Now, when we talk about small business loans, we mean just that: small business loans. We’re not talking about a $1 million loan to buy commercial real estate or $500,000 to buy an investment property. We’re not talking about a $3 million line of credit just to show equity on a balance sheet. And we’re not talking about a $250,000 equipment loan to a regional construction company.
We’re talking about real small business credit: loans under $150,000. Amounts of capital that the 22 million small businesses in this country could use at some point for working capital, to relocate, buy inventory, trade, meet payroll, develop new products, or simply have the capital available to purchase and satisfy customers (what the business is really about).
But we have heard ad nauseam that banks are simply not lending to small businesses, claiming there is too much risk in smaller businesses. As a result, many small businesses no longer even apply for credit for fear of being turned down. And, as a result, we’re seeing small businesses fail to reach and realize their full potential, essentially missing out on profitable opportunities.
However, just because banks don’t see the true value in small businesses doesn’t mean others don’t, others who are willing to do what they can to finance your business.
The benefits of small business
There are about 22 million small businesses in the US and they are pretty powerful.
According to the Small Business and Entrepreneurship Council, small businesses;
- Provide two-thirds of all new jobs in the nation.
- Contribute almost 50% of our Gross Domestic Product.
- They represent 97.8% of all exports. Y,
- Create 16.5% more innovation than the largest companies.
All the items that help make America the country that it is.
But if the banks think these companies are too risky, that’s okay, because given the entrepreneurial spirit in this country, other financial companies (lenders) are stepping up to cover small business loans that banks and lenders traditional will not cover. So now, you no longer have to be afraid of being rejected.
3 Sources That Will Fund Your Small Business
1) SBA loans: Sure, SBA loans have to go through banks, which don’t make loans. However, banks may not be lending for their own loan portfolios, but instead are lending under SBA programs.
Did you know that in the last three years, the SBA has increased the number and dollar amount of loans under $150,000 that they support, even as the banks (who originate these products) don’t approve them?
From the most recent SBA data;
In 2012, the SBA guaranteed 14,520 loans under $150,000 for a total loan amount of more than $802 million. In 2014 (two years later), the SBA increased the number of these loans to 16,043 with a total volume of $955 million, with one year off in 2013.
Part of this increase is due to the fact that the SBA has reduced or waived its fees on these smaller loans. From the SBA website:
“The SBA determined to waive fees on loans of $150,000 or less after conducting a review of the 7(a) Loan Program. As a result, a small business owner who obtains a $150,000 loan will save more than $2,500.”
Simply put, the SBA is doing what it can to finance small businesses in this country, including yours.
Programs to look for:
The 7(a) program offers just about any business loan under the sun, from working capital to commercial real estate.
The CDC/504 program only focuses on real estate and equipment loans. But, if your business needs any of these under the $150,000 amount, including renovating your location, then by all means, this is a great program.
And the express program, which is capped at $350,000, is a great program. Quick and easy access to the necessary capital.
Now for some quick benefits of SBA loans. The SBA guarantee does several things:
- By capping interest rates and fees, these products tend to be cheaper for the borrower in the long run.
- Lower down payment requirements, which means you can keep more of your own money in your own business.
- Long loan terms also make these facility payments more affordable. Imagine what loan payment would be easier to make on a $100,000 loan at 10% interest. A bank may require that the loan be repaid over 36 months, making the monthly payment $3,227. While the SBA could extend the term to 6 years (72 months) by making your monthly payment of $1,853. The smaller the payment amount, the easier it will be to cover it with current cash flow, making the overall loan less risky and easier to approve.
- Express programs can significantly speed up funding, as some traditional business loans can take months to close, while express programs can be funded in a matter of weeks.
If you’ve been afraid to apply for an SBA loan, remove it and apply!
2) Alternative loans: Alternative loans (non-bank loans) from factoring and business cash advances to income-based loans have really gained momentum in the last 5+ years.
These lenders focus solely on small businesses and as such have created products that allow them to approve more business loans that traditional lenders will not touch, not by using old and outdated underwriting standards but by focusing more on technology.
Most alternative lenders, especially the leaders in this space, have seen their loan volumes (hence their approval rates) increase by 150% or more year over year.
A couple of examples: According to the SBA, its largest lender, Wells Fargo, approved and financed just over $266 million in small business financing last year. However, OnDeck Capital, a leading income-based lender, nearly doubled that amount during the same period. Additionally, CAN Capital claims to have financed more than $800 million in 2013, far exceeding even the SBA’s top 100 lenders combined.
While these loans are high-cost loans, they offer several benefits, such as approvals when other lenders say “no,” as well as fast financing (within days).
3) New players: Peer-to-peer lending is known for its ability to match normal people who have extra money to lend with normal people who need a loan. These loans are typically personal loans that can be used for almost any purpose, such as starting or growing a small business.
However, just this year, Lending Club, the leader in P2P lending, began offering a true small business loan product where businesses can borrow anywhere from $15,000 to $100,000 at low rates. And your approval and funding isn’t based on a standard formula that most companies just don’t follow, but instead comes from ordinary people listening to your story and deciding for themselves the merit of your funding request.
conclusion
The capital for your business is still available.
Don’t always believe what you hear. Sure, small business loans are tight, compared to the heyday of the mid-2000s. But that doesn’t mean you still can’t get the financing your small business needs to start, grow, and succeed.
To truly find out if your business qualifies for a business loan, all you have to do is one thing: apply. But, if you don’t apply, you’ll never know for sure and then all you can do is ponder how far your business COULD have come.
