Some will lend on that, but not many—like, 90% of startups get rejected,” as stated by Karren.

This is why alternative lenders, like S. Boyd Karren’s organization – Otro Financial comes into play. These lenders base their decisions on the personal credit situation of the startup’s founder or entrepreneur, rather than the business’s financial history.

As share by him, even without a business track record, entrepreneurs can access funding if they have good personal credit. These options often don’t require collateral, making them more accessible. Some alternative lenders offer favorable terms, like 0% interest for a year, allowing startups to grow without high-interest rates. They focus on personal creditworthiness rather than business plans, providing a viable financing path for those rejected by traditional banks.

S. Boyd Karren primarily funds businesses started by single entrepreneurs, with a significant number being women. Many of these women seek new income sources due to personal circumstances like death or divorce and often get help from organizations like SCORE networks or SBDC offices, which direct them to Karren for funding. While he funds a variety of businesses, the majority are solopreneurs.

Top Funding Options for Solopreneurs with a 680+ Credit Score

According to Karren, the first thing to do when you want funding is to check your credit score. You can do this for free once a year or through credit monitoring services. Knowing your credit score is crucial because lenders will look at it when you apply for funding.

Lenders like Karren’s organization, they will offer a lot of funding options for solopreneurs, however, to access these resources, you need a minimum credit score of 680. While higher scores are preferable, 680 is the baseline.

Your current credit card utilization should ideally be 30% or less, though they can accept up to 45%. It’s also important that your credit history doesn’t have many derogatory marks or late payments.

With a credit score of 680 or higher, you qualify for four key funding options available to entrepreneurs seeking capital for their businesses. These options include utilizing personal savings through a 401k, accessing syndicated lines of credit, securing personal term loans, and combining these methods for maximum flexibility.

401k Savings

If someone has a 401k from a former employer due to layoffs or termination, they can use that money to start or buy a business without any tax penalties, thanks to the ROBS Act. This option allows entrepreneurs to invest their retirement savings without borrowing.

Syndicated Line of Credit

This is the most popular option. It involves leveraging relationships with large banks to collectively provide funding through 0% interest credit cards for at least a year, sometimes up to two years. For example, if an entrepreneur needs $60,000, different banks might each contribute a portion, resulting in the total amount needed. These credit cards can be used flexibly for various business expenses.

Personal Term Loans

Using an AI program, Karren’s organization can quickly source up to 50 loan offers in about 10 minutes. Entrepreneurs can review these offers and choose the ones that best suit their needs. This option provides a fast and efficient way to access personal term loans.

Combination of Options

Entrepreneurs can combine multiple funding sources to secure the capital needed for launching, acquiring, or growing a business. Leveraging different options can reduce risk and create a more stable financial foundation for success.

You can Improve Your Credit Score!

Sometimes, your credit score isn’t quite where it needs to be, at least 680, this is annoying since you are limited to have access to these funding options. The good news is that this can be fixed.

While his organization doesn’t handle credit repair directly, they have trusted partners like ASAP Credit, who offer a money-back guarantee and have a proven track record of helping clients. These professionals can remove denied inquiries and mistakes from credit reports, effectively cleaning them up. Many clients have successfully improved their credit scores through these referrals and subsequently qualified for funding.

“So, we do have allies that we’ll send you to, to get those credit scores cleaned up,” he said.

The duration of the credit repair process varies depending on individual circumstances. Some clients see results in as little as two weeks, while others may take several months, especially if their credit issues are more severe.

Although the process is not expensive, it requires dedication and patience. Whether it takes a day or six months, improving one’s credit score is essential for accessing financial options and securing the necessary capital for business endeavors.

The famous answer in lending is: it depends. Ah, so—it depends. We’ve had some people come back in two weeks, and we’ve had—I’ve got one guy, he’s like into his fourth round in four months, and I keep getting this report: “Hey, he just did another round. He’s doing better, got, you know, going another round.” So his credit was really messed up.

“if your credit is below a 680, you’re not going to get options with anybody for anything,” he explained.

Can You Get Funding with a Credit Score Below 680?

Karren understands that not everyone has a perfect credit score, and he has two trusted groups that can assist those with lower scores. 

The first is Ascendus, This organization works with lower credit scores and offers good programs. The catch is that the business must have been operational for at least six months.

The second group is the Black Business Investment Fund (BBIF), which also works with lower credit scores and provides excellent programs. However, BBIF requires that the business has been operational for at least twelve months.

Why the First Two Years Post-Funding Are Crucial for Business Survival

S. Boyd Karren explains that the first two years after receiving initial funding are the hardest for businesses.

He stated, “The first two years are the hardest. That’s just—it’s flat out, there’s no way around it.”

During this period, securing additional funding is challenging because banks are cautious about lending to new ventures. However, once a business has successfully operated for two years and has tax returns to prove it, banks become more interested. At this point, it becomes easier to obtain financing with better terms and more options from traditional banks.

His organization acts like a nurturing environment for new businesses, providing essential financial support and resources to help them grow and reach stability. They offer various financial products, such as SBA loans and lines of credit, similar to what banks provide.

While banks might offer slightly better rates on some of these products, Karren’s organization stands out by providing options and support that are not commonly available from other sources, helping businesses get off the ground and grow during the initial two years.

“But in those first two years, there’s nobody like us out there providing these kinds of options to help someone get growing,” Karren mentioned.

If business owners struggle with repayments, they need to negotiate directly with the lender. Although Karren’s organization doesn’t require collateral, banks might place a lien on the business owner’s name to secure repayment. Owners can try to negotiate terms like reducing payments or extending the repayment period, but they must resolve the issue with the lender.

Business Loans For Partnerships

According to Karren, when two people are in a 50/50 partnership and looking to secure a business loan, the first step is to see if the business itself can qualify. If the company has strong business credit and a solid financial history, lenders may approve the loan based on the strength of the business alone—without needing to involve the partners’ personal credit.

“We try to get them approved based on the strength of the company—not them,” he claimed.

Karren notes that while it’s ideal for the business to stand on its own when applying for funding, that’s rarely the case.

“That’s a little rare, because people don’t really understand business credit and they haven’t built it properly. So it’ll go back to the owners, and we’ll ask the owners to apply for the loan together as co-signers,” he said.

Most small business owners haven’t taken the time—or don’t yet know how—to build strong business credit. As a result, lenders often shift their focus back to the individuals behind the company, requiring both partners to step in as co-signers and personally guarantee the loan.

But what happens when only one partner has solid credit? In those situations, the partner with good credit might take the lead and secure the funding on their own. From there, they can inject the capital into the business and hammer out the fine print later—think repayment terms, profit distribution priorities, or even temporary shifts in ownership percentages.

Available Funding Strategies for Business and Franchise Acquisition

For entrepreneurs looking to buy a business or franchise, Karren’s organization offers a lifeline with funding options tailored to their needs. For substantial amounts between $1 million and $5 million, they might introduce an SBA loan, providing robust support for ambitious ventures. For smaller amounts, they have a variety of creative solutions.

He shares an example of a couple wanting to buy a villa in Italy to turn it into a corporate retreat. Since American banks won’t loan for property in Italy and the couple lacks relationships with Italian banks, Karren’s organization is considering a syndicated line of credit. This line of credit could provide the couple with $750,000 at 0% interest for up to two years, offering flexibility in how the money is used.

“Nobody’s going to ask what they’re using the money for, so they can get the funds that way and perhaps then buy this property in Italy that they’re looking at,” Karren stated.

Business Credit and Its Importance

As shared by Karren, business credit is one of the most powerful yet least understood tools available to entrepreneurs. Many small business owners begin by relying heavily on their own cash and personal credit cards. Eventually, they hit a wall—having spent their savings and maxed out their credit limits, they find themselves financially stuck and unable to move forward without new funding.

He argues that his situation often arises because they don’t understand how business credit works.

“This is usually because they don’t understand business credit. Business credit—it’s funding tied to the entity itself, the business. And you get to where the business is judged on its capability to pay the bills, not you as the owner,” he articulated.

He further explains that business credit behaves very differently from personal credit. With personal credit, every hard inquiry—like applying for a mortgage or car loan—lowers your score, and high utilization can be seen as risky. But with business credit, it’s the opposite. The more you request and use—provided you make timely payments—the higher your business credit score goes. High usage is rewarded, not penalized.

Because of this structure, business credit opens the door to significantly more funding opportunities. A well-established business credit profile can give access to capital far beyond what personal credit alone could provide.

With good business credit, you can unlock several smart strategies. One involves transferring a personal vehicle to the business, improving your debt-to-income ratio and boosting your personal credit score without affecting the business’s finances. Another trick is using a business credit card to buy multiple cars and rent them out on platforms like Turo, generating semi-passive income.

Stay Away from Predatory Lending, Specifically Merchant Cash Advances (MCAs)

Many business owners face the temptation of quick funding solutions, especially when cash flow is tight. However, Karren warns that accepting unsolicited offers for money, particularly from sources other than major banks, can lead to serious problems.

He explained, “Anybody who calls you offering money—unless it’s one of the major banks like we just talked about, right—anybody who calls you offering money, I say put your hand on your wallet and back away. These are going to be usually what’s called a merchant cash advance or an MCA, or a cash advance. They can kill you. It’s not technically a loan, but they’re quasi-predatory, they are hard to get out of, they tie into your credit card processing system, and they take money out every single day.”

These advances tie into your credit card processing system and withdraw money daily, with interest rates that can reach up to 50%. Karren shares an example of a client who nearly faced financial ruin due to an MCA, emphasizing the severe risks involved.

Karren advises business owners to avoid these offers and instead seek reputable alternatives.

He stated, “Just don’t do it. There’s got to be some other option than to do a merchant cash advance. I don’t like them and we don’t do them, but we can, you know, hopefully find a different alternative for you.”

He added, “But again—anytime somebody comes to you with an offer, be suspicious. It’s better to do your research and talk to people and find out who’s reputable and then approach them. But you don’t want to just answer the phone and accept with your credit card.”