Now, when we talk about small business loans, we mean just that - small business loans. We are not talking about a $1 million loan to purchase some commercial real estate or $500,000 to buy some investment property. We are not talking about a $3 million credit line just to show capital on a balance sheet. And, we are not talking about a $250,000 equipment loan for a regional construction company.
We are talking about true small business credit - loans under $150,000. Capital amounts that the 22 million small businesses in this country could use at some point in time for working capital, to renovate their location, purchase inventory, marketing, meeting payroll, developing new products or to simply have the capital on hand to acquire and satisfy customers (what business is really about).
But, we have heard ad nauseam that banks are just not lending to small businesses - claiming there is too much risk in smaller firms. So, many small companies are not even applying for credit anymore out of fear of being turned down. And, as a result, we are seeing small businesses not reach for or obtaining their full potential - essentially letting profitable opportunities slip by.
However, just because banks don't see the true value of small companies, that does not mean that others don't - others who are willing to do what they can to fund your business.
The Benefits Of Small Business
There are some 22 million small businesses in the U.S. and they are quite the power house.
According to the Small Business and Entrepreneurship Council, small businesses;
Provide two-thirds of all new jobs in the nation.
Contribute almost 50% to our Gross Domestic Product.
Account for 97.8% of all exports. And,
Create 16.5% more innovation than larger firms.
All items that help make America the country that it is.
But, if banks think these firms are too risky, that is OK, because given the entrepreneurial spirit in this country, other financing firms (lenders) are stepping up to cover the small business loans that banks and traditional lenders will not. So now, you don't have to be afraid of being turned down anymore.
3 Sources That Will Fund Your Small Business
1) SBA Loans: Sure, SBA loans have to go through banks - which are not lending. However, banks might not be lending for their own loan portfolios but they are lending under the SBA's programs.
Did you know that over the last three years, the SBA has been growing the number and dollar amount of the under $150,000 loans they back - even given that banks (who originate these products) are not approving them?
From the latest SBA data;
In 2012, the SBA guaranteed 14,520 under $150,000 loans for a total loan amount of over $802 million. In 2014 (two years later), the SBA increase the number of these loans to 16,043 with a total volume of $955 million - with a down year in 2013.
Part of this increase is the fact that the SBA has reduced or waived its fees on these smaller loans. From the SBA's website:
"The SBA determined to eliminate the 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 obtaining a $150,000 loan will save more than $2,500."
Bottom line - the SBA is actually doing what it can to fund small businesses in this country - including yours.
Programs to look for:
The 7(a) program offers nearly any business loan under the sun from working capital to commercial real estate.
The CDC/504 program only focuses on real estate and equipment lending. But, if your business needs either one of these under the $150,000 amount - including renovating your location - then by all means as this is a great program.
And, the express program - which is capped at $350,000 - is a great program. Quick and easy access to needed capital.
Now, for some quick benefits of SBA loans. The SBA's guarantee does several things:
By capping interest rates and fees, these products tend to be cheaper in the long-run for the borrower.
Lower down payment requirements - meaning that you can keep more of your own money in your own business.
Long loan terms also allow payments on these facilities to be more affordable. Just image which loan payment would be easier to make on a $100,000 loan at 10% interest. A bank may require the loan to be repaid in 36 months - making the monthly payment $3,227. While the SBA could extend the term to 6 years (72 months) making their monthly payment $1,853. The lower the payment amount, the easier it is to cover with current cash flow, making the overall loan less risky and easier to get approved.
Express programs can significantly speed up funding as some traditional business loans can take months to close while those under the express programs can be funded in the matter of weeks.
If you have been fearful of applying for a SBA loan, knock it off and go apply!
2) Alternative Lending: Alternative loans (non-bank loans) from factoring and business cash advances to revenue based loans have really picked up steam over the last 5 plus years.
These lenders are focused solely on small businesses and as such have created products that allow them to approve more loans to companies that traditional lenders will not touch - by not 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 (thus their approval rates) - increase by 150% or more year after year.
A couple of examples: According to the SBA, their largest lender - Wells Fargo - approved and funded just over $266 million in small business financing last year. However, OnDeck Capital, a leading revenue based lender, nearly doubled that amount over the same period. Further, CAN Capital claims to have funded over $800 million in 2013 - far out pacing even the top 100 SBA lenders combined.
While these loans are high-cost loans, they offer several benefits like approvals when other lenders say "no" as well as quick (in the matter of days) funding.
3) New Players: Peer-to-peer lending is know for its ability to match regular people who have extra money to lend with regular people who need to borrow. These loans are typically personal loans that can be used for nearly any purpose - like starting or growing a small business.
However, just this year, Lending Club - the leader in P2P lending - has begun to offer a true small business loan product where businesses can borrower anywhere from $15,000 to $100,000 at low rates. And, their approval and funding is not based on some standard cookie cutter formula that most businesses just do not meet but comes from regular people who listen to your story and decide for themselves the merit of your financing request.
Conclusion
Capital for your business is still available.
Don't always believe what you hear. Sure, small business lending is tight - when compared to the hey days of the mid-2000s. But, that does not mean that you still cannot get the funding your small business needs to start, grow and succeed.
