It may be harder to get a small business loan since the 2008 financial crash, but that doesn’t mean it’s impossible. To keep the economy running like a well-oiled machine and keep the American people employed, small businesses need to be able to thrive.
Since 1995, small businesses have generated over 65 percent of new jobs in the US and today they employ over 50 percent of the working population. With statistics like these, it’s imperative that we keep small businesses in the money.
There are a few ways to secure a small business loan, and the options are continuously widening as the financial climate changes.
This one is obvious, as it’s the traditional mode of borrowing. However, with banks getting bigger, they’re becoming the destination for larger loans, not your average small business loans. Banks are more likely to give you a loan if you’re looking to secure a sum over $500,000 generally.
Banks are inclined to take on bigger loan amounts because it costs them the same to underwrite $100,000 as it does $1,000,000, but they get a better return on the latter.
Most banks will also require that you have a credit score of 640 or above before they even consider giving you a loan. If you have a score of 700 or above, you have a much higher chance of securing a business loan from banks.
Small Business Administration (SBA):
The Small Business Administration doesn’t actually loan money, but they will back you when you apply for a small business loan from the bank. Through their most common loan program, the 7(a), they will guarantee your bank a portion of the loan if you happen to default. This mitigates risk for the bank, giving you a better chance of receiving a business loan. Through the 7(a) you can apply for maximum of $5 million.
Alternative lending options are becoming more popular post-recession. Peer to peer lending options or crowdfunding allow you to sign up online, pitch, request a loan amount, and provide your business information. This model allows you to find out within 10 minutes of applying whether or not you qualify. Lenders can either give you offers, or you can receive contributions from many different individuals.
The good news is that it’s much easier to get a business loan from an alternative lender than from a bank. Many alternative lenders allow you to receive cash in hand within about two days, rather than waiting several months on a bank. But, because alternative lenders are more likely to take on the added risk of bad credit, their rates are usually much higher than traditional bank loan rates and you may end up owing more in the long run.
Although the lending atmosphere has become a little more snug since 2008, there are still multiple way to get a small business loan and programs that’ll help you do so.