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How To Find Capital

The typical sources of financing such as banks or venture capital firms are generally reluctant to loan money or invest in record label projects. Most labels start through loans from family and friends, or by bands themselves.

Loans to record labels are highly speculative. Banks are often reluctant to fund labels and bands because the chance of failure is so great.

Some first steps to take in financing a record label and/or a new recording are:

  1. Go to the library or bookstore and select a "how to start a small business" book. You can also find the The Ultimate Small-Business Resource Guide online at CNN's website. There are numerous ones to choose from. Each should have a section on writing a business plan. Traditional funding sources -- as well as family and friends interested in investing -- require a business plan. Writing one is also an excellent means of analyzing exactly how much money you need. Familiarize yourself with the different types of loans banks offer and the typical requirements for loan applications. For example, in order to receive a personal unsecured business loan, you will probably need your last three tax returns, as well as collateral equal to or greater than the amount of your loan.
  2. Have an accountant with experience with record labels review your business plan. If you can't afford an accountant you can get in touch with the Texas Accountants and Lawyers for the Arts. You may also want to contact your local Chamber of Commerce, or local office of the Small Business Administration for business plan review and analysis.
  3. Make sure that you keep excellent records of the income and expenses for your band. Be prepared to demonstrate how well you have kept track of your band's business, how business has improved over a given period of time, and why starting your own label and/or releasing another record makes good business sense.
  4. Grants are awarded to individual artists or to state/federal non-profit organizations, never to businesses. If you are interested in a grant, contact your nearest "foundation library" for assistance. For example, Grants can be researched at UT Austin's foundation library. (The Texas Music Office only issues grants to 501(c)3 organizations for music education and community programs.)
  5. Two relatively new companies focused on fan-driven funding for musicians and artists started generating heat in 2009 when Public Enemy announced that they would fund their new record through fan contributions. One is Kickstarter, a company based in the US which will fund any type of project you might have. The free service that Public Enemy is working with is called SellaBand, and it's based in the Netherlands.
  6. Talk with as many bands and small record labels as you can. Ask what their strategies were to get started, what mistakes they made, how they set up their accounting system, what were there initial source(s) of capital, etc.
  7. Loan and loan guarantee programs for small businesses are available through the following three government agencies:
    Office of the Governor, Texas Economic Development, Small Business Section
    P.O. Box 12428
    Austin, TX 78711-2428
    (800) 888-0511

    The Small Business section of Texas Economic Development assists small and historically underutilized businesses. It provides sources of contacts and research information that will assist with federal, state and local business issues for small businesses.

    One program of the Texas Economic Development Office is the TEXAS ENTERPRISE ZONE PROGRAM: Upon a community designating a business as an enterprise project, the business would be eligible for a refund for state sales and use taxes paid for building materials, machinery and equipment, electricity and natural gas purchased and consumed in the normal course of business. The total refund amount depends on investment amount and number of jobs created/retained.

Texas Office of Rural Affairs
P.O. Box 12877
Austin, TX 78711
(800) 544-2042; (512) 936-7890

The Texas Department of Rural Affairs (DRA) - formerly the Office of Rural Community Assistance - publishes a Grants & Funding Clearinghouse which provides rural communities, grant seekers, and grant writers with: Current funding opportunities; tools for grant writers; and resources for nonprofits, faith-based organizations, and community-based organizations.

United States Small Business Administration (SBA)
The SBA offers numerous loan programs to assist small businesses. It is important to note, however, that the SBA is primarily a guarantor of loans made by private and other institutions. That means, if a bank approves your loan, the SBA will guarantee that loan and thus help to reduce your interest rate.

Here is a list of local SBA offices in Texas:

  • Dallas District Office
    4300 Amon Carter Blvd. Suite 114
    Fort Worth, Texas 76155
    (817) 684-5500; Fax (817) 684-5516
  • El Paso District Office
    10737 Gateway West
    El Paso, TX 79935
    (915) 633-7001; Fax (915) 633-7005
  • Harlingen District Office
    222 East Van Buren Street, Suite 500
    Harlingen, TX 78550
    (956) 427-8533
  • Corpus Christi Branch Office
    3649 Leopard Street, Suite 411
    Corpus Christi, TX 78408
    (361) 879-0017
  • Houston District Office
    8701 S. Gessner Drive, Suite 1200
    Houston, TX 77074
    (713) 773-6500; Fax (713) 773-6550
  • Lubbock District Office
    1205 Texas Avenue, Room 408
    Lubbock, TX 79401-2693
    (806) 472-7462; Fax (806) 472-7487
  • San Antonio District Office
    17319 San Pedro, Suite 200
    San Antonio, TX 78232-1411
    (210) 403-5900; Fax (210) 403-5936

Loans programs offered by the SBA:

BASIC 7(A) LOAN GUARANTY
Serves as the SBA's primary business loan program to help qualified small businesses obtain financing when they might not be eligible for business loans through normal lending channels. It is also the agency’s most flexible business loan program, since financing under this program can be guaranteed for a variety of general business purposes. Loan proceeds can be used for most sound business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets. SBA offers multiple variations of the basic 7(a) loan program to accommodate targeted needs. This program is intended for start-up and existing small businesses, commercial lending institutions and loans are delivered through commercial lending institutions.

CERTIFIED DEVELOPER COMPANY (CDC), 504 LOAN PROGRAM
Provides long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization. Typically a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a CDC (funded by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution of at least 10 percent equity from the borrower. The maximum SBA debenture generally is $1 million (and up to $1.3 million in some cases). This program is intended for small businesses requiring “brick and mortar” financing. Loans are delivered through certified development companies (private, nonprofit corporations set up to contribute to the economic development of their communities or regions).

MICROLOAN, 7(M) LOAN PROGRAM
Provides short-term loans of up to $35,000 to small businesses and not-for-profit child-care centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. Proceeds cannot be used to pay existing debts or to purchase real estate. The SBA makes or guarantees a loan to an intermediary, who in turn, makes the microloan to the applicant. These organizations also provide management and technical assistance. The loans are not guaranteed by the SBA. The microloan program is available in selected locations in most states. This program is intend for small businesses needing small-scale financing and technical assistance for start-up or expansion. Loans are delivered through specially designated intermediary lenders (nonprofit organizations with experience in lending and in technical assistance).

LOAN PREQUALIFICATION
Allows business applicants to have their loan applications for $250,000 or less analyzed and potentially sanctioned by the SBA before they are taken to lenders for consideration. The program focuses on the applicant’s character, credit, experience and reliability rather than assets. An SBA-designated intermediary works with the business owner to review and strengthen the loan application. The review is based on key financial ratios, credit and business history, and the loan-request terms. The program is administered by the SBA’s Office of Field Operations and SBA district offices. This program is intended for designated small businesses and is delivered through intermediaries operating in specific geographic areas.