It might not feel like it, but there really are more business loan options available today than ever before.
The challenge is identifying the right financing to fill your business need.
Why do I need the business loan?
That should be the first question because it will drive where you look. Do you want to buy equipment, purchase inventory, or expand your place of business? Loan purpose will help narrow down where you’ll look. It might even point you in a different direction than where you originally thought.
Most people still think of the bank when they need a small business loan. After all, it’s where they have their business checking account, maybe even a credit card or two. The bank is still a good place to look within a set of very narrow parameters, but it might not be the best place to look if you don’t meet the right criteria or have the right loan purpose.
For example, if your business is a few years old, you have a very good personal and business credit profile, your annual revenues exceed $2 million, and you’re looking to borrow $500,000 or more, the bank could be a good fit. It may not be the right place to look, however if your business is young, you don’t have a strong personal credit score, or you only need $50,000.
Technology is changing small business lending
Fortunately, the same type of technological innovations that changed the way we shop, the way we buy an airplane ticket, or the way we hail a cab is changing the way many business owners are finding a small business loan. A new group of lenders is using technology to make more money available to small business owners, make the process easier, and put it in their hands faster than ever before. One of the ways they’re doing it is with loan products designed to fit specific needs with terms more suitable for those specific loan purposes.
For example, a loan designed to purchase equipment that can be amortized over several years might not be the same type of financing a business owner would need to purchase inventory at a discount or cover a short-term cash flow hiccup. An equipment lease or other longer-term financing option might be the best fit for the former, while a short-term loan or line of credit that allowed the borrower to take advantage of a six-month or 12-month term could be a better fit for the latter.
How long have I been in business and how much am I looking for?
Most traditional lenders, like the bank, just don’t work with a business owner that doesn’t have a few years under his or her belt. And, most online lenders want to see at least a year. You might think that leaves startups out in the cold—but it doesn’t. Non-profit lenders and crowdfunding platforms are offering new credit options for business owners with a great idea. With crowdfunding, if you can mobilize a group of fans to each contribute a relatively small amount of money to your business idea or new product, it’s possible to generate a substantial amount of capital—regardless of how long you’ve been in business or whether you have a great credit profile or not.
If your young business is able to leverage a small amount of money—say $5,000—into a larger business impact, a non-profit, micro-lender could be a real option. Some of this financing even comes with a very low- or no-interest loan. Of course you’ll need to do some homework to determine which lender is right for you, but knowing where to start looking will help you save a lot of time.
The SBA offers startup financing through their member banks or credit unions, but they’ll likely want to see a personal credit score of at least 650, may require collateral and ask for a business plan. If that describes you and your business, their new LINC tool will help you find the SBA lender nearest you who works with businesses like yours.
If you’ve been around for at least a year, an online lender might also be a good option to consider. Easy online applications and a loan approval answer in a few minutes (instead of weeks or even months) make online loans a good option for many business owners. What’s more, they typically don’t require the same rigid credit requirements of the bank and can often have funds deposited into your account as quickly as within 24 hours.
Asking yourself the right questions can help you narrow down your search and might even save you a lot of time. If you can determine your loan purpose, how much capital you’re looking for, and how long you’ve been in business, it will help you determine where to look and where your odds of success might be the greatest. It might even help you find a lender who will say, “Yes.”
If you’d like to dive a little deeper and get an even better idea of where the best place might be to look for a loan, click HERE to take our Fundability Quiz. These 12 straightforward questions will help point you in the right direction to determine which loan type could be a good fit for your business and your situation.