When we talk about small business loans, we mean just that – small-scale business loans. This doesn’t mean a loan of $1 million to buy commercial real property or a $500,000 loan to purchase an investment property. We’re not talking about the possibility of a credit line of $3 million for the sole purpose of displaying that there is capital on the balance sheet. Also, we’re not talking about an equipment loan of $250,000 for an industry-wide construction company.
This is the case for small-business credit, which is loans that are less than $150,000. The capital amounts that the 22 million small business owners across the country could utilize at some point for working capital, for the renovation of their facilities, purchase inventory, marketing, meeting payroll, developing new products, or to keep the money in their bank to acquire and satisfy customers (what business is about).
We have often been told that banks will not lend to small businesses because they perceive it as too risky. Thus, many small-sized businesses have stopped applying for credit due to the fear of being rejected. And, as a result, we’re seeing smaller firms not reaching out for credit or obtaining their full potential and letting profitable opportunities slip by.
However, banks may not see the true importance of small businesses. However, it doesn’t mean that all banks won’t – others are willing to assist you in financing your company.
The Benefits Of Small Business
The US has 22 million small-scale companies, which is the powerhouse.
According to the Small Business and Entrepreneurship Council according to the Small Business and Entrepreneurship Council, small-sized businesses;
- This organization provides Two-thirds of all new jobs created in the country.
- Contribute almost 50% of our Gross Domestic Product.
- They account for 97.8 percent of all exports. Additionally,
- Larger firms are more likely to create 16.5% more.
All the items that make America what it is.
But, if banks think these companies are too risky, that is OK because, given the spirit of entrepreneurship in this country, other financing firms (lenders) are taking on the challenge to provide small-business loans that banks and traditional lenders cannot afford to take to. Don’t have to worry about getting rejected.
3 Ways to Fund Your Small-Business
1) SBA Loans It’s true that SBA loans must go through banks, which are not lending. But, banks may not be lending to their loan portfolios, but they do lend under SBA’s programs.
Did you know that in the past three years, the SBA has been growing the amount and number of loans under $150,000 they guarantee – even if it is true that banks (who are the originators of these loans) are not approving these loans?
The most up-to-date SBA information.
The SBA guaranteed 14,520 loans under $150,000 in 2012, for the sum of $802 million. Two years later, the SBA increased these loans by granting 16,043 loans with over $955 million. It was a decline from 2013.
This is because the SBA reduced or eliminated charges for loans that were smaller in size. The SBA’s website says:
After a thorough review of the 7(a) Loan Program, the SBA has decided to remove charges for loans that are less than $150,000. As a result, the owner of a small-sized business who gets the loan for $150,000 will save up to $2,500.”
The most important thing to remember is that the SBA will do everything it can to provide financing to small-scale businesses across the country, including yours.
Look for these programs:
The 7(a program can provide nearly any kind of business loan, ranging from working capital to commercial real property.
The CDC/504 program is primarily focused on equipment and real estate loan. This program is great if you have a business that needs one of these programs less than $150,000, which includes renovations.
The express program – limited to $350,000, it is a great program. Access to quick and simple capital is needed.
Here are a few benefits to SBA loans. The SBA’s guarantee can do several things:
- These are less expensive for long-term borrowing because they can limit the interest rate and other fees.
- Lower down payment requirements – meaning that you can retain more of your cash in your business.
- Long loan terms also allow payments on these facilities to be more affordable. Imagine which loan payment is easier to pay for a $100,000 loan with 10% interest. A bank might need the loan to be paid back over 36 months – making the monthly installment $3,227. The SBA may extend the loan up to six years (72 months), which would make their monthly payment $1853. The smaller the monthly payment is, the easier it will be to cover the current cash flow. This reduces the risk of the loan.
- Express programs significantly accelerate funding, as traditional business loans take months to complete, while those under the express programs can be paid within weeks.
Do not be afraid to ask for an SBA loan.
2) Alternative Lending Alternative loans (non-bank loans) from factoring and cash advances for businesses to loans based on revenue have picked up steam over the last five-plus years.
They are focused on small-sized businesses and have created products that enable them to provide more loans to businesses that traditional lenders would not be able to touch. This is because they do not use outdated and ineffective underwriting standards but instead focus more on technology.
The majority of alternative lenders – especially the leaders in this space – have seen their loan volumes (thus their approval rates) – increasing by 150% or more each year.
Here are some examples: Wells Fargo, the most popular lender according to the SBA, approved and funded $266 million worth of small-business funding in 2013. But, OnDeck Capital, a prominent revenue-based lender nearly doubled that amount over the same time frame. CAN Capital claims that it funded more than 800 million dollars in 2013, surpassing the top 100 SBA lenders.
The loans are not cheap, but they have many benefits. They can be approved even if other lenders do not offer quick financing (in only a few days).
3) New Players Peer-to-peer lending is known for its ability to connect regular people with extra cash to lend with ordinary people who require to take out loans. The loans can be used to serve a variety of purposes, including starting or growing small businesses.
Lending Club, the world market leader in P2P lending, is launching a new small-business loan product. Businesses can take out loans ranging from $15,000 up to $100,000 for very low-interest rates. Their approval and funding are not based upon a standard formula that many businesses don’t have to meet. Instead, they take in your story and decide on the funding request.
There is still a chance to secure capital for your business.
Don’t be swayed by what you hear. Yes, lending for small businesses is tight – when contrasted with the boom years of the mid-2000s. However, that doesn’t mean that you can’t obtain the funding your small-scale business needs to expand, grow or even start your own business.
To determine whether your business is eligible to get business loans, all you have to do is do one thing, and that’s to apply. You won’t know if your company is eligible to receive a loan until you make an application. That’s all you have to do is reflect on the potential progress of your company.