Small Business Loan Sources:
A little creativity and a lot of determination
can get you the money you need
by Lisa Phillips
March 2008
A little creativity and a lot of determination
can get you the money you need
by Lisa Phillips
March 2008
| Copyright RebuildCreditScores 2008. All Rights Reserved |
Banks often neglect new and small businesses when it comes to financing
and, because of the recent credit crunch, many banks have tightened their
underwriting standards.
The small business owner has to begin to seek alternative small business
loan sources. Being creative and thinking outside the box just may get you
the financing your small business needs. Some ideas to get you started
are listed below:
and, because of the recent credit crunch, many banks have tightened their
underwriting standards.
The small business owner has to begin to seek alternative small business
loan sources. Being creative and thinking outside the box just may get you
the financing your small business needs. Some ideas to get you started
are listed below:
Borrow from Your Savings
Banks and other lenders typically expect small business owners to have
invested at least 30% of their own capital in initial start-up financing.
Tapping into your savings is probably the best method of financing your
business. You can loan the business your money and pay yourself back
down the road. Using your own funds is probably the best method of
financing.
Angel Investor
Angel investors look to invest in businesses that return a higher profit than
a traditional investment. Many angel investors are successful
entrepreneurs who want to help other entrepreneurs get their business off
the ground. Angel investors look for businesses that can compete in an
industry and that have experienced some prior success.
Angel investors usually come at the stage of the business where the
business already has some funding but needs a significant amount more to
take the business to the next level. Funding typically ranges from $150,000
to over $1millon. Financing from an angel investor is going to be expensive.
The costs may range from 10 to 50 percent of a company’s equity. The
angel investor may even charge a monthly retainer in the form of
management fees.
SBA
A good source for a small business loan is the SBA. SBA loans do not come
directly from the Small Business Administration. The SBA assists in
obtaining a loan by guaranteeing the small business loan you get from the
bank. The SBA is not a direct lender. Banks are willing to fund the business
because the SBA says it back the loan in case of default. The SBA
guarantees 80% of the loan. There are different types of SBA loan
programs available.
Community Express Loans
Community Express Loan is administered through the SBA loan program
and is available at selected lenders. This loan program is for pre-
designated geographic areas serving mostly low and moderate income
individuals and new small businesses. The program also includes technical
and management assistance, which is designed to help increase the
chances of success for the small business.
Micro Business Loans
This loan program provides small loans to start-up, home-based or micro-
businesses. It was designed to meet the needs of entrepreneurs who need
financing assistance to start or expand their business. You can borrow as
little as $1,000 up to $35,000. Loans must be repaid within six years. The
SBA provides low-cost loans and grants to non-profit intermediaries such
as community economic development centers which redistribute the funds
to qualified small businesses. General guidelines are established by the
intermediary agency. Read More
Patriot Express Loan
The SBA has launched a new loan program for military service members,
veterans and their spouses called the Patriot Express Loan Initiative. The
Patriot Express Loan builds on the more than $1 billion in loans the SBA
guarantees annually for veteran-owned businesses. The loan can be used
to establish or expand a small business and the maximum loan amount is
$500,000. Read more
Social Lending
Peer to peer lending is not a new concept but the Internet has made it
easier. This type of lending matches borrowers directly with lenders,
circumventing banks and other middle-men. Peer to peer lending is a great
alternative to traditional banks’ stringent automated credit scoring system.
With peer to peer lending, a typical loan could be funded by as many as
100 people, thereby increasing the chances your loan will get funded. This
type of loan is also known as person-to-person lending or social lending.
These types of loans can be a great resource for entrepreneurs.
Read more on Social Lending.
Partnerships
Seek a partner who has the funds to invest. You may have the knowledge
but little money. A partnership can be developed for a short period of time.
You can construct an agreement to buy that partner out at a later time.
Friends and Family
Not surprisingly, more than 50% of all start-up costs for new entrepreneurs
come from friends and family. Friends and family desire to see loved ones
succeed and follow their dreams. If your credit is weak you are more likely
to get a short-term loan from a friend or family member because they
evaluate your character, not your credit scores. This form of lending has
so evolved that there is now a website which will help you facilitate a loan
between friends and family. www.virginmoneyus.com
Borrow money from the Bank or Credit Union
If you are trying to borrow $50,000 then the bank would like to see you that
you have invested $15,000 of your own funds into your venture. I was
recently approached by a new business start-up seeking capital. The idea
was unique and potentially very profitable. The business and marketing
plans were excellent. However, when I asked the business owner how much
of their own money they had invested in the business, to my surprise, the
answer was zero.
The business owner stated they did not want to tie up their own money in
the business. Well, as a potential investor, I am not willing to invest in an
idea that the business owner is unwilling to invest in. Banks and lenders are
the same way. If you don’t fully believe in the profitability of your idea and
put your own money behind it, no one else will. If you are going to approach
a bank be prepared to submit a good solid business plan along with your
some of your own money to invest in the business.
There are some banks that only require financial information and the
process is much quicker. Be prepared to have a good credit score when
using this low documentation method.
Commercial Finance Companies
Commercial Finance Companies finance equipment and inventory
purchases. Small businesses involved in manufacturing and wholesaling
can benefit from commercial finance companies because of their collateral.
Start-up businesses usually cannot qualify for these types of loans because
commercial finance loans tend to be highly collateralized.
These loans can be more expensive than a traditional bank business loan.
For established business these loans can be a good alternative to
traditional banks as their credit criteria is less stringent and commercial
finance companies are willing to take on riskier loans. The assets used to
secure the loan must be immediately accessible and marketable.
Banks and other lenders typically expect small business owners to have
invested at least 30% of their own capital in initial start-up financing.
Tapping into your savings is probably the best method of financing your
business. You can loan the business your money and pay yourself back
down the road. Using your own funds is probably the best method of
financing.
Angel Investor
Angel investors look to invest in businesses that return a higher profit than
a traditional investment. Many angel investors are successful
entrepreneurs who want to help other entrepreneurs get their business off
the ground. Angel investors look for businesses that can compete in an
industry and that have experienced some prior success.
Angel investors usually come at the stage of the business where the
business already has some funding but needs a significant amount more to
take the business to the next level. Funding typically ranges from $150,000
to over $1millon. Financing from an angel investor is going to be expensive.
The costs may range from 10 to 50 percent of a company’s equity. The
angel investor may even charge a monthly retainer in the form of
management fees.
SBA
A good source for a small business loan is the SBA. SBA loans do not come
directly from the Small Business Administration. The SBA assists in
obtaining a loan by guaranteeing the small business loan you get from the
bank. The SBA is not a direct lender. Banks are willing to fund the business
because the SBA says it back the loan in case of default. The SBA
guarantees 80% of the loan. There are different types of SBA loan
programs available.
Community Express Loans
Community Express Loan is administered through the SBA loan program
and is available at selected lenders. This loan program is for pre-
designated geographic areas serving mostly low and moderate income
individuals and new small businesses. The program also includes technical
and management assistance, which is designed to help increase the
chances of success for the small business.
Micro Business Loans
This loan program provides small loans to start-up, home-based or micro-
businesses. It was designed to meet the needs of entrepreneurs who need
financing assistance to start or expand their business. You can borrow as
little as $1,000 up to $35,000. Loans must be repaid within six years. The
SBA provides low-cost loans and grants to non-profit intermediaries such
as community economic development centers which redistribute the funds
to qualified small businesses. General guidelines are established by the
intermediary agency. Read More
Patriot Express Loan
The SBA has launched a new loan program for military service members,
veterans and their spouses called the Patriot Express Loan Initiative. The
Patriot Express Loan builds on the more than $1 billion in loans the SBA
guarantees annually for veteran-owned businesses. The loan can be used
to establish or expand a small business and the maximum loan amount is
$500,000. Read more
Social Lending
Peer to peer lending is not a new concept but the Internet has made it
easier. This type of lending matches borrowers directly with lenders,
circumventing banks and other middle-men. Peer to peer lending is a great
alternative to traditional banks’ stringent automated credit scoring system.
With peer to peer lending, a typical loan could be funded by as many as
100 people, thereby increasing the chances your loan will get funded. This
type of loan is also known as person-to-person lending or social lending.
These types of loans can be a great resource for entrepreneurs.
Read more on Social Lending.
Partnerships
Seek a partner who has the funds to invest. You may have the knowledge
but little money. A partnership can be developed for a short period of time.
You can construct an agreement to buy that partner out at a later time.
Friends and Family
Not surprisingly, more than 50% of all start-up costs for new entrepreneurs
come from friends and family. Friends and family desire to see loved ones
succeed and follow their dreams. If your credit is weak you are more likely
to get a short-term loan from a friend or family member because they
evaluate your character, not your credit scores. This form of lending has
so evolved that there is now a website which will help you facilitate a loan
between friends and family. www.virginmoneyus.com
Borrow money from the Bank or Credit Union
If you are trying to borrow $50,000 then the bank would like to see you that
you have invested $15,000 of your own funds into your venture. I was
recently approached by a new business start-up seeking capital. The idea
was unique and potentially very profitable. The business and marketing
plans were excellent. However, when I asked the business owner how much
of their own money they had invested in the business, to my surprise, the
answer was zero.
The business owner stated they did not want to tie up their own money in
the business. Well, as a potential investor, I am not willing to invest in an
idea that the business owner is unwilling to invest in. Banks and lenders are
the same way. If you don’t fully believe in the profitability of your idea and
put your own money behind it, no one else will. If you are going to approach
a bank be prepared to submit a good solid business plan along with your
some of your own money to invest in the business.
There are some banks that only require financial information and the
process is much quicker. Be prepared to have a good credit score when
using this low documentation method.
Commercial Finance Companies
Commercial Finance Companies finance equipment and inventory
purchases. Small businesses involved in manufacturing and wholesaling
can benefit from commercial finance companies because of their collateral.
Start-up businesses usually cannot qualify for these types of loans because
commercial finance loans tend to be highly collateralized.
These loans can be more expensive than a traditional bank business loan.
For established business these loans can be a good alternative to
traditional banks as their credit criteria is less stringent and commercial
finance companies are willing to take on riskier loans. The assets used to
secure the loan must be immediately accessible and marketable.
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10 Steps to Building Business Credit
Building business credit can be accomplished regardless of your personal
credit history.
Bad Credit Business Loans
The funding sources may be limited for business loans when you have bad
credit but they are existent.
Business Opportunities
Home-based business opportunities. Earn extra income from your computer.
Getting a Business Loan without a Business Plan
Increasingly small business owners are bypassing tradition and obtaining
financing without a business plan.
Building business credit can be accomplished regardless of your personal
credit history.
Bad Credit Business Loans
The funding sources may be limited for business loans when you have bad
credit but they are existent.
Business Opportunities
Home-based business opportunities. Earn extra income from your computer.
Getting a Business Loan without a Business Plan
Increasingly small business owners are bypassing tradition and obtaining
financing without a business plan.
More Resources
Related Topics
 | Bad Credit Business Loans | |
| 8 Steps to Start a Business | |
| How to Structure your Business | |
| Social Lending for Business Loans | |
| Business Loans for Veterans | |
